As August began, BCE chief executive Michael Sabia expressed "a very high degree of confidence" in the financing behind a $42.75-a-share bid to take the phone company private.
In recent days, the market displayed lower — and declining — confidence that the financing will hold together and the deal will get done.
BCE three-month chart
BCE's share price dipped as low as $37.55 on Friday before closing at $38.80, which left a striking $3.95 gap between the Toronto Stock Exchange price and the amount bid by a group led by the Ontario Teachers' Pension Plan.
As millions of shares changed hands, investors were deciding roughly between a $38.80 bird in the hand and a $42.75 bird in the bush.
Analyst Troy Crandall, who watches BCE for Montreal-based MacDougall, MacDougall & MacTier Inc., said most of the gap represented a collective estimate of what is called transaction risk.
"That's what we've seen increasing in the past couple of days — a lot of it, obviously, having to do with this subprime loan market in the U.S.," he told CBC News Online.
The fear was that the deal might collapse, perhaps because billions of dollars in loans the bid group needs will dry up as a U.S. credit crisis reverberates around the world.
"Investors are pricing in the risk," Crandall said, adding that they may be overreacting.
"A month ago there might have been a five per cent chance that the deal doesn't go through. Today there might be a 10 or 15 per cent chance. There's no way of accurately measuring that."
Timing issues
Dissecting the BCE price gap, he estimated that a little more than 50 cents related to timing issues.
A shareholder vote is set for Sept. 21, but the deal is not expected to close until the first quarter of 2008, he said. Those who buy the stock now in hope of getting the $42.75 price tie up their money for months, although they stand to receive BCE dividends in the meantime.
The rest of the gap, more than $3.40, seemed to relate to transaction risk, Crandall said.
His best guess, however, was that loan commitments lined up by Teachers' and its partners with institutions such as the TD Bank Financial Group will not fall apart.
"I still feel confident, very confident that the deal will close," he said.
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