TORONTO – Billing itself as "The Canadian Solution", Canadian investment banker Catalyst Asset Management has announced a bid for Bell Canada Enterprises which, on the face of it, presents no regulatory hurdles whatsoever.
The bid, the fifth one to become public, would maintain Bell Canada as a stand-alone public company, and would benefit "all Canadians and Canada," says the press release.
Catalyst’s proposed transaction would be completed by way of an exchange offer by a Canadian Corporation formed exclusively for this purpose. That new company will offer one "stapled security" in exchange for each outstanding common share of Bell Canada. Each stapled security will consist of one underlying common share of the new bid company and one "Bidco" subordinated debt security, said Catalyst.
The combined dividends and interest per stapled security will be set at an initial annual rate of $2.55 per stapled security, far higher than the current dividend of $1.46 per Bell Canada common share. "Following the successful purchase of Bell Canada by Bidco, the two corporations will be amalgamated to form New Bell Canada," says the release.
Each stapled security will trade as one security even though it consists of two discrete elements, a common share component, a corporate debt component and the potential for a preferred share component. The corporate debt component will be subordinate to all outstanding debt of Bell Canada. The preferred share component will be subordinate to any outstanding preferred shares of Bell Canada. In this manner, the Canadian Solution is not oppressive to these two classes of Bell Canada’s capital in the manner in which the going-private alternatives are currently being viewed by the market.
"The stapled securities will be offered to all existing Bell Canada common shareholders by way of a share for share exchange offer, which will allow taxable Canadian shareholders of Bell Canada with the ability to transfer a portion of the adjusted cost base (ACB) of their Bell Canada shares to their new stapled securities, thereby avoiding excessive triggering of capital gains. This will have the desirable effect of placing these shareholders on a more equal footing with the Bell Canada shareholders who are pension funds. The portion of a Bell Canada shareholder’s ACB that can be transferred to the stapled security will be equal to the deemed equity component of the stapled security," reads the Catalyst web site.
The bid, according to the press release, also appears to remove just about every regulatory hurdle in front of those already announced: Too much market power (Telus); too much foreign investment (the private equity players).
Catalyst says its bid "preserves existing Canadian ownership and control of Bell Canada; preserves existing competitive landscape in this key sector of the Canadian economy that touches all Canadians and businesses; beneficial outcome to all stakeholder groups including customers, employees, union, management, debtholders and preferred shareholders; preserves Bell Canada head office in Montreal; beneficial outcome to all Canadians and Canada; maximizes tax collection to Ottawa from the earnings of Bell Canada."
Also, the new proposal is a "value maximization alternative for Bell Canada common shareholders through use of stapled securities and the enhanced annual income of $2.55 per existing Bell Canada common share, a 74% increase from Bell Canada’s current annual dividend of $1.46," says the press release.
It’s also a tax efficient transaction, as it is a share exchange that places retail investors on a more equal footing with large pension fund investors."
Finally, this option "preserves financial flexibility for Bell Canada to continue with significant capital reinvestment in its core businesses to remain a leading and growing competitor," and there will be "no regulatory or timing risk when compared with alternative private equity and merger alternatives that will involve extensive parliamentary, regulatory, CRTC and competition review with an uncertain outcome and uncertain timing," adds the release.
There is also zero transaction risk as transaction is self-funding, it says.
