News

A Quebec Court of Appeal ruling has thrown the $35-billion buyout of BCE Inc. into disarray.

While the Montreal-based telecom giant says it will appeal to the Supreme Court of Canada, the Quebec decision Wednesday at the very least throws up yet another roadblock for the biggest takeover in Canadian history.

The ruling that BCE bondholders were not treated fairly was the latest in a series of woes for the takeover. The banks funding the buyout are pressing for better terms, and BCE's stock has been trading below the $42.75-a-share offer.

Investors must be wondering what to do given the latest development. And personal finance columnist Rob Carrick will answer those questions.

Join the discussion at 1 p.m. Thursday, or get a jump on the queue by submitting your question here.

Rob has been writing about personal finance, business and economics for close to 20 years. He joined The Globe and Mail in late 1996 as an investment reporter and has been personal finance columnist since November 1998.

After starting his career at The Canadian Press in Toronto covering general news and business, Rob moved to CP's Ottawa bureau, where he served as senior economics writer and covered the Department of Finance. He holds a Bachelor of Arts in political science from York University, an Honours Bachelor of Journalism from Carleton and is a graduate of the Canadian Securities Course.

Rob is the author or co-author of three investing books, the most recent of which is How to Pay Less and Keep More for Yourself: The Essential Consumer Guide to Canadian Banking and Investing. His previous two books are E-Investing: How to Choose and Use a Discount Broker and The Online Investor's Companion: 50 Essential Investing Websites.

Rob is often asked to provide his perspective on investing and personal finance issues at conferences and seminars. He also appears on ROBTV and contributes regularly to Globe websites and Globe Investor magazine.

Editor's Note: globeandmail.com editors will read and allow or reject each question/comment. Comments/questions may be edited for length or clarity. We will not publish questions/comments that include personal attacks on participants in these discussions, that make false or unsubstantiated allegations, that purport to quote people or reports where the purported quote or fact cannot be easily verified, or questions/comments that include vulgar language or libellous statements.

Cathryn Motherwell, deputy editor, Report on Business: Hi Rob, Welcome to ReportonBusiness.com and thanks for joining our readers for a discussion about the Quebec Court of Appeal decision in favour of the company's bondholders. There is plenty of debate today on whether this deal can be saved - or should be saved. And while there are many people eager to talk about the prospects for the deal and the company, I'm wondering if interest in the shares themselves has waned?

Rob Carrick: Cathryn, I think there's a huge amount of interest in BCE for the simple reason that it's such a widely held stock. It's been called a widows and orphans stock, and for good reason. The safety profile is such that lots of investors have picked up shares over the years to collect dividends and perhaps, just maybe, benefit from some share price appreciation as well. Some BCE shareholders have undoubtedly sold their shares, many have been waiting for the buyout to go through in order to avoid brokerage commissions and to forestall as long as possible the nightmare of figuring out how much tax they'll owe.

Cathryn Motherwell: From a dividend yield perspective, BCE shares are looking good again. Are they worth buying purely for the dividend?

Rob Carrick: Sure they are. With today's price decline, the yield has jumped up to the 4.5 per cent range, which is well above what retail investors can get from 10-year government bonds. Plus, you get the benefit of the dividend tax credit if you hold the shares in a non-registered account. The dividends are a nice incentive to hold these shares until the buyout deal is resurrected or a new deal materializes. The safety of the dividend would have to be considered solid because BCE is, after all, a cash cow of a phone utility.

Eliot Kaplan asks: How quickly will we know whether or not the Supreme Court of Canada will hear the appeal?

Rob Carrick: Eliot, I should point out there are no assurances the Supreme Court would even hear this matter. So there's a timing issue here, and another one in considering how long it might take for the court to hear the case and render a verdict. Keep watching for news on this front. It's always possible the buyout group will make peace with the unhappy bondholders who launched the lawsuit.

Cathryn Motherwell: What would be the key reasons to continue holding the stock now?

Rob Carrick: The reason to hold the stock is to get a better sale price than the $32.40 or so that investors are asking right now. It's hard to believe that a deal of some sort or another won't materialize, which might mean a buyout price somewhere between current levels and the $42.75 offered the Ontario Teachers-led group.

Cathryn Motherwell: What are the reasons to buy?

