Wednesday, January 30, 2008

Something's rotten in Denmark: Catalyst's Bell Bid Silenced


Excerpts from today’s Financial Post article entitled Catalyst's Bell bid silenced

These are testing times for Bell Canada Inc. investors as the country's largest takeover faces financial, regulatory and legal issues.
Yesterday was no exception: The stock traded down again, closing at $34.46 -- about $5 below the level of Jan. 1 -- as disaffected bondholders continued their claims in a Montreal courthouse, and as the market upped its risk estimate of the $50-billion-plus deal going through.

Through the drama, Brent Fullard, formerly with BMO Capital Markets, has reminded everyone of how Bell shareholders weren't told about a proposal his firm, Catalyst Asset Management, lobbed into Bell last summer. That proposal, involving a so-called stapled security, was sent to Donna Kaufman, one of the three members of BCE's special committee. A copy was also sent to Ed Waitzer, the Stikeman Elliott advisor to the Kaufman committee.

In Catalyst's e-mail, this was said: "Further to my conversation with Jim Pattison on Friday and Ed Waitzer on Saturday, please find attached a letter describing in greater detail our Stapled Security proposal including an overview of the benefits and an assessment of the relative risks. Our analysis holds that such a proposal, structured in the manner contemplated, would provide existing BCE shareholders with a tax-efficient surfacing of value of between $42.50 and $52, with a mid-point trading value of $47.25. In addition, this proposal would be a very good outcome for the company itself and all affected stakeholders, as fully described in
the attached letter.

In that proposal, bondholders would have all been taken care of -- unlike the proposal accepted by Bell”


Excerpts from Canadian Press article entitled “Bondholders say BCE finessed takeover deal to avoid bond redemption”

The directors of BCE Inc. were kept in the dark about offers for the telecom giant by managers and advisers who manipulated the bidding process to freeze out bondholders in the sale of the company, lawyers for the bondholders said Monday.

The court was reminded that three BCE directors - Tom O'Neill, Jim Pattison and Donna Kaufman, the head of the strategic oversight committee - testified they were unaware or couldn't remember seeing all the details of the bids or how they would affect all stakeholders.


Excerpts from Catalyst Letter of June 25, 2007 to BCE’s Strategic Oversight Committee:

"[The Catalyst Proposal] preserves BCE’s investment grade credit rating and retains financial flexibility for Bell Canada to continue with significant capital reinvestment in its core businesses to remain a leading and growing competitor.

In addition, since the debentures contained in the Stapled Securities are subordinated in all respects to the outstanding debt of BCE, it is anticipated that ratings of New BCE’s debt will be preserved at a strong investment grade, as they were under the contemplated income trust conversion, for which the ratings were to have been (at least):

Long term debt:

DBRS: A(low)
S&P: BBB+
Moody’s: Baa1

Short term debt:

DBRS: R-1 (low) with stable outlook (confirmed)

Excerpts from Moody’s Credit Alert of September 2007:

With book debt expected to increase by more than 300%, the company’s risk profile will be profoundly affected by the proposed transaction, and its rating could be adjusted by several notches. Per Moody’s event risk policy, until both a full fact set is available and there is certainty of an event occurring, a definitive ratings assessment cannot be concluded. Accordingly, Moody’s review is ongoing and will be completed in due course.

In the interim, the available information does facilitate a preliminary and highly conditional assessment that can be used to illustrate key issues that will be considered. Given disclosure to date, and assuming there are no dramatic changes to the company’s business and asset portfolio, it appears that potential outcomes for BCE’s successor company’s (BCE Amalco) corporate family rating (CFR) range from B2to Ba3. It also appears that legal entity and debt structure considerations could cause Moody’s to rate individual debt instruments as low as Caa1and as high as Baa3.”


Excerpt from Standard & Poors Credit Alert of December 14, 2007:

As a result of the proposed LBO [of BCE by Teachers], Standard & Poors Rating Services expects reported debt to increase to about C$37 billion from about $10 billion at Sept. 30, 2007.
We originally placed the ratings on Credit Watch April 17, 2007. We subsequently we lowered the ratings on BCE in wholly owned subsidiaries to ‘BB-” from A- and kept them on Credit Watch Sept. 24, 2007.

On a pro forma basis, the company will have a highly leveraged capital structure, weakened credit measures, and significantly reduced cash flow generating capability owing to a dramatic increase in debt and the associated heavy interest burden.


Excerpt from the Telecommunications Act stating the policy objectives that govern Bell Canada:

7 (c) to enhance the efficiency and competitiveness, at the national and international levels, of Canadian telecommunications;

7 (d) to promote the ownership and control of Canadian carriers by Canadians;

5 comments:

Anonymous said...

