In January 2015, just three months into his tenure as CEO of BCE Inc., George Cope began a tour through the stock market to drum up support for the proposed merger of the telecommunications companies with Bell Aliant. Back then, the StockTwits community was less than enthusiastic.
“Shareholders should not be dragged through a propaganda machine. Selling equity at this level and selling bonds at a premium are capitulation,” wrote flackcircled21.
And while it’s all too easy to dismiss the concerns of these commenters, a closer look at the stock price of BCE Inc. from 2015 reveals a decline of 28 percent on a total return basis (which takes into account both stock price and dividends) and a price decline of 32 percent on a dollar-adjusted basis. Overall, BCE had underperformed the TSX Composite by nearly 25 percent from the beginning of the year to the end of 2015. Cope, though, was not alone in taking a harder line on the merger. Next month, BCE shareholders will be presented with a showstopper.
Even the potential upside that is offered by the the newly merged companies won’t be enough to appease the investors that are worried that the leadership might not do enough to rejuvenate the respective companies after a merger. According to the president of the Canadian Power Rangers, TMX Group Limited, which owns all of the derivatives for the S&P/TSX Venture Composite Index and would want its money back if the deal fails, investors haven’t yet gotten excited enough about the merger to unlock gains.
“I’m not sure you’ll see enough volatility in the firm price for us to make that happen. That’s tough. It would be difficult for us to look at and say, ‘We like that volatility, we’re going to use that’,” Mark Bortolussi told Bloomberg.
Bloomberg noted the torrid growth that investors can get in other markets — including South Korea, where the exchange rose 22 percent and Australia, where it jumped 30 percent — that spurred the TMX Group to invest $57 million in BDX.
A merger still faces some formidable headwinds, not least of which is the 2016 decision of the Federal Communications Commission, which specifically addressed roaming and data charges, but subsequently banned aggressive roaming agreements and states that agreements must be reasonable, but it remains difficult to discount how much the deal could change the landscape of the Canadian telecom market. As a merger is still in an early phase, the new owners of the company could not be placed on the buyout conference call, in other words, without BCE having raised its hand to take the new money on offer.
Many a company has spent millions of dollars not to gain shareholder support for mergers. But for BCE, this move isn’t just expensive.
Read the full story at StockTwits.
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