BCE INC. $48 – Toronto symbol BCE

BCE INC. $48 (Toronto symbol BCE; Conservative Growth and Income Portfolios, Utilities sector; Shares outstanding: 827.7 million; Market cap: $39.7 billion; Price-to-sales ratio: 1.8; Dividend yield: 5.1%; TSINetwork Rating: Above Average; www.bce.ca) is Canada’s largest provider of telephone services, with 5.0 million customers in Ontario and Quebec. It also has 2.2 million high-speed Internet customers and 2.3 million TV subscribers.

BCE also sells wireless services to 7.8 million customers across Canada, and its Bell Media segment owns CTV Television, specialty channels and radio stations.

The company recently offered to buy the 56% of Bell Aliant (Toronto symbol BA) that it doesn’t already own. Bell Aliant sells phone and Internet services to 2.3 million clients in Atlantic Canada and rural Ontario and Quebec. It also provides wireless services through an alliance with BCE.

BCE will pay $3.95 billion in cash and stock, but it will cap the cash portion at 25% of the purchase price. It expects to save $100 million a year by eliminating overlapping operations.

Over 90% of Bell Aliant shareholders have accepted the offer, so BCE can now force the rest to tender their shares.

BCE gave Bell Aliant shareholders three options: $31.00 in cash; 0.6371 of a BCE common share; or $7.75 in cash plus 0.4778 of a BCE share. Investors can defer capital gains taxes on the BCE shares they receive until they sell.

The company has prorated the all-cash option, so investors will receive $14.60 in cash plus 0.3370 of a BCE share. Investors who selected the all-stock or the default cash-and-stock option received their original choice without proration. The company aims to complete the purchase by October 31, 2014.

Meanwhile, BCE earned $640 million in the second quarter of 2014, up 7.7% from $594 million a year earlier. Per-share earnings rose 6.5%, to $0.82 from $0.77, on more shares outstanding. Revenue gained 4.4%, to $5.2 billion from $5.0 billion, on strong demand for wireless and the company’s Fibe TV service.

Buying full control of Bell Aliant should increase BCE’s earnings by 7.0%, to $3.20 a share in 2014 from $2.99 in 2013. The stock trades at 15.0 times that forecast. The $2.47 dividend yields 5.1%.

BCE is a buy.


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