What are the Gains available to Telus as a strategic buyer and what are the gains available to Private equity bidders as financial buyers.
The opportunity to acquire or merger with BCE provide tremendous opportunities for private equity buyers as financial buyers and Telus as a strategic buyer. Firstly, it was evaluated that, Telus was the second largest telecommunication organization available in the industry and was a major competitor of bell. Hence, Telus could also be considered as a strategic buyer in which, the company decided to merge with BCE to induce synergies in its business objectives. Which would enable Telus to enhance its own brand image and position in the market. Furthermore, Telus could be able to use the strong market position of BCE in its wireline, wireless and media market segments, where BCE hold the leading position in those market segments.While using its already established business model and strategies that had benefited BCE in the past and allowed it to gain significant share in the market. Therefore, it can be assessed that these strategies implemented by BCE and its efficient business model would hugely benefit Telus, in enhancing its position and profitability in the market and better align itself with its own strategic objectives set by the senior management of the company.
In addition to this, it can be assessed that, Bell Canada was the leading telecommunication organization in Canada. Which had significant enhanced its cash flows and position in the market, through the implementation of effective strategies. Which, in turn, had enabled the company to secure significant share of the market. Therefore, it can be evaluated that, for private equity firm considering to acquire BCE as a financial buyer,could potentially benefit from the deal. Where, they would acquire majority or controlling interest of the organization in the hopes of gaining higher return on equity.For which, BCE required minimum effort from these PE firms to maintain its current market position and profitability. However, the PE firm could potentially further enhance the profitability of BCE by focusing on long-term value creating, while operating as a private company in the market. Which, in turn, would allow them, to gain significant returns from their investment, which was acquired through leveraged buyout in the form of loan or bonds from venders. Where, the PE firm would easily be able to pay-off the loan amount plus interest, which could be attributed to its past performance or its future performance after focusing on its long-term value creation alternatives. While making decent profit in the form of higher return on equity for themselves in the process and enhance their own image, position and secure a fair share of the market as well.
Is $42.75 a fair offer in light of the stand-alone value, value in a possible combination with Telus, and value in a leveraged buyout?
It can evaluated from the Exhibit below, in which the enterprise value of BCE was calculated through the data given in the case regarding the cash flows from the year 2004 to 2006………………
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