Investors Bet BCE-Astral Deal Wins Approval in Second Bid
Investors are betting BCE Inc. (BCE) will succeed in a second bid to win regulatory approval for its purchase of Astral Media Inc. (ACM/A), bolstering Canada’s largest telecommunications company’s business in Quebec.
BCE is seeking to persuade the country’s main media watchdog to approve its C$3 billion ($2.95 billion) purchase of the specialty-channel provider after its first bid was rejected in October over concern the merger would concentrate too much power in BCE’s hands. It submitted an amended takeover plan in November that included the sale of some Astral assets.
The gap between the C$50 per share offer and Astral’s stock price in the largest pending acquisition of a Canadian company has averaged 2.7 percent over the past month, as investors anticipate a positive decision by the regulator in coming weeks. That compares with 3.6 percent in the month before the previous decision on Oct. 18.
The purchase of Astral would allow Montreal-based BCE to add French-speaking television channels like Super Ecran, providing content for its wireless devices amid competition for cable and wireless subscribers from Quebecor Inc. and U.S. video-streaming services such as Netflix Inc.
“Our expectation from everything we’ve seen is that this will be approved,” said Robert Follis, the Toronto-based head of fixed-income research at Bank of Nova Scotia. “I get the feeling they have listened” to critics of the deal.
Follis said he expects a decision from the Canadian Radio-television Telecommunications Commission by the “middle of June.” Denis Carmel, a spokesman for the agency, said a decision will be announced in “early summer.”
The Astral deal would be BCE Chief Executive Officer George Cope’s largest. The company has been adding media content to lure customers to spend more on wireless data. It teamed with Toronto-based Rogers Communications Inc. to buy a controlling stake in Maple Leaf Sports & Entertainment Ltd. for $1.3 billion in 2011, becoming owners of the Toronto Maple Leafs, the most valuable franchise in the National Hockey League.
BCE agreed to buy broadcaster CTV in 2010 for C$1.3 billion in cash and C$1.7 billion in debt, giving it 30 specialty channels, including sports channel TSN.
Jason Laszlo, a spokesman for BCE, said the two companies have presented a “compelling case” the acquisition is in the public interest. “We look forward to closing the transaction and welcoming the Astral team to Bell Media,” Laszlo said in an e-mail statement on June 14.
Olivier Racette, a spokesman for Astral, said the company declined to comment.
BCE shares have slumped 8.8 percent since May 21 as rising bond yields have drawn investors away from one of Canada’s best-known dividend stocks. That has pushed its advance over the past 12 months through June 14 down to 6.5 percent, compared with a 28 percent gain for Quebecor, the best-performing Canadian telecommunications stock.
BCE shares would benefit from government approval of the Astral deal, said Jeff Fan, an analyst at Scotia Capital Inc. in Toronto. “Effectively what that would help support is the dividend growth that BCE has communicated they want to stick to,” Fan said in a phone interview June 14. “A rejection would be negative” for BCE, he said. BCE shares rose 0.2 percent to C$44.25 at 4:52 p.m. in Toronto today.
The company will need to win the backing of a new regulator who has sought to be more assertive than his predecessors on consumer protection.
Canadian Radio-television and Telecommunications Commission Chairman Jean-Pierre Blais, appointed 12 months ago after spending almost two decades in public service on broadcast and cultural industry issues, said in a June 12 speech that it was important for regulators to be audacious to serve the interests of Canadians, citing his decision to toughen regulation in the wireless phone market and last year’s rejection of BCE’s bid for Astral.
“Our decision last fall sent a clear signal that the public interest is paramount,” he said in the speech.
In its Oct. 18 rejection, the CRTC said the deal raised concerns about competition, ownership concentration in television and radio, vertical integration and the exercise of market power. The regulator calculated it would give BCE a 42.7 percent share of the Canadian English-language television market and 33.1 percent of the French-language market.
BCE revised its offer, agreeing to sell Astral’s share of six television joint ventures, including Teletoon and Cartoon Network, as well as two radio stations, to Corus Entertainment Inc. for C$494 million.
“The CRTC pushed for some amount of changes and they got some of those, and we don’t have a strong history of the regulator standing up long-term to these kind of transactions,” said Michael Geist, a law professor at the University of Ottawa who specializes in Internet issues.
Canada’s antitrust agency has already approved the deal and BCE said May 9 it’s targeting an early summer closing of the Astral deal, pending CRTC approval.
Astral stock fell 15 percent to C$39.51 the day after the CRTC rejected the bid and have risen 22 percent since then to close at C$48.25 on June 14 in Toronto. The shares fell 0.3 percent to C$48.10 at the close in Toronto today.
“Our view is there is fundamental support at C$42,” said Catharine Sterritt, a Toronto-based risk arbitrage strategist at Bank of Nova Scotia. “It actually has a very attractive risk-reward.”
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