BCE Deal: Buyers And Sellers, But Who Is The Sucker?

If you haven’t heard, let me catch you up by saying that Bell Canada (BCE) recently announced that it is in leveraged buy-out talks with a consortium of Pension Plans (including Ontario Teachers Pension Plan) and private equity firm Kohlberg Kravis Roberts & Co. (KKR). The stock price has been pushed up amidst the frenzy created by BCE’s senior management.

I couldn’t express my feelings on this any better than Mark Evans. Mark has been writing about the telecom industry for years. He lays out very nicely talkiing points that mirror my sentiments of this proposal.

But one thing is certain, in the age-old market system of buyers and sellers, both groups are always hoping to outmaneuver each other. To put it plainly, a buyer buys in hopes of profiting, so why would a seller sell if there are such expectations? Optimally, a seller sells because there are no foreseeable upside on the further horizon, so why would a buyer take this risk? It becomes a game of who is the sucker.

Why Buy And Sell Then?

I am definitely omitting some of the more intricate details that help determine a buy or sell decision. Does one party know something that the other doesn’t? Do they have a different goal than the other party? Sometimes, it boils down to a matter of convenience. Here’s an example: if your family needs to move out of the city, the biggest priority may not be about how much you can profit from selling your house, but how quick / smooth the process will be.

My concern is the reaction of the investing crowd to this “announcement”. I wish more people would be cynical enough to question why the board does not believe its own company enough to keep running it. What is their selling motivation? It goes without saying that they wish to divest their ownership at the highest price possible. Sure they need to publicize a deal of this magnitude. But why are you helping their hype machine?

I can understand if existing shareholders are excited. I would too if somebody is working on my behalf to help me sell out at a comfortable price point. I’m just wondering why new buyers would be excited as well to justify the supply / demand imbalance? What has changed fundamentally with the BCE business? What hope do you have that any new management will do a better job than the existing management? Why do you like the business now at this high price that you did not like at its low price?

I often irk at the investor reaction to buyout announcements. Actually, I irk at market maker reactions to these announcements and I chastise investors for blindly following the jacked-up bid / ask prices. I guess that’s why I’m naturally an investing contrarian.

Advertisement: Mortgage in Spain Spanish Mortgages