Shares of BCE Inc. (TSX: T.BCE, Stock Forum) surged almost 10% Monday on news that the U.S. government had agreed Sunday to bail out Citigroup Inc., the lead lender on BCE’s leveraged buyout.
BCE shares closed up $3.39 at $37.94 on volume of almost nine million shares.
The announcement clears another hurdle in the path of the biggest leveraged buyout in history. BCE shares fell last week amid fears that Citigroup’s problems would keep it from participating in the takeover, which is scheduled to close by Dec. 11.
Bullboard activity was heavy Monday as investors weighed in on the news.
In “Re: Time to Buy Bargains”, Frostfell noted that Canada’s banks also rallied today but only in the low to mid single digits. “They were down 10-15% in a day last week when Citi fears spread throughout the financial sector.
“TD seems to have panicked and issued some new shares at a very low price so that could dog the banks for another few weeks. Also we could see some positions coming out of index funds after the last couple days rally. If the banks are still yielding 5.5%+, I'll have to put a nice chunk of the BCE proceeds there. A long-term dividend oriented investor just does not get these opportunities very often.”
Under the heading “Right!,” bigmoney2009 noted that, “randall said he expects BCE shares could gain $1 or $2 over the coming weeks but is (sic) unlikely to reach $42 unless the banks announce their commitment to fund the transaction ....”
In “Re: Citigroup analysis”, Frostfell added, “Citi will eventually have to retire the preferred stock and is severely limited as to dividends. There should be no quantitative expectation at all for the common shares as a result of the infusion. The only reason C is going up is because the gov't (sic) has shown it will backstop it until it can right its ship. This is way beyond the time horizon of BCE closing. Not funding a solid financing commitment can only be negative for C and it will get the rumor mill swirling again as to their inability to operate business as usual.”
In Re: Re: citigroup analysis, Cidp added:
“I think most people including analysts would agree that if it were not for the 20 billion citi bailout today that it was destined to go under.
“Now that the Obama bailout is taking shape people are jumping all over BCE today because they believe that Citi bank will spend 10 billion of that money to help finance an overpriced foreign telco takover (sic). That just shows how flaky this market can be.
“Personally I wouldn't touch this stock with a ten foot bargepole at these prices but I really hope the deal goes through. It will give the TSE some much needed liquidity going into recession but it might put some teachers pensions at risk.”
And under “Time to Buy Bargains”, youngideas said: “I am looking forward to using the cash to buy good quality but undervalued stocks. Talk about a great time to have billions in cash freed up for investment. With a little common sense and research we have an opportunity to recover some of the losses we have encountered.
“This much money will have an impact.”