Teachers’ Bell Canada Purchase Not Done Deal, Analyst Says
Bell Canada Enterprises may have agreed Saturday to a buyout, but that decision is by no means final, Seaboard analyst Iain Grant told Communications Daily. Teachers Private Capital, Providence Equity Partners and Madison Dearborn Partners agreed Saturday to pay $48.5 billion cash to acquire Bell Canada Enterprises (BCE) in a private equity transaction larger than last May’s $27.5 billion Alltel buy and the largest in Canadian history, BCE said. But shareholders have not approved the deal, and now that losing bidders know the price another offer could arise, the Montreal-based analyst said.
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BCE still has a “fiduciary obligation” to listen to superior proposals, BCE CEO Michael Sabia said. That could happen, Grant said. The two losing bidders, Canada Pension Plan Investment Board (CPPI) and New York-based Cerberus Capital Management, could ally to bid, he said. Though Telus pulled out last week due to problems it had with the auction process, it is “not any less interested” than before, Grant said. Telus must decide if the savings from the buyout exceed the $48.5 billion on the table, he said. If BCE takes another offer, it will have pay a $751 million break-up fee, BCE said. CPPI and Cerberus did not comment by our deadline. Telus declined to comment on whether it would consider making a new offer.
The deal is subject to approval by the Canadian Radio-TV and Telecom Commission (CRTC), Industry Canada and BCE shareholders, BCE said. CRTC must approve transfer of BCE’s broadcast license; Industry Canada must approve transfer of spectrum licenses. The deal is not expected to be a problem for regulators, since questions of foreign ownership or competitive impact do not pertain, Grant said. Canadian foreign ownership restrictions cap non-Canadian companies’ participation at 47% equity, but that obviously would not apply to Canadian Teachers Private Capital. And the Teachers agreement has less chance of competitive regulatory problems than a Telus deal would pose, Sabia said. Shareholders mark the main threat to the transaction’s closing, Grant said. Catalyst Asset Management, which last week announced its own BCE proposal, recommended Saturday that shareholders reject the sale. Catalyst wants BCE shares to be exchanged one-for- one for stapled securities, consisting of a common share and a debt instrument, an idea it said would provide more value to BCE shareholders, it said. “The Catalyst Proposal will preserve Bell Canada as Canada’s most widely held public company and in so doing will maximize Ottawa’s tax collection base by preserving Bell Canada’s large base of taxable investors unlike the sale to private equity whose principals are non taxable pension funds and/or taxpayers in foreign tax jurisdictions,” it said in a statement.
BCE officials voiced elation at the Teachers agreement in a Saturday conference call. The “like-minded” Teachers/Providence/Dearborn buyers are long-term investors with a “deep understanding” of the BCE business, Sabia said. Sabia said the buyers indicated they don’t intend management changes; the agreement will give shareholders a 40% premium over shares’ undisturbed average trading price first quarter 2007. “The [BCE] Board has recognized our commitment to BCE’s ongoing growth potential,” said Jim Leech, Teachers Private Capital senior vice president. “BCE shareholders, Canadian consumers and employees … will benefit from this transaction.” The process will take 6-9 months to complete, finishing first quarter 2008, BCE said. If the deal is approved, BCE equity ownership would be: Teachers Private Capital 52%, Providence 32%, Madison Dearborn 9% and other Canadian investors 7%, BCE said.