Rob Carrick: The reasons to buy BCE right now are two-fold. One, there's that quite decent dividend now yielding about 4.5 per cent. That's a great little incentive to hold the shares until a deal is finally done. Second, there's the strong likelihood of a takeover premium. No, the $42.75 offered by Teachers may never be realized, but there's still upside for these shares.

Cathryn Motherwell: And what are the reasons to sell?

Rob Carrick: The reason to sell, beyond pure anger and frustration, is to get your money out of BCE and into something more productive. It's quite likely the agreement between BCE and the Teachers-led buyout group could be extended beyond the expected June 30 closing date, which means more waiting around for your BCE payday. Let's also remember that BCE shares were trading around $25 not too long ago. If you bought around those levels, there's a case to be made for booking a profit on this can't-see-to-do-anything-right stock and moving on. Say, what are energy stocks doing today?

Siddarth Pandit asks: What is the trailing EPS for BCE. The company had so many non-performing assets in the past that it is diifcult to predict the future EPS for this company? Also with the wireless auction which is probably going to generate a price war for the growth part of BCE business does this company still make a viable investment opportunity?

Rob Carrick: Siddarth, I think the name of the game in terms of acquiring BCE is its basic phone utility business, plus wireless. Bundled together, investment bankers seem to believe they're worth owning. I can't see how the buyout goup hasn't factored the wireless auction into its analysis. The wild cards in this deal that nobody saw were, first, a credit crunch that has caused lenders to reconsider loan terms and, second, the ruling from the Quebec court re: bondholders. Remove these two factors and I see the deal going through as originally planned. Oh, re EPS figures, I draw your attention to the earnings data to be found on Globeinvestor.com.

David N from Ottawa asks: Since last fall, I am managing my mother's estate, in which there is a lot of BCE, and I've nominally allocated portions to my kids and to me. My daughter is nervous about owning BCE. Yet it seems this is not a good time to sell - I am too late. Since we do not need to capital looses this would generate, I'm inclined to keep this until we know more. The downside risk seems smaller then the upside potential at this stage. What do you think?

Rob Carrick: David, I think you've summed up things well in saying the downside risk seems smaller than the upside potential. Of course, I was just looking at stock chart of BCE and it recalled the days when this stock used to keep bottoming out at $25 every time investors got disappointed at management's efforts to generate some value for shareholders. One thing we need to remember about BCE is that it is a very strong business entity, albeit one without dynamic growth characteristics. It's not going bankrupt or anything, and it should be able to sustain a dividend that now generates a very nice yield.

Pete W from Ottawa asks: If BCE continues to operate as a publically owned company, what are the prospects for dividend growth in the years ahead? It's dividend growth rate over the past 7 or 8 years has been quite small.

Rob Carrick: Pete, I wouldn't expect much dividend growth at all from a BCE that continues on much as it is today. I mean, this is a company that has raised its dividend just twice since 2000. If you want dividend growth, look elsewhere. If you want a total return based on a pretty high dividend yield and the potential for a share price gain based on a takeover, then BCE is certainly worth a look.

Noel Gordon asks: Rob, Can you briefly explain how and when the $1-billion penalty for failure to complete the deal kicks in.How would shareholders benefit should such a penalty be paid to BCE. (maybe it will partly cover the legal bill !!!)

Rob Carrick: Noel, the penalty would work out to about $1.25 per share. It's hard to say how this might theoretically work in a tangible way for the benefit of shareholders, though. If this penalty were to be paid to BCE, it would mean that the company has been left high and dry by a buyout group that had dangled a $42.75 takeover price.

Nazir Patel asks: The Canada Pension Plan Investment Board said on Thursday it has no interest in making a renewed bid for BCE Inc. now that a court ruling has threatened to derail a takeover offer for the telecom company. According to the news above CPP has no interest in a renewed bid. Does that mean they are out of the picture ?

Rob Carrick: Nazir, I think CPP has been pretty clear in saying it's not going to get involved in the BCE situation, so I wouldn't count on a new bid from them to save the day. There are still possibilities, though. The Teachers deal could be re-jigged so that bondholders are taken care of and the banks are given some extra consideration. And there's always the possibiltiy of BCE and Telus joining forces. The selling of BCE has been the most drawn on story on Bay Street and it's far from over still.

Cathryn Motherwell: Thank you Rob for your time taking questions today. Any final thoughts?

Rob Carrick: Thanks for the questions, and keep the faith on BCE. This company has to be one of the most disappoiting around from the shareholder's point of view, but a deal of some sort is coming. BCE cannot go backwards.