Bce Cast Study

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BCEInc-Bondholder Case
1.List the key stakeholders and their interests in the proposed privatization of BCE. Who would be the winners and losers if the proposed privatization of BCE were to proceed?

* Board of Directors of BCE- Interested in maximizing shareholder value and would be considered a winner if privatized. * Bondholders- Interested in maintaining investment grade bonds of BCE and would be considered losers if BCE is privatized since their bonds would most likely become junk bonds. * Shareholders- Interested in maximizing share value and would benefit if BCE becomes privatized. * Competitors- Interested in maximizing their market share and win or loss cannot be determined as the effects the privatization of BCE on their companies cannot be determined. Although privatization may reduce the value of BCE but may increase liquidity for BCE. * Consumers- Interested in maintaining services with BCE. Privatization may result in an improvement in quality since the new owner(s) would attempt to improve the company after takeover. * Employees- Interested in maintaining their jobs. Winning or losing is unknown as intentions of the new owner(s) are unknown. * Strategic Oversight Committee- Interested in maximizing shareholder value and would be considered a winner if privatized.

2. Examine and comment on the reaction of the stock and bond markets to the various key events in the litigation time line.

In the early part of 2007 BCEs stock had been trading around $30 per share and the value of the bonds were around $122. In April 2007, Ontario Teachers’ Pension Plan(Teachers’) filed a Statement of Beneficial Ownership (Schedule 13D) notifying the Securities and Exchange Commission of their intentions to attempt a leveraged buy out of BCE. Once it was made public that BCE was a LBO target the stock and bond markets reacted drastically and inversely of each other. The stock price soared to $39 per share, a 21% increase in value. Meanwhile the bonds suffered a sharp decline going from $120 to $109, a 10% decrease in value. This is typical of a situation in which a company is threatened with a hostile takeover because the target firm is struggling and the potential buyer will add value to the target firm. The added value will drive the stock prices up as investors expect an upswing in the value of the target firm. These trends were expected to continue to fluctuate until a purchaser won the auction process. On June 26, 2007 it was announced that Teachers’ won the auction process with a winning bid of $42.75 per share. The winning bid would entail Bell Canada to take on $38.5 billion in debt that would result in a downgrade of the BCE bonds credit rating to below investment grade. Bond prices fell from $109 to $105 during this time period while the stock price rose slightly to $41 per share. During the time period between the approval of the bid and the injunction filed by the bondholders with the Quebec Superior Court prices for stocks and bonds varied. This was to be expected with the uncertainty surrounding the Courts decision as to whether or not they would allow or suspend the sale of BCE to Teachers. By the time the Court made their decision on March 7, 2008 to allow the sale of BCE to resume, the bond values fell an average of 18% from April 2007. Meanwhile the value of the stocks remained about 20% higher than when the LBO process initially started. Following the Superior Courts decision the bondholders filed an appeal in a last ditch effort to reverse the Courts decision. Though the appeal process would not stop the decreasing value of their bonds. The bondholders were hopeful they would win their appeal and prevent the bonds from being downgraded, which would return value to their bonds by not increasing the debt of Bell Canada. While the process of appeal was being heard by the Court of Appeals, the value of the bonds decreased even further trading at a low of $90. At the same time...
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