BCE Inc.'s LBO: Board Should Take C$36, Forget about Break Fee
With so many investment banks advising on each side of the BCE (BCE) leveraged buyout (LBO), each of whom stood to gain tens of millions of dollars in fees should the largest going-private in the world eventually close, why did none of them figure out that BCE wouldn’t be “solvent” under the proposed capital structure? Perhaps that wasn’t their job, after all. Once you win the mandate, even the continent's greatest domestic and international i-bankers don’t always tell their clients what they fear isn’t welcome news: such as, “your proposal is C$3 billion short in the equity box”. Sorry to break it to you, but your forecast IRR isn’t attainable. At least not if the business is to be technically solvent at closing.
That being said, if BCE’s Board of Directors is truly focused on the little guy, it is premature for them to be pursuing the C$1 billion break fee from the OTPPB-led equity syndicate. The better course of action would be to re-cut the deal, just as OMERS and Teranet (TNTIF.PK) did a few days ago. If KPMG didn’t think the business was stable at a C$42.75 going-private price (at least not without an additional tranche of equity), there must be some price at which the proposed equity level would work.
Think about C$36, for example. A C$5.4 billion reduction in the proposed LBO price (and requisite debt level) might not require OTPPB et al to contribute more equity to the deal, and it is substantially less debt for the four lead banks to put up than they had originally agreed to. Less leverage going in makes the post-deal capital structure easier to syndicate to other banks around the world. The IRR won’t be dramatically different for the merchant bankers, or at least the risk profile of the deal will be reduced with a meaningful drop in leverage.
The BCE Board might not think C$36 will cut it, but ask yourself this: if none of this had ever happened, and someone came along and offered a 50% premium to the current C$24-ish quote, would it be rejected in this market? I doubt it. Just ask the Teranet shareholders who gladly took C$10.25 off a pre-bid C$8 quote, which was a far weaker premium than 50%.
As for the bank syndicate, I know the story is simple. They were contractually obligated to do the deal at $42.75, but not on any other basis. That’s fair enough, but if banks are prepared to back the Teck (TCK) / Fording (FDG) deal with ~C$9B of debt, why not this one? At least if it can be done on terms that reflect the current economic environment and not the one we all knew in June of 2007.
Alas, it may well be that deal fatigue has set in, but let’s give it one last shot. After more than 18 months of trying, and something like C$244 million of fees already in the pockets of various advisors, it seems a shame to let it all fritter away. There’s a deal here. Folks just have to want it.
Disclosure: I own BCE.
Related Articles
|
Top Rated Comment Streams:
-
1.Hedged In662
- 2.
-
3.Smarty_Pants417
-
4.axelrod608312
-
5.cos1000277
- Free E-Newsletters
- About Seeking Alpha
- About Us
- Contact Us
- What's New
- Readers Feedback
- Advertise With Us
- Contributors
- Contribute an Article
- Feature Your Book
- Our Contributors
- Anonymous Contributions
- Dispute an Article?
- Legal
- Terms of Use
- Privacy
- Copyright
This article has 4 comments:
-
User 138602
-
130 Comments
Dec 01 08:44 AM-
John Seaton
-
7 Comments
Dec 01 01:15 PMMark--you just don't get it. You and other Bay Streeters are playing with the teachers pension money. Where are your ethics? Is this how you treat people who cared for you and taught you when you were young?
We are pissed off about this. I am encouraging all teachers to join togather to put a stop to this by replacing the management and board
at the Teachers Pension Plan organization. This is the team that got us into this BCE deal and set it up so we will have a huge penalty to
pay to get out of it. We need a new team that is more conservative in management style for the current investment situation. This BCE deal was built on egos gone wild not on reason. Teachers contact your
Federation and let them know your thoughts about a meeting to take control of your money..
-
Watcher001
-
1 Comment
Dec 03 01:02 PMIf it is, then here's my reply to you, John:
You truly are a hypocrite! How many times in the last twenty years have the teachers used strikes etc. to extort ever increasing amounts of money from the taxpayers? I'll suppose you'll call it fair compensation. I don't agree.
Here's another question Mr. Teacher. Why do you think you deserve a gold plated pension plan indexed to inflation and guaranteed by the Province of Ontario while the rest of us, who pay your bills, get no where near this! Some of us have nothing at all.
You're pissed off? What about us you narcissist?
As a closing observation, I find it truly strange that few teachers complained when their much vaunted OTPP grew ever fatter by the day until it eventually reached $108 Billion in assets. Now things have turned sour and you want out. Not much surprise here.
-
John Seaton
-
7 Comments
Dec 08 02:19 PMYou hid your comments behind a code name so you don't have to be accountable for your opinions--coward, note that I sign my name.
You seem to mix two complaints--excess salaries and the desire to protect what teachers have in our pension.
On the first point you and your various governments paid these salaries over the years--probably because some enlightened citizens thought that buying the best talent to teach the next generation was important. Remember that in a democracy the majority makes the decisions.
On the second point we as a group are sharp enough to know a bad deal when we see it. Judging by the losses some have incurred on BCE some others were not so sharp. If they had done due diligence and looked beyond the ratios etc they would have seen what main street sees. Please google BELL SUCKS, BELL PROBLEMS or BELL KEVIN CRULL and see for yourself the hate that is out there for BCE. It will take years if ever to regain the trust of customers.
It is true that the management of Teachers has done an excellent job over the years gaining returns that you have probably not obtained yourself. Now we have a new pension team investment leader and it is important to perhaps reduce the aggressiveness of the fund in the short term. Now is not the time to gamble on a dog like Bell. I hope you don't have anly BCE shares as they are even lower now. We are not that stupid to pay $42 a share for shares that keep tanking. If our team does not get the message and change strategy for the times then they must be replaced. We don't want to lose what we have. The fund is still underfunded so we will likely in the future have to share what we get so everyone will get something.
Wait until the our retail tenants start failing and vacate the retail space we own. You might get the last laugh.
Happy Holidays watcher 001
John Seaton
On Dec 03 01:02 PM Watcher001 wrote:
> So the financial community, and by extension retail investors such
> as myself, are greedy at the expense of the poor teachers? Is this
> what you're saying Mr. Teacher?
>
> If it is, then here's my reply to you, John:
>
> You truly are a hypocrite! How many times in the last twenty years
> have the teachers used strikes etc. to extort ever increasing amounts
> of money from the taxpayers? I'll suppose you'll call it fair compensation.
> I don't agree.
>
> Here's another question Mr. Teacher. Why do you think you deserve
> a gold plated pension plan indexed to inflation and guaranteed by
> the Province of Ontario while the rest of us, who pay your bills,
> get no where near this! Some of us have nothing at all.
>
> You're pissed off? What about us you narcissist?
>
> As a closing observation, I find it truly strange that few teachers
> complained when their much vaunted OTPP grew ever fatter by the day
> until it eventually reached $108 Billion in assets. Now things have
> turned sour and you want out. Not much surprise here.