BCE could get real interesting!
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theglobeandmail.com
Rumours of Onex-led hostile takeover boost BCE shares
By ERIC REGULY and ANDREW WILLIS
Globe and Mail
Shares of BCE Inc. jumped above $42 yesterday, just shy of their 52-week high, on speculation a hostile takeover bid is planned for Canada's largest communications and media group.
The rumours, circulating for months, picked up momentum this week and became more specific. Traders and analysts said the talk centres on a $48-a-share bid from a group quarterbacked by Gerry Schwartz's Onex Corp. The rumours have helped lift BCE shares from about $35 in October to yesterday's close of $42.25. Volume was 3.8 million shares yesterday, just slightly higher than normal but unusually high for a day in which American investors were off for the Thanksgiving holiday. Executives at Onex said yesterday that they do not comment on rumours.
The speculation is Onex might lead a group that includes Rogers Communications Inc. and Telus Corp., both of which have interests in wireless communications and local phone networks that dovetail with BCE's portfolio. At current market prices, a full-blown takeover of BCE would cost more than $27-billion and a takeover premium of 30 per cent or more would raise that to about $35-billion. A number of analysts, though, calculate the conglomerate trades at a substantial 20-per-cent discount to the value of its underlying assets, which include Bell Canada, Bell Mobility, CTV Inc., Sympatico-Lycos Inc., BCE Emergis Inc. and Teleglobe Inc. BCE is buying a controlling stake in The Globe and Mail in a deal scheduled to close in January, and plans to fold it into a new media company that will be partly owned by Thomson Corp. and the Thomson family.
While the gap between the underlying value of BCE's holdings and its market capitalization is large, it has narrowed from 30-per-cent levels last year, prior to the company's spinoff of Nortel Networks Corp. BCE chief executive officer Jean Monty has repeatedly told investors he will continue to take steps to narrow the discount. "If you had a nasty, suspicious mind, you could look at some of BCE's recent moves and say they're acting to preclude a hostile bid," said one banker who has worked with the conglomerate in the past. He pointed to the introduction of a poison pill at BCE last year, the spin off of Nortel in the spring, an ongoing share buyback program and last month's decision to split the company into four distinct divisions.
Senior BCE officials have admitted privately that they fear a hostile takeover and that Mr. Schwartz, who took failed runs at John Labatt Ltd. in 1995 and Air Canada last year, was one of the few Canadian businessmen with the financial clout and chutzpah to take on big, unco-operative targets.
"My understanding is that Onex took a look at BCE some time ago, but the thing about the Onex guys is that they take a look at everything," said an investment banker who has worked with the leveraged buyout firm in the past. He added: "My sense is Gerry would be cautious about a hostile bid in Canada that comes with a lot of regulatory fur, when there's so much he can do in the U.S. right now." Other analysts downplayed the hostile-takeover scenario, noting that buying BCE makes no sense unless it could be broken up and sold at a higher price. But Bell Canada, the country's largest phone utility, could not be sold to non-Canadians because of foreign-ownership restrictions that the federal government will probably not relax in the near future.
Also, a 20-per-cent stake in Bell Canada is already owned by SBC Communications Inc. of San Antonio, Tex. — the parent of both Southwestern Bell Corp. and Pacific Bell. One investment banker who has worked with BCE said: "It's hard to imagine doing a deal that involved Bell without SBC's support." Selling Bell Mobility, the mobile-phone company, would also be a problem because it is now part of Bell Canada. And BCE Emergis, the e-commerce company, would be a hard sale because much of its business is tied to Bell Canada.
Finally, Teleglobe, BCE's international communications network, is posting weak results because of strong competition and high costs. One analyst called Teleglobe a "poison pill" at BCE, because it is probably not worth what BCE paid.
Some observers said BCE's ongoing restructuring is an equally plausible reason for the shares' recent strong performance. The decision to spin off Nortel at the top of the market is now widely applauded, as is Mr. Monty's ruthless cutting of capital and resources to companies that are no longer considered essential to BCE's strategy. |
