BCE: INC Case Analysis

As per the BCE perspective there are a number of factors which could be

considered by the strategic oversight committee in weighing that whether an

all-cash bid from a private equity bidder or a potential stock and cash bid

from a strategic buyer such as Telus would be more beneficial from the

perspective of BCE. First of all, the benefits of synergy should be considered

by the strategic oversight committee in valuing both the bidders offer. The

synergy benefits increase the efficiency and the competitiveness of a

company.

It has been stated that if BCE merges with Telus Corporation, then the

combined entity would be able to generate around $ 700 million to $ 1 billion

in synergies. Since, both the business are in the wire line and

wireless business therefore, the combination of their business operations

would yield such synergies and thus Telus Corporation can outbid most of its

rivals through its cash and stock bid. However, this would not be the case

with the private equity bidder since they did not specialize in this business

however, they would also focus on a business model which would emphasize

on cost cutting programs and sale of the non-core businesses of the company.
Along with this, the private equity buyers would also be able to reduce the

purchase price of BCE through the sale of the non-core investments of BCE

and thus reduce the overall equity and debt financing required to fund the

transaction. If the company combines with Telus Corporation, then it might

yield significant synergies due to scale or cost advantages but Telus might be

limited in expanding the capital spending program of the combined company.

However, if the company is privatized then the leadership team can easily

monetize such improvements and enhance the profitability of the company.

Another advantage of privatization is the lower cost of capital as the

transaction would be financed with borrowed money. Therefore, strategic

oversight committee will have to consider not only the synergies, but also

other factors such as the benefits of relative financing mix of the private

bidders and the strategic buyers, the extent of future capital spending, the

relative cost of capital, regulatory hurdles and the premium offered to the

current shareholders of BCE.

The price for BCE has been estimated through a range of different valuation

methods. First of all, the valuation of the equity of BCE has been performed

on the basis of the discounted cash flow method. The free cash flow projects

and the key input assumptions as provided in the case and case exhibits have
been used to determine the equity value of BCE. The weighted average cost of

capital has been estimated to be 7.73% based on the provided inputs. The

conservative terminal growth rate is 1%. After deducting the total long term

debt of BCE of $ 9.665 billion from the enterprise value of $ 39.64 billion we

have an equity value of $ 29.98 billion and a price per share of $ 37.13 per

share. Comparing this intrinsic value with the current share price of BCE of $

31.13 per share, the shareholders of BCE would get a premium of 23.22%. The

IRR for the future cash flows would be 17.09% based on the current

market capitalization of $ 24.3 billion.

firm expects from the investment which is 20%. Therefore, the return on the investment is low, but

there is potential growth based model that has huge potential to grow in the market. See Exhibit 2 for

the calculation of IRR.

There are many challenges for the company to finance such large transactions, one potential challenge

is the synergetic effect. There are two effects of synergies, positive and negative. So, a company that is

being acquired might resist to the new owner, and might not allow the acquirer to benefit from the

synergies of both companies.

Since, financing such large transaction does create many questions such as what is the intention of the

acquirer with the target company, and if it successfully acquires the company then how would the

acquirer manage that synergy. The second challenge would be the guarantee of the financial transaction

that how would it control the transaction, given that it is one of the largest transaction into the market.

The strategic considerations refer to the long-term prospects. The BCE should consider the background

of bidder, understand the synergetic effect, and potential of the acquirer, and financial background as

well. Meanwhile, it is important for the company that it should consider the background of the acquirer

to know its history in the market related general issues.

Secondly, it should consider and understand the long effect of synergies of both companies after merger

or acquisition that the effect would be either positive or negative. Similarly, potential of the acquirer

that does it have capabilities to manage the operations and business issues, and the financial

background of the acquirer is also important because it would have a long-term effect on the company.

If the acquirer has not a good financial position, and has financed the transaction, so would it be able to

meet with the obligations of the deal.

diverted its business has been operating very efficiently by adopting the growth based model. The

company has an excellent R&D team, and experienced professionals with strategic capabilities to

approach to the customer needs and expectations.

Given that company would have strategic capabilities, it would benefit from the synergies of acquisition

and would also add value to company. Thus, there would be many potential opportunities to exit.

However, one of the most important and preferred exit opportunity for the acquirer after three to five

years would be to go for IPO of the BCE, and exit with good capital gain on the investment.

Therefore, it can be determined that there would be many potential exit opportunities for the company.

It is also anticipated that the acquirer would have good capital gain at the time of exit because the value

created since acquisition would have also changed.

The committee can weigh all cash bidders, and stock-and-cash bidders in the market. However, the

committee has to consider the background of the acquirer in order to give access to company. Because,

the background of the acquirer is the most important since there are many complications involved such

as bad background of the acquirer would impose negative effect on the company, and it might also

impact on the name of company. So, it is not necessary that company should only consider all cash bids.

There are many other bidders in the market such as stock-and cash bidders. So, it is vital for the

company that it should also consider other bidders from the market. Meanwhile, weigh of the stock-
and-cash based on the criteria discussed previously. However, the issue is that how should committee

weigh between the cash bidders and the stock-and-cash bidders.

So, the committee should understand the complications, and implications involved in this transaction to

weigh these bids. The all-cash bids have different pros and cons, and stock-and-cash have different pros

and cons. Therefore, the weigh should be based on the strategic considerations rather than just looking

at the pros and cons.

Price anticipation

BCE has been one of the leading companies in the telecommunication industry. It has good future

growth prospects and growth based approach to market and its performance has been good as

compared to its peers, because the company has maintained good policy regarding providing value to

the investors, and its share price touches high sky due to its policy and performance.

Furthermore, the company would have good future growth, given the value of the company should have

premium. So, the true and fair value of the company is $51.1 billion given that company is growth and

expansion oriented. So, it has to continue to transfer this value to customers, and it should also make

strong relationship with the investors by providing value for them