Most of comments here are based on the assumption that OTPP would like to walk away from this deal. Is this really true? First we have to ask why OTPP would like to buy BCE? The whole buyout deal would cost around 34B and OTPP only put down 3B, and borrow 31B to finance the deal.
BCE's current revenue was 17.8B, and net income after tax was 4B after tax (2007). Its totally liability was around 20B (2007). If the average interest rate for the new debt is around 8% , the total extra interest cost is around 2.5B. Depending on the BCE's tax rate, this cost could be reduced to 2B or less after the tax savings. BCE will end up around 2B net income per year after the privation. This has not count any savings from reorganization and productivity increase. That's 66% annual return on 3B investment. You tell me who got the most from the deal?
We all know we are entering a recession, but would this recession impact BCE's revenue? It might but not as greatly as other companies. BCE is a very defensive company in recession. The last thing people want to save in the recession is to cut the phone communication. Even with 10% decrease of the income, OTTP could still end up 60% return. Also in current credit market, OTTP would never get such finance deal from any banks.
I was also wondering why the OTPP would walk away from this deal. They already lost ~ $800 million due to the stock drop a few weeks ago, could lose another $1.2 billion in the break-up fee, will probably lose control of the company since Cope will be ousted, and will lose another $1.2 billion + on dividend payments. Not to mention that nobody at BCE will let them make another run at the company in the forseeable future. This seems a high price to pay to save the banks from their bad business decisions.
As for buying the company in the open market, they will need a lot more than $3 billion to purchase control of BCE. Once they file they are increasing their stake with the SEC, the share price will rise as they aquire more equity.
OTF will just increase their stake on the open market at a discounted price. I'm very confident that will happen. You think their hand picked CEO is going to introduce poison pill amendments?
Teachers has huge LONG-TERM pension liabilities to pay. They are not deploying their capital in treasuries. Once BCE is officially dead, OTF will be re-deploying their reserved funds while prices of blue chip Canadian stocks are still cheap. BCE, the banks, the major oil companies... there's no shortage of stocks on sale vs. their long-term prospects for profitability. Teachers might even arrange some of their own leverage. Borrowing rates are at 50 year lows. While the wiggled out of this deal, they at least seem to have somem balls, unlike other fund managers who are 50% cash and charging you management fees for their wise conservatism.
The solvency ruling can be issued by any accounting firm that is agreed on by the Teachers and BCE. BCE has engage PWC and they returned a positive solvency picture. Based on this we will see how much the Teachers actually want this Company.
I thought the same thing when the PWC opinion came out. And I think your comment is spot on, but there is one additional wrinkle.
We don't know what the financing docs between the banks and the buyers contain in terms of preconditioning any funding on a solvency opinion.
If the financing docs say KPMG must deliver the solvency opinon, Teachers could still want to proceed but not have the ability to make this happen.
Banks simply can't afford to be in at any price.
No banks, no buyout, period.
The deal didn't make sense from the beginning. Only BCE (officers and shareholders) were winning but only for a very short period of time.
As soon as this buyout would have been consumed, it would have been a catastrophe. No company can survive with so much debt on their shoulders.
Shareholders who didn't sell their shares at the time of the offer can only hope that time will heal the wounds. But it will take a very long time before you see any price close to $42.
At around $18, it is a very good deal if you have some patience. Tomorrow we could see another drop when the official death will be announced, but it should be temporarily.