The ghost of Clear Channel Communications haunts the BCE buyout.
The contentious takeover of Clear Channel, a U.S. advertising company, saw the banks balk at lending on the $17.9-billion deal, and shareholders swallow a price cut. With three of the banks involved in Clear Channel now playing central roles in financing the $35-billion BCE buyout, analysts fret that history may repeat itself.
The Ontario Teachers Pension Plan leads a group of private equity funds that agreed to buy BCE last June for $42.75 a share. While sources working with at Teachers and its allies, BCE and the lending group all say they are working towards closing the deal at that price in August, analysts keep flagging the possibility that the deal gets reworked.
UBS Securities telecom analyst Jeffrey Fan was the latest to throw out odds on various outcomes for the BCE buyout. He published a report Monday that said there is a "30-per-cent probability of closing at $42.75, 50-per-cent probability of closing at $40 and 20-per-cent of a break, which results in a fundamental target price of $31."
That follows on a report from Desjardins Securities that predicted the lenders will "play hardball" and push for an 8 per cent cut in the price, in line with what happened at Clear Channel.
BCE's four banks - Citigroup, Deutsche Bank, Royal Bank of Scotland and Toronto-Dominion Bank - put out a press release Friday confirming their commitment to financing the Teachers-led group.
"On the one hand, this could be interpreted as a fully supportive stance," said Mr. Fan. "However, similar statements were made in the Clear Channel transaction. While the lenders do not expect the definitive agreement terms to change (ie: the $42.75 price), there are still points in the financing documents to negotiate that could result in more favourable terms for the banks (ie: less favourable for sponsors). All this may cause the buyout price to be adjusted."
BCE is changing hands Monday at $36.98 on the Toronto Stock Exchange.