BCE takeover part 5

The announcement has just come out, and the BCE (BCE:TSX) board of directors has accepted that the writing is on the wall. It may come as a surprise to some, but the board has actually chosen some dance partners in this $30 billion deal:

“This group will be led by the Canada Pension Plan Investment Board (CPPIB), the Caisse de dépôt et placement du Québec and Canada’s Public Sector Pension Investment Board (PSP Investments), who have signed a non-disclosure and standstill agreement with BCE on a non-exclusive basis. Kohlberg Kravis Roberts and Co. (KKR), a leading global private equity firm, has also signed the agreement and will join the Canadian-led consortium as a minority partner.”

As predicted here last month, a BCE deal is happening. And for now, it isn’t happening with Teachers. Clearly, Teachers was seen to be hostile by the management team, if not the board as well, and BCE’s financial advisors have swung an interesting agreement: CPPIB et al have agreed to sign a standstill and go non-exclusive as well. A standstill agreement generally means that if the BCE board doesn’t reach a friendly deal with the CPPIB bidding group, then CPPIB won’t go hostile for a year. And by not giving them “exclusive” access, the BCE board won’t come under criticism for giving privileged financial access to one bidding party at the expense of another…but don’t think for a second that this means that Teachers (or Blackstone, etc.) will be given the same access.

By agreeing to a standstill, CPPIB has set the bar for other bidders, including Teachers. If you won’t sign the standstill, then it’ll be highly unlikely that BCE will let you into their dataroom. As such, unless Teachers is prepared to give up the right to top a CPPIB bid should the BCE board not approve them as the eventual auction winner, then Teachers can’t sign the standstill and get the access that comes with it.

And that assumes that the BCE board will even allow Teachers in the dataroom, now that one of BCE’s board members has unfairly called their recent actions “disgusting“, according to one report.

It may well be that, for appearance sake, Teachers will let Blackstone or Apollo or a similar prospective partner go into the dataroom solo, and then come back to them after to put together a Canadian solution, as BCE can’t be majority-owned by a foreign buyout shop.

So, next up is Telus, it would appear. Stock is up $10 in a month (~20%). Either in sympathy with the BCE deal or as a result of the same private equity analysis that has made the BCE deal a fait d’accompli. Regardless, it is now being valued at the same price is was in the heydays of its potential income trust conversion. But, without that tax dodge, the only other way to sustain that valuation is…a leveraged buyout.

MRM
(disclosure – I own BCE)