High-strung and overly-caffeinated hedge fund managers are now being forced to do something with BCE that goes against their very nature. They have to wait.
The Supreme Court of Canada reserved judgment on this $35-billion deal after a high-profile hearing on Tuesday morning, and a spokeswoman for the high court said Wednesday that the seven justices who heard the case plan to give 24-hours notice of their decision.
No such notice has been given, so the waiting game will last at least one more day.
The Supreme Court is aware of the tight timelines on the BCE deal, as it agreed to hear an appeal of a Quebec court decision in May that blocked the buyout on an expedited basis. A decision is expected this week, but just when it will come is anyone's guess.
So the arb funds, who by conservative estimates own at least a third of the 805 million BCE shares outstanding, are left to chew their nails, pass along rumours and further dissect what's been said in court. Nerves are frayed, as the stakes are huge.
"This one trade will make or break my year," said one New York fund manager who is betting that the deal will close.
"There are positions that can limit some of the downside, such buying both BCE stock and bonds, but a surprising number of funds are simply making a one-way bet that the deal closes, or doesn't close," said a trader in the heart of this traffic.
Wondering why fund managers were lining up at 4:00 A.M. Tuesday for a seat in the Ottawa court - or in a symbol of how this business works, paying students to line up for them?
If BCE is in fact acquired at $42.75, the price that the Ontario Teachers' Pension Plan and its backers are offering, then $5.8-billion is up for grabs. That's the difference between the market capitalization Wednesday, with the stock at $39.92, and the takeover price.
If the buyout does go down in flames, BCE stock will likely test $30 levels as the arb funds all bail out. That's a loss of $4-billion in market cap.
Along with testing the nerves of arb funds, the BCE saga is also testing the limits of client service from the dealers. A number of brokerage houses sent their own observers into the high court on Tuesday, diligence that may be reflected in trading volumes.
On Tuesday, as the Supreme Court session played out, RBC Dominion Securities, UBS Securities, TD Securities and Scotia Capital ranked among the five biggest traders of BCE on the TSX. That top five was rounded out by the "anonymous" broker function that the dealers tend to use for all their electronic buying and selling on the Canadian exchange.
The TSX saw 10.8-million BCE shares change hands on Tuesday, twice the volume seen in recent months. Another 2.6 million BCE shares changed hands on the NYSE.