BCE – A Buying Opportunity?

If you’ve been following Canadian financial news lately, you’ve most likely heard about the whole BCE take-over drama and controversy. Is the deal going to go through? Will they pay shareholders the original agreed upon cash amount? Or will they renegotiate the deal with a lower amount?

It all began with the Ontario Teachers Pension group making a bid for BCE with financing from the major banks. Everything was fine and dandy with the deal basically done, then all hell broke loose. There was a court battle along with speculation that the lenders would have trouble funding the deal.

We now have an agreed upon, court approved, all cash deal for $42.75. However, the current share price sits at approximately $39.50. Is this an opportunity to make $3.25 dollars/share or 8.2% with reduced risk? With the deal closing on Dec 11, 2008, that represents about 5 months holding time which, if annualized, would equate to a return of 19.7%.

So what do you think? Is BCE a buy and hold at this price level for a quick profit? Is the 8% return worth the risk that the deal can potentially still fall through?

More info from colleagues:

Disclaimer: I do not own shares of BCE. This article is not a recommendation to buy BCE.

Photo credit: myyorgda

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FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.
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cannon_fodder
12 years ago

You could look at it this way… the stock is valued based on fundamentals. The upside is that the deal goes through (although unlikely and probably at a much lower price than originally set) or the deal doesn’t go through, BCE declares a reinstatement of some dividend and the stock gets a pop upon that news.

Either way, probably worth taking a look at…

wearyBear
12 years ago

And today?

Long BCE
12 years ago

The spread between the expected closing price of 42.75 and now is ridiculous. I put in a buy order this morning for 32.73. That’s over a $10 spread. The risk is the deal could still fall through but the risk reward at this point 2 months away was too good to pass up.

If the deal doesn’t go through, the stock will likely drop some more but BCE is a buy and hold type of stock anyway.

What do you think?

Sarlock
12 years ago

Cash will be steadily eroded by inflation over the next few years.

MEG55
12 years ago

The smart investors will keep the BCE money in cash.

This bear market will not turn around for a few years.

Tax & Financial Planning
12 years ago

You know the other day I heard someone ask where the money that get’s released after the BCE deal closes will end up.

Some though MTS others thought it would just get absorbed by the market. But it’s a lot of cash and it has to land somewhere.

Cannon_fodder
12 years ago

There is something in my memory that says the stock wont actually get to the $42.75 price. There will be a slight discount to the target price. it might be only 5 cents or so, but IIRC other situations like this didn’t translate into the exact acquisition price.

Perhaps it is because no one would be willing to buy them at $42.75 + commissions – where is the profit?

Dividend Growth Investor
12 years ago

I found an interesting article on Yahoo finance about this deal:

http://biz.yahoo.com/rb/080704/e.html?.v=3

Seems like the break up fee is 1-1.2 bln $ CDN.

If you really believe that the deal would go through and you would like to use leverage, why not buy the January 2009 40 calls @ 1.90 and then sell them at 2.75 for a huge profit?

http://www.m-x.ca/nego_cotes_in_en.php?symbol=BCE&insSymbol=BCEA09C40.00&fixeDate=&#cote

Another thing to do if you are buying the stock now and wait until Dec 11, 2008 is to sell covered calls against your position.

Al
12 years ago

FT,

I’ve been considering selling part of my holdings in BCE (though not exactly half, I’ve got an odd lot situation due to the spin off of Bell Aliant.) I’ll probably end up sitting tight and waiting for Dec. I’m getting bearish on the TSE so I might as well take the positive return on BCE instead of a negative return on anything else I may buy.