John Nagel, who was last mentioned in this blog touting BCE Prefs to the National Post, is now doing the same for the Globe and Mail:
Desjardins doesn’t believe another bid will hurt the BCE preferred shareholders. Here’s why. BCE’s board has issued conditions that must be met for it to approve a superior bid, including the condition that another bid must be “more favourable from a financial point of view to the affected shareholders.”
Furthermore, the definitive agreement over the takeover defines affected shareholders as common and preferred shareholders (see Article 1: Interpretation, Section 1.1: Definitions).
“From a preferred share perspective, we feel that any additional bid(s) that may surface in the future for BCE Inc. will likely include a bid for the preferred share issues – as anything short of this would be a lower quality bid,” Desjardins said in a recent report.Even in a scenario where Telus Corp. counters with a hostile bid for BCE Inc., preferred shareholders should be reminded that Telus stated in its initial conference call that it would not sacrifice itsinvestment grade credit rating, Desjardins said. “This would mean that BCE Inc. preferred share credit ratings would not be changed, and should continue to trade as they had pre-takeover rumours (adjusted for recent interest rate effects).
Well – as I have said previously: he may well be right. And as I have also said previously: these shares cannot be analyzed as fixed income investments – there is event risk up the wazoo here and a position in the shares amounts to a speculation on the course of near term events outside the control of – and beyond the knowledge of – investors.
With respect to the points made in this particular column – and remembering that I am not so much disagreeing with Mr. Nagel as I am being a devil’s advocate and a properly gloomy fixed income analyst:
- With respect to the protection for “Affected Shareholders” … in the first place, the definition refers to Affected Shareholders as a group. It does not say anything about each particular class of Affected Shareholder. So if, for instance, common shareholders get an extra $1.50 and preferred shareholders get to keep their wonderful preferreds, how confident are you that the board will turn it down? Are you prepared to fight it out in court if you disagree with their decision?
- The board only has to approve a friendly bid. That’s what will make it friendly. A hostile bidder, focussing on the common, won’t care two hoots about silly agreements and funny definitions.
- Telus has indeed stated that it would not sacrifice its investment grade rating. Well, that’s a fine ambition, but I’m not sure how much I want to bet on that.
Mr. Nagel’s long term track record was not disclosed.
BCE has the following preferred shares outstanding: BCE.PR.A, BCE.PR.C, BCE.PR.E, BCE.PR.F, BCE.PR.G, BCE.PR.H, BCE.PR.I, BCE.PR.R, BCE.PR.S, BCE.PR.T, BCE.PR.Y & BCE.PR.Z
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