Unanswered questions from BCE shareholders to BCE CEO Michael Sabia from June 2007 BCE annual shareholders' meeting:

(1) Question from Unidentified Woman who is a BCE Shareholder:

“Concerning the privatization of BCE, I would like to make the following points: Given many small, individual shareholders are retirees, who have invested their savings in BCE for their save and attractive dividend; Given many shareholders have bought their shares more than 20 years ago, they will take a big tax hit should the privatization of BCE go ahead. Since the original cost of their shares cannot be adjusted for inflation — it has been significantly lowered because of stock splits and spin offs — there will result an over-inflated capital gain taxed at a higher marginal rate plus additional tax brought on by clawbacks. Furthermore, in some cases, they may be required to make advanced tax payments to governments in the form of provisional accounts. Given that the public pension funds are exempted from capital gains tax, they can disregard fiscal consideration and push for the privatization of BCE in order to get a higher prize for their BCE shares — an action detrimental to the small, long-term shareholders, who do have to pay capital gains tax and will incur an extra tax burden because of clawbacks. My question is for Mr. Sabia: How much weight are you prepared to give to the very real concerns of long-term shareholders in the face of the privatization of BCE, which, personally, I don’t think will enhance the value of my shares. Thank you.”

(2) Question from Stanley Goldstein who is a BCE Shareholder:

“ Stanley Goldstein. Long time shareholder of the company. I’d like to pick up the comment of [the] shareholder earlier. Does the oversight committee, management, have a plan in place a pro-public ownership plan and if so, might you share with us the essence of its component parts. I ask this because you mentioned in the beginning in your the speech about the changing landscape, about privatization, etc. But the transfer of the ownership of a telecom company is not like the transfer of ownership of a concessionaire of the hot dog stand at Bell Centre. There’s easements, rights of way, spectrum, Section 7 of the telecom act, there’ll be regulatory review, there’ll probably be parliamentary review, we see winds of change in the country, but icons of Corporate Canada transferring to foreign ownership. And I ask this question because as someone who’s been around the industry for a long time, I expect the regulatory process will be long and protracted, and some of the conditions of the transfer of ownership might be exacting and will impact the cash flow expected by the buyer. And so we might still be here next year, talking about this issue, and where will that leave the shareholders? And so therefore, I come back to the question, about having in place and sharing with us a pro-public ownership plan. Thank you.”

Dr Mike said...

It appears that the BCE big-wigs care very little about ethics & the subsequent protection of it`s share & bondholders.

I thought it was the duty of those in charge to maximize value by considering all bids in an auction such as this--it was indeed a very strange auction when only selected bidders were allowed to bid--it was even stranger when the highest offered-bid was not even considered--acually , it was not even presented for discussion.

Something here sure does not pass the sniff test.

Must be the same clowns running this that did not want BCE to become an income trust.

mike.

not the Ma Bell I knew said...

Let's see .. I've owned these BCE shares since forever .. dividend reinvested .. calculate new ACB .. dividend reinvested .. calculate new ACB .. can't wait to see my tax hit .. sorry gotta go .. Mr Rogers is here to install my new "home phone".

Anonymous said...

Catalyst's Bell bid silenced ~ Scandal

I thought I was missing something when I poured over the docs Bell sent me recently, looking for but not finding anything about Catalyst. I though maybe I'm just stupid - well I guess I am stupid owning a stock who's Board engages in such unscrupulous behavior.

Mr Scalpbeenya and his gang have swindled me out of a decision to accret another near $10 to the SP. This is outrageous.

If I get the chance I will vote for the Catalyst offer.

The rot isn't limited to the Harper Govt. Time to clean house !!!

Sunstone

Anonymous said...

Here is the original Catalyst Release(s) Sunstone

June 30, 2007 Catalyst Asset Management Inc. comments on BCE Sale at announced price of $42.75 11:33 ET

June 25, 2007 Re: Bell Canada: Catalyst Asset Management considers that its Stapled Security proposal is worth between $42.50 and $52.00 per BCE share 16:30 ET

Re: Bell Canada: Catalyst Asset Management is hosting a Toll Free Conference Call on Monday June 25th at 4:30 PM Eastern Time to Review the Benefits to Bell Canada Stakeholders of the Proposed Catalyst Transaction 7:00 ET

June 22, 2007 Re: Bell Canada: A Canadian Solution is being proposed by Catalyst Asset Management ("Catalyst") that will preserve Bell Canada as a standalone public company for the net economic benefit of Canada and all stakeholder groups including consumers

Transcanada