Monday, July 7, 2008

BCE Buyout at a Slightly Lower Effective Price: Still Time to Gamble

After all the legal turmoil, the buyout of BCE is proceeding nominally at the original price: $42.75 per share. However, the real buyout price has actually been reduced by about $1.50 to $2.00 depending on how you do the accounting.

The big changes are that BCE won’t be making any more dividend payments, and the deal closing is delayed until December. Between the dividend amounts and the interest on the delayed payment of $42.75 per share, the deal is worth about $1.50 to $2.00 less per share than the original terms.

However, BCE closed at $39.64 on Friday, which is below what you would expect if this was a sure thing. So, there is room for more gambling. Just as it was gambling to trade in BCE back in May, it’s still just gambling to trade in BCE now. The probabilities have changed since then, but I still don’t know for certain that the deal will happen, and I doubt that any other non-insider knows either.

If you’re tempted to buy now and pocket the $3 profit in December, you probably should keep the bet modest: you won’t be happy if the deal falls apart.

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