Yet, as reported on stockchase.com, a good number of money managers appearing on the Business News Network (BNN) channel have voiced bullish views on BCE. Here’s a quick look at their reasons:

• David Baskin of Baskin Financial Services – one of his top picks, says he likes the strong cash flow and pledge to raise the dividend
• Steven Conville of Blackmont Capital – thinks BCE has the best balance sheet of the three major telcos and is nice defensive play
• Laura Wallace of Coleford Investment Management – sees strong management with a well-defined plan to cut costs aggressively
• Bruce Campbell of Campbell and Lee Investment Management – one of his top picks, cites the price currently being depressed by the Ontario Teacher’s Pension fund selling off its stake in BCE
• Ross Healy of Strategic Analysis Corp – a top pick for him because it is cheap, having fallen to an all-time low at its book value of about $22 a share
• Craig MacAdam of Aurion Capital – would buy because balance sheet and new management is quite strong
• Colin Stewart of J.C. Clark Investments Ltd. – trades at a low valuation multiple of about 4.5 to 5 enterprise/EBITDA

The bearish money managers on BNN don’t recommend BCE because it’s a defensive, utility stock and such stocks tend to lag during economic upturns. They also don’t like its growth prospects vis a vis peers: Telus is seen as the better telco for wireless-growth prospects and Rogers Communications is seen as having the better technology over the longer term. 

I’m not bullish on BCE’s long-term prospects either but did buy the stock when it crashed after the privatization bid collapsed, thinking it would be good to hold for a while for the income and buybacks (and a possible sale around $28 to $30). I feel encouraged to continue holding for several of the reasons given by the bullish money mangers.

Last week, there was a bit of a rally in BCE shares. Also, its bond sale was oversubscribed and raised $1 billion. And a report out during the week from BMO Nesbit Burns predicted BCE Inc. will use its excess cash to renew its stock buyback. The company currently pays out 65% of earnings per share.

In a Globe and Mail interview a few days ago, Bissett Investment Management senior vice-president Juliette John said “BCE has become more shareholder-friendly: It has been buying back stock, raising its dividend and cutting costs.” As for coming wireless competition, she doesn’t think it will be a serious threat to existing providers given the sluggish economy and tight credit conditions.

In addition, to $1,250,000 for the above privatization-that-never-occurred payments, Michael Sabia, who left in July 2008, received $14,236,139 in compensation “triggered at the time of his departure from Bell Canada and BCE in 2008.” He also received $729,167 in salary and $3,125,000 in incentive compensation. In total his about one-half-of-a-year compensation was $20,953,285 or about $0.025 per share.

The price was not disclosed, but you can bet Bell got a good deal. According to a Globe and Mail story, Wade Oosterman, president of Bell Mobility and the chief brand officer of Bell Canada said his company paid “considerably less” than the $334-million that Circuit City paid for the company five years ago. And you’d certainly hope so, considering the U.S.-based Circuit City, formerly the second largest electronics retailer in that country, is currently liquidating its stores under bankruptcy protection proceedings.

So what did Bell get? At first blush, not much. The Source has about 5% of the fiercely competitive electronics retail market in the country, a segment that is not immune to an economy in recession. As a shopper, I don’t have a particularly favourable impression of the odd mix of products (many of them loud and flashing) on its shelves. Why would Bell want its mobile phones, satellite and Internet services associated with that?

If you read the Globe story, the analysis from the usual suspects is scattershot: Rogers and Telus expanded their retail presences significantly in recent years, but Bell has lagged, so this is an easy way to catch up; The Source’s mall-based stores will help them reach out to women and teens; the stores’ inventory of gadgetry, electronic gewgaws, and high-profit-margin cables, are “complimentary” to Bell’s services; it gets Bell high-profile marketing space.

Perhaps all of the above is true, and taken together, bought at a discounted price, makes this strategy reasonable. But the real kicker is that The Source has a deal with Bell’s competitor, Rogers (which also owns this website and signs my pay cheques), to sell mobile phones and services. So this move takes 750 retail stores out of Rogers hands as of the end of this year. Probably not a huge loss for Rogers, given its been converting its video stores into destinations for all Rogers services, but better for Bell than letting The Source fall into Rogers’ hands.

Nevertheless, it seems strange that BCE, a company that has been persistently divesting itself of any assets that don’t directly tie into its phone, mobile, Internet or satellite services, would suddenly acquire a loud, junky electronics retailer. So I view with some skepticism Oosterman’s remark, “The Source will continue to sell the broad array of products and services that it does today.” For now, perhaps. But ultimately, if this strategy is really going to pay off, I expect to see underperforming stores closed and the remaining ones overhauled.

So it’s worth asking, Just who the heck was driving? The entire prolonged privatization process was badly managed from the start. Whether it was the controversial bidding process, the aborted merger discussions with Telus, or the lawsuit with the bondholders that went right to the Supreme Court for an 11th hour decision, nearly every step of the way, something was always going not quite as planned. To my mind, that suggests something was wrong with the plan in the first place.

