Does the Clear Channel Settlement Spell Trouble for BCE?

by: Mark McQueen posted on: May 14, 2008 | about stocks: BCE / CCU    
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As BCE Inc.'s (BCE) stock rose more than C$1/share on meaningful volume Monday, I was grappling for the answer. But, according to the Wall Street Journal, the LBO of Clear Channel (CCU:NYSE) may be back on the rails, after a series of legal skirmishes (see prior posts “Maybe BCE Ontario Teachers needs JP Morgan” April 30-08 and “Clear Channel ruling will boost BCE shares” March 27-08).

You may ask yourself what that has to do with the OTPPB takeover of BCE, but that would mean you haven’t been paying attention. The lending syndicates are similar, as has been highlighted in many forums, so the pending death of the Clear Channel deal was seen to be a bad omen for BCE.

As such, with the wind back in the sails of the Clear Channel deal, BCE is rallying - jumping nicely for the first time in weeks.

But, not so fast. To get the CCU deal done, the WSJ is reporting a 10% price cut to the original buyout price of C$39.10. We’ve ruminated about a BCE price chop in the past (see prior post “Are sad days ahead for BCE shareholders?” February 14-08).

I certainly can see why investors take the CCU news to be positive for BCE, but for the parallel to be entirely accurate, one needs to apply a 10% cut to the proposed C$42.75 BCE going-private price, don’t you? At least some type of haircut.

C$42.75 less 10% = C$38.50. The stock closed at C$38.10. We’ve been concerned about the risk/reward profile of the takeover game, and I’m not sure the risks are diminished right now. They may have been altered, but have they been diminished?

The chances of the deal closing appear to be higher than in recent days. But at C$42.75?

There is still probably more money to be made from Research In Motion (RIMM) over the next few weeks, just as there was on April 18th at C$122 (see prior post “BCE put options tell a story” April 18-08), than BCE right now. Not that a C$4.65 bump wouldn’t be nice if the deal closes at the original C$42.75 price, but the odds of that are...?

Disclosure: I own BCE {RRSP} and RIMM.

This article has 3 comments! Add yours below...
Mark McQueen

Mark McQueen

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This article has 3 comments:

  •  
    canadianarb
    May 14 11:51 AM
    finally, someone who gets it.
  •  
    Chimo
    May 14 04:36 PM
    A deal is a deal. Reducing the agreed price would have to be approved by stock holders and then it could be opened to other bidders - Telus. Do the Teachers really want to open a can of worms. The deal will be done at the set price!!
  •  
    northern
    investor
    May 14 08:18 PM
    I agree with Mr. McQueen. RIM is just one of many venues for easier money than the BCE deal. The bondholders can still drag this on for at least six months by appealing to the Supreme Court, the banks may stall for a better deal and the list goes on. The number of potential roadblocks just does not merit hard earned funds remaining on the table in this stinking deal. It was handled poorly from the beginning...rather like the telephone service Bell sometimes gives. However the fault is with Teachers in this case who failed to honestly deal with the bondholders grievances and with the banks difficult position. Teachers answer has been to litigate. That is great news for their lawyers but really lousy for shareholders who with this deal have the patience of a saint! The truly laughable aspect of this deal has been the number of hedge funds in the USA who have been scrutinizing and chasing this deal as though it were the last one on earth. I have learned from this one that they are not as sophisticated or smart as they have pretended to be!
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