Credit markets appear to be calming down again, but the outlook for the world's largest buyout ever, the C$52 billion ($51.2 billion) acquisition of Montreal-based BCE Inc., seems as clouded as ever.
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Though bank stocks soared on Tuesday on speculation that credit markets are easing, the stock of the Canadian telecom giant remains stuck in a rut. BCE's shares rose less than 1% to C$35.07 on the Toronto Stock Exchange on Tuesday. Wednesday, they are up a mere C$0.2 to C$35.09.
The price reflects an 18% discount to the C$42.75 a share that a buyout group led by the Ontario Teachers' Pension Plan has agreed to pay for the company. That discount has persisted because investors are worried about whether Ontario Teachers' and its partners will be able to secure funding for the deal. And it has widened this week, even though bank stocks are rising on optimism that the credit crunch is over.
Investors are spooked by the difficulty broadcaster Clear Channel Communications Inc. and its private equity buyers have had in securing financing for their deal.
On Tuesday, the chairman of one of the securities firms advising the BCE board said the deal will get done as it was originally structured. "My knowledge and my information is that the transaction will proceed as was planned," Jacques Menard, chairman of BMO Nesbitt Burns and president of BMO Financial Group's Quebec operations, told Reuters.
Yet Ontario Teachers' appears to be having difficulties other than the BCE bid. Reuters reported in another story that the pension fund is reining in its investment risks as it grapples with ways to fill a steep shortfall between the money it takes in versus what it pays out.
Results for 2007 show the pension fund posted a 4.5% return, but they also reveal a C$12.7 billion shortfall between the plan's assets and liabilities as of Jan. 1. The deficit comes as it paid out double the amount of benefits to members versus the contributions it received, as the number of its active members relative to pensioners drops, said Reuters. - Peter Moreira in Canada
See story from Reuters
See related story about pension from Reuters
See related story about regulatory approval from TheDeal.com
See Dealwatch: BCE
