DowndraftFriday January 28 5:42 PM ET
Nortel, BCE Stocks Slide on Market Pressures
By Susan Taylor
OTTAWA (Reuters) - Soon-to-be independent Nortel Networks Corp. and its parent BCE Inc. took it on the chin on Friday, battered by a one-two punch of profit taking and a market jittery over pending interest rate hikes.
Brampton, Ontario-based Nortel (Toronto:NT.TO - news)(NYSE:NT - news), one of the world's largest communication equipment companies, has been tumbling since BCE announced on Wednesday it will spin off its Nortel ownership stake, a deal expected to close in the second quarter.
``It's interest rate concerns and a lot of other things,'' said Paul Sagawa, analyst at Sanford Bernstein & Co. in New York, who called the market on Friday ``a sea of red''.
``When you pile a general negative sentiment in the market with Nortel's very high multiple, for one, with the uncertainty created by this BCE action, which could continue to pressure the stock, it's going to get hit,'' he said.
Analysts say the spinoff exposes Nortel stock to pressure from arbitragers, who exploit the difference in prices by buying BCE stock and selling Nortel short, and increases the actively-traded float.
Montreal-based BCE (Toronto:BCE.TO - news)(NYSE:BCE - news), Canada's largest and most-widely held telecommunications group, plans to give shareholders 37 percent of its Nortel stock, valued at C$72.4 billion ($49.9 billion).
BCE shareholders will keep their BCE shares and get 0.78 of a common share in a new publicly traded Canadian company under the plan. Nortel shareholders will receive one common share in the new company in exchange for each Nortel share they own.
Under the plan, aimed at unleashing the value of other BCE holdings, BCE will maintain a 2 percent share of Nortel.
Shares in Nortel shed $9.20, or 6.6 percent, on the Toronto Stock Exchange on Friday to end trade at C$130.75. That is down from C$143.45 on Wednesday.
On New York, the issue dropped 5-13/16, nearly 6 percent, on Friday to end at 91-7/8 on trade of 5.3 million shares.
``Some of it's market related and some of it's Nortel specific,'' said Rob MacLellan, analyst at CT Securities in Toronto.
``You've got the huge influx of stock in the marketplace now -- that will weigh on Nortel -- and then you've got the arbitragers. They see transactions like this and they get all gleeful.''
BCE lost C$7.75 on the Toronto bourse on Friday to end trade at C$142.25, while on New York the issue ended at 98-5/8, down 5-3/4. That follows a whipsaw performance of BCE stock, which soared on the TSE to C$150 on Thursday from C$142.45 on Wednesday.
Profit taking has pulled down BCE stock along with a downward pull from Nortel, analysts said.
``The overall market is down,'' said Patrick Houghton, analyst with Sutro & Co. in San Francisco. ``BCE is being taken down by Nortel.''
($1-$1.45 Canadian)