The irony, of course, is that after all of this rigmarole, BCE as a company is almost certainly better off not being privatized. Operating without the need to service an extra $32 billion in debt, especially in these markets, will give the executives quite a bit more flexibility to run the company and stay competitive.

But that probably doesn’t mean too much to BCE’s long-suffering shareholders. Assuming this deal does not somehow miraculously coalesce by Dec. 11, shareholders should be taking a  long hard look at the board of directors. After all, they were the people that kept backing former CEO Michael Sabia’s meek attempts at improving shareholder value—and that is where this all started, if you can cast your mind back far enough. Sabia’s now gone, and telecom veteran George Cope is finally getting a crack at running Bell, but it’s foolish to think he should be reporting to the same board.

News reports suggest that under the old board’s direction, the more drastic asset sales that had been planned by the new owners, led by the Ontario Teachers’ Pension Plan, would be “off the table”. Reinstate the dividend, maybe buy back some shares, hope that placates shareholders. (Notice there’s nothing in there about merging with Telus—at this point, snowballs have a better chance in Hell.)

But in no way should shareholders be placated. I’m sure that more than a few of them were steaming at this remark by chairman Dick Currie in the morning paper:

“There’s not much one can say about it, in terms of anger or exhaustion. We did the very best we could do all the way through,” said Mr. Currie, former president of Loblaw Cos. Ltd. “As far as I am concerned, the board has done a superb job under very difficult circumstances, and if the deal doesn’t go through, it is not because of a lack of trying.”

If BCE shareholders hadn’t stopped reading and thrown the paper across the room, this paragraph at the end of the story probably made them feel at least a little better:

…a number of BCE directors are expected to step down from the board at the next annual meeting, if the takeover does not play out. Mr. Currie did not reveal his plans, except to say he wants to ensure the company is on sound footing.

The bottom line, however, is the same as it ever was: BCE needs to become a more competitive, better run company that can show it knows how to operate as a 21st Century telco. If this is not a catalyst for serious change, you have to wonder what would be. But the fact that it’s taken so many years for it to only come back around to this same challenge is a damning indictment of the people that were supposed to looking out for investors all along—the board.

What’s rather astounding about this bombshell is that it was a bombshell. I don’t recall anyone mentioning that the BCE deal still faced the hurdle of an auditor’s approval. Maybe these things are normally formalities, but KMPG audits two of the biggest lenders to the buyout and one might have surmised some influence from those quarters. It just goes to show the poverty of due diligence in the market and media/analyst coverage (yes, Mr. Fama, markets are inefficient).

I’m not looking to hold BCE long term. I still don’t like its long-term prospects. As I said in July, 2007:

“As far as I can see, it is easier technologically for the cable guys to add telephone service to their package of TV, Internet and wireless than for BCE to add TV to its package of telephone, wireless, and Internet. Getting bandwidth intensive video signals through BCE’s “last mile” of copper wire would seem to be a much greater challenge than tacking telephone service onto the cable company’s pipes into the home.”

Good riddance to the privatization offer. I was never a fan or believer in it, from when BCE executives loaded up on BCE options just days before the bid was announced (no doubt long sold) to the costs imposed upon bondholders, taxpayers, employees, and consumers to the extension of deadlines to the rulings.

The agreement sets out terms and conditions for the transaction to proceed while leaving a number of key issues subject to renegotiation. And it issues a warning to investors not to rely upon the document for investment purposes. As the first statement on the document, at the top of the first page, states, the agreement is:

“…not for purposes of disclosure to investors or any other purpose. The terms of this agreement may be varied or amended. Accordingly, investors and potential investors are cautioned that it would be inappropriate to rely on this document in making an investment decision…”

What particularly seems odd is further postponement of the deadline for completion of the transaction to December. Doesn't this suggest there are still some rather knotty issues to resolve — that it's not a “done deal”?

Buying BCE call options has been money in the bank. But I wouldn’t feel comfortable holding onto them any longer. The four financing banks, Citigroup, Deutsche Bank, Royal Bank of Scotland, and TD Bank want to renegotiate the loan and the deal could collapse or at least be changed in some way – notably, by lowering the buy-out price.

A lot has changed since the M&A boom. A financial crisis is unfolding. Indeed, it has recently flared up and the S&P Banking Index is now below the nadir reached in March when Bear Stearns folded.

The current environment really does have lenders worried. For example, analysts with one of the banks backing the LBO (Royal Bank of Scotland) recently issued a report that predicts a crash in financial markets within the next three months. It will pull the S&P 500 down another 20%, they say.

Concerning the victory for shareholders, BCE chairman Richard Currie said: “With this decision by the Supreme Court … we are now in a good position to complete the transaction.” The wording seems rather weak. Shareholders are only in a “good position” to complete the deal?