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June 22, 2007 8:37 pm

Bank proposes BCE recapitalisation

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A small Toronto-based investment bank has proposed recapitalising BCE as an alternative to the lengthening list of takeover bids for Canada’s biggest telecommunications provider.

The proposal by Catalyst Asset Management seeks to address concerns among some BCE securities holders that an outright takeover might not be in their best interests.

BCE has for years been the epitome of a long-term “widows and orphans” investment, with a stable share price and a steady dividend stream. While the takeover speculation has sharply pushed up the common share price, its bonds and preferred shares have tumbled.

The Catalyst proposal, which involves the creation of a new security comprising existing common shares and a new subordinated debt instrument, “is going to capitalise the company for existing shareholders the same way as Cerberus would for themselves”, said Brent Fullard, Catalyst’s president, referring to Cerberus Capital Management, one of the private-equity groups that has shown interest.

The new securities would pay an annual dividend of C$2.55 a share, almost three-quarters more than the current pay-out. BCE has become a takeover target partly because of its lacklustre stock-market performance in recent years.

Mr Fullard, former head of equity markets at Bank of Montreal’s investment banking arm, said that he had so far had no contact with BCE, but expected to speak yesterday to a member of the board committee evaluating the company’s options. “I don’t need to get into a data room,” he said. “I’m not buying the company. I’m just giving new securities to existing shareholders.”

The Catalyst proposal comes a day after Telus, BCE’s Vancouver-based rival, said that it was considering a bid. Both seek to capitalise on political concerns that the involvement of US private-equity firms in a buy-out would eventually lead to another Canadian corporate icon falling under foreign control.

BCE shares were little changed in early trading Friday, after rising steeply in recent weeks. The company has a market value of about C$32.6bn.

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