BCE's foregone dividend equals 18% of purchasers' equity

By: Brent Fullard
Catalyst Asset Management Inc.

The New York Times reports that $1.5 billion has been foregone by BCE shareholders in this unilaterally revised deal cooked up today by BCE’s board.

Meanwhile the purchasers are only providing $8 billion of the purchase price. The other $34 billion comes from BCE itself. As such BCE shareholders are financing 18% of the equity in the new junk bond BCE. Does that mean they also get stock certificates? Answer: no

Also, how much is being foregone by employee stock option holders? Answer: zero

July 5, 2008
$52 Billion Deal for Bell Canada
By IAN AUSTEN

OTTAWA — Private equity buyers apparently salvaged a record $52 billion deal for Bell Canada on Friday by postponing its closing date until later this year and canceling dividend payments.

The consortium of banks that had agreed to provide about $34 billionin financing for the acquisition were demanding changes to lendingterms made a year ago before the current credit market crunch.

The deal was originally scheduled to close on Monday, but thatdeadline was extended because of the talks with the banks, as well as alegal issue.

Because the deal is structured under a unique Canadian courtprocess, repricing the agreement to alleviate the lenders’ concernswould have been difficult and time consuming.

The new agreement, however, effectively reduces the purchase priceby about $2 a share by moving the closing date to December 11 andhalting dividend payments to holders of common shares.

“Basically, the money will stay in the company,” said William J.Fox, the executive vice president of communications for Bell, which isbased in Montreal.

Mr. Fox declined to estimate the increase in the company’s cashposition that will come from canceling the dividend payments. OnMonday, Bell announced that it was deferring its second quarter commonshare dividend payments and it estimated a savings of about 294 millionCanadian dollars (about the same in United States funds.)

The savings from canceling two additional dividend payments as wellas other cash generated by the company over the coming months willeffectively reduce the purchase price by about $1.5 billion. Thatincreased cash position will make the four banks, Citigroup, Deutsche Bank, Royal Bank of Scotland and the Toronto-Dominion Bank,less anxious about the massive lending commitment, and the delay willalso give them more time to syndicate their loans. An unknown portionof the savings will be also passed along to the lenders.