The big news for Friday morning was that the off-again, on-again BCE deal will likely go through at the originally announced price of $42.75/share. An announcement was made that the financing group and the buying consortium have finalized talks and a closing by December 11th, 2008 is in the cards. The original announcement of the buyout was just over a year ago but since then a lot has happened.
1. The Bondholders were upset that their bonds’ prices dropped and risk levels increased since the deal is a leveraged buyout, meaning the new entity would have a lower credit rating (and hence the bonds would be riskier to own) without any extra reward. They took to legal action, which found in their favour initially, but was then overturned by the Supreme Court of Canada.
2. The financing group (providing the lending) negotiated the terms of the deal right before the credit crisis happened. All of a sudden, providing financing was a bigger pill to swallow than before. Everyone was speculating that the banks would ask for a higher effective interest rate and/or a re-pricing of the deal so they wouldn’t have to lend as much.
So now, all of this has been addressed with Friday’s announcement that all groups are now on-board with the original $42.75/share deal price.
You may not know that BCE had cancelled their last dividend payment, and will likely miss a second before the deal closes. In fact, it seems that this is part of the new financing deal. This is hardly chump change. BCE pays a quarterly dividend of $0.365/share and there are 805,712,000 shares outstanding. That means that every quarter they were paying $294,084,880 in dividends to shareholders. Over 2 missed dividend payments, that equals $588,169,760.
Since the money stays on the balance sheets instead of being paid out, the buying group basically has that much more cash on hand when it takes over the company – which means it effectively has to borrow less money from the financing group, which means the deal actually was re-priced when you really think about it. Everyone will focus on the $42.75 – but I think of it as more like $42.02 ($42.75 less two quarterly dividend payments of $0.365 each).
I imagine once the deal closes, there will be some major assets sold off in 2009.