Genuity research has a theory on Telus going AWOL

While few people actually know what really happened, Genuity’s telecom and cable research analyst has put forward a decent approach to the question, what happened to the Telus (T:TSX) bid for BCE (BCE:TSX)?:

“TELUS announces that it has NOT bid for BCE – TELUS announced just before the open today that it has elected not to submit an offer to acquire BCE (BCE-T: $39.36, Restricted) as part of the strategic review process announced by BCE on April 17, 2007. TELUS stated in a very short press release that the inadequacies of BCE’s bid process did not make it possible for TELUS to submit an offer. We think that a future TELUS bid for BCE is highly unlikely over the short to medium term.

What could have changed? – Perhaps 1) TELUS realized that its bid had to be conditional on regulatory approvals; 2) the time lines associated with such approvals were too lengthy to make a TELUS stock/cash bid versus an all cash bid from private equity a practical move; and, 3) TELUS just wanted to push up the valuation of private equity bids for BCE – TELUS’s announcement was released after the 9:00 am deadline for BCE bids this morning.

Pushing up private equity bids could be in TELUS’s interest – As written previously, pushing up private equity bids for BCE could be in TELUS’s interest because 1) it could force BCE to be even more debt levered post LBO; 2) this could reduce BCE’s operating and strategic flexibility; 3) it could force the future private equity owners of BCE to pursue more aggressive asset sales, which in turn could give TELUS the opportunity to buy wireless and satellite TV assets from BCE; and, 4) a higher BCE LBO valuation could be positive for any future TELUS LBO valuation.

BUY TELUS – We are maintaining our standalone $75.00 per share target for TELUS (18x 2008E EPS and EV of 7.0x 2008E EBITDA minus estimated net debt at the end of 2008). While TELUS will not be able to enjoy BCE combination synergies, we expect TELUS shares to enjoy a strong relief rally as the market feared dilution for TELUS. We also believe that TELUS LBO speculation could resurface especially as Onex (OCX-T: $37.27, Not Rated) has decided not to participate in the BCE LBO process as announced last night. Onex is seen as being potentially interested in privatizing TELUS according to various newspaper articles.”

MRM
(disclosure – I still own BCE ;-()