BCE: "$42.75 and damn the torpedoes....and the dividends."

Today was supposed to be the final outside date for finalizing the sale of BCE to Teachers' and three US private equity firms. Instead we learn in the Globe and Mail that "Haggling may stall BCE deal till year-end".

The subtitle of the article is "Lenders are balking at the purchase price as buyers dig in; 'they're at $42.75, and damn the torpedoes'.

The article goes on to say that "BCE is expected to announce today whether it will pay out its $294-million quarterly dividend or retain the cash to improve its balance sheet and provide added comfort to nervous lenders. Sources say given the current uncertainty around the acquisition, there is almost no chance BCE will pay out the money.

If the deal doesn't close until year end, that could mean the company's cash position could be bolstered by an additional $900-million."

This is starting to sound more like a case of "$42.75 and damn the dividends". Each quarterly dividend amounts to $0.365 per share. Foregoing a dividend is the economic equivalent of reducing the purchase price. Foregoing the dividends until year end, would mean the $42.75 purchase price has UNILATERALLY become $41.65. Who voted in favour of that deal? Who gave the board authority to recut the deal on those terms?

Meanwhile the board of BCE is simply trying to circumvent shareholders and further shareholder approval, as the Globe article goes on to say "Two high-level sources, one at BCE and another that is participating in negotiations, insisted that the company's embattled board has little appetite for lowering the price of the offer. That would necessitate another shareholder vote, another round of court and regulatory approvals, and perhaps another year's worth of delays. It would also be a black mark on the BCE directors, who were roundly criticized last year for running a clumsy auction."

Well that is far from satisfactory given the Bid Circular upon which shareholders approved this deal and voted in favour of it was very clear that dividends would be paid. The Bid Circular is the binding contract that governs this deal. Didn't BCE just win a case before the Supreme Court that held the bondholders to their contract, namely the indenture?

Does BCE now want its cake and eat it too? Have the bondholders honour their contract, but not have BCE honour its contract with shareholders? You can't be arguing primacy of shareholders on minute and the subordination of shareholders the next. You can't be arguing "reasonable expectations" on eminute and impose unreasonable outcomes the next.

Here is what BCE's Bid Circular had to say about the payment of dividends prior to closing (PS the language about "subject to Board approval" is merely boiler plate languagem since no dividend can be declared without board approval, this langauge does not take away from the expectation that the words contained in the rest of the sentence were intended to convey):

Q: WILL BCE CONTINUE TO PAY DIVIDENDS ON ITS SHARES UNTIL THE
EFFECTIVE DATE OF THE ARRANGEMENT?

A: Yes. Subject to Board approval, we will continue to pay dividends until the Effective Date. The Definitive Agreement allows us to pay a dividend of up to $0.365 per Common
Share per quarter in accordance with customary record and payment dates.

CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE TIME

BCE has agreed that prior to the Effective Time (outside date of June 30 now that all regulatory approvals have been granted) it will conduct its business and cause its Subsidiaries to conduct their business in the ordinary course consistent with past practice,