This special edition of “Best Canadian Stocks” was posted in 2014 and focused a key acquisition for BCE at the time – the remaining shares of Bell Aliant Inc.
BCE INC. (Toronto symbol BCE; www.bce.ca) has agreed to pay $3.95 billion in cash and stock for the 56% of BELL ALIANT INC. (Toronto symbol BA; www.bellaliant.ca) that it doesn’t already own.
In all, BCE will pay $3.95 billion in cash and stock, which is equal to 10.3% of its $38.4-billion market cap.
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BCE expects to close the deal by November 30, 2014. Following the takeover, Bell Aliant’s shareholders will own 7% of the combined company.
Merging Bell Aliant with its existing operations will make it easier for BCE to expand its high-speed wireless and Fibe TV fibre optic networks in Atlantic Canada. BCE also expects to save $100 million a year by eliminating overlapping operations. To put that in perspective, it earned $640 million, or $0.82 a share, in the three months ended June 30, 2014
The savings should let BCE raise its dividend in 2015. The current annual rate of $2.47 a share yields 5.1%.
Bell Aliant shareholders will have three options when they tender their shares:
$31.00 in cash;
0.6371 of a BCE share (worth $31.03 at today’s price for BCE);
or $7.75 in cash plus 0.4778 of a BCE share ($31.02).
If you have a profit on the stock and it’s in a taxable account (not your RRSP, for example), then we recommend the all-stock option. That way, you can defer capital gains taxes until you sell the BCE shares you receive.
However, if adding more shares would push up your BCE holdings too high—to more than, say, 10% of your portfolio—you should consider the all-cash option. But here too, you need to consider how much capital gains tax you’ll have to pay.
In any event, you probably won’t receive the full $31.00 in cash, as BCE will cap the cash portion at 25% of the total payout.
We cover both stocks Bell Aliant and BCE in our flagship Canadian advisory, The Successful Investor and our safety-first advisory, Canadian Wealth Advisor.
BCE is still a buy, and Bell Aliant is a hold.
If you’re a member of Pat’s Inner Circle and you’d like to ask a question about today’s article or another stock or investment topic, please go to the question page reserved for you (be sure you’re logged in first). Click here to ask your question.
Two more regional BCE Acquisitions: Manitoba Telecom Services and SuperNet (rural)
In March 2017, BCE completed its acquisition of Manitoba Telecom Services. That utility has 1.3 million telephone and wireless customers in Manitoba. The company paid $3.9 billion, which includes Manitoba Tel’s debt of $972 million.
BCE’s revenue for the quarter ended September 30, 2017, improved 5.0%, to $5.7 billion from $5.4 billion. If you disregard costs related to the Manitoba Tel purchase, along with other unusual items, earnings rose 1.9%, to $799 million from $784 million a year earlier. Due to more shares outstanding, per-share profits fell 3.3%, to $0.88 from $0.91.
More recently, in June 2018, BCE announced it had signed a new, multi-year contract with the Province of Alberta to extend high-speed Internet service to schools, hospitals and other public facilities in 402 rural communities.
The company currently owns and operates the high-speed SuperNet system in 27 urban areas across Alberta. Under this new deal, BCE will acquire Axia Media Corp., the privately held firm that owns the SuperNet system in rural areas.
The company has yet to reveal how much it will pay for Axia, or how much it will earn under this expanded contract. However, it helps raise BCE’s profile in the province. Gaining full control of SuperNet should also make it easier for the company to improve the efficiency of the system.
OUR RECOMMENDATION: BCE is our #1 Conservative buy for 2018.
This post was originally published in 2014 and is regularly updated.
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