BCE takeover battle may not be over yet

NEW YORK (Reuters) - The battle to take over Canada's biggest telephone company, BCE Inc. (BCE.TO) (BCE.N), may not be over yet, with some on Monday expecting a higher bid to emerge.

BCE on Saturday said its board recommended shareholders accept a C$42.75 ($40.52) a share offer from a consortium which includes the Ontario Teachers Pension Plan, Teachers Private Capital, as well as Providence Equity Partners Inc. and Madison Dearborn Partners, LLC.

The offer was worth an estimated C$51.7 billion, making it the biggest buyout in Canadian corporate history.

One trader said Canada's No. 2 phone company Telus Corp. (T.TO) could make a rival bid.

"I do believe there's a strategic buyer that we have yet to hear from, Telus," said John Orrico, portfolio manager of the Arbitrage Fund, which takes arbitrage positions in M&A deals.

"While they did enter the fray and did depart prematurely, I think they'll be back," said Orrico. "I think a strategic buyer always has an edge across the board."

Canada's Globe and Mail reported that U.S. buyout firm Cerberus Capital Management LP said it had not given up its pursuit of BCE, and was considering its options. A spokeswoman for Cerberus declined comment.

Telus (T.TO) Chief Executive Darren Entwistle said his company was keeping its options open, the newspaper reported. Telus was not available for comment.

BCE's shares closed up 75 Canadian cents at C$40.34 on Friday on the Toronto Stock Exchange, which was closed Monday for Canada Day. Its U.S. shares rose 4.4 percent, or $1.66 to $39.45 on the New York Stock Exchange.

The consortium buying BCE said the transaction values it at 7.8 times EBITDA (earnings before interest, taxes, depreciation and amortization) for the 12-month period ending March 31.

"I think BCE is that kind of deal where we look at potentially a 7 or 8 percent annualized rate of return -- not great for the deal that's on the table but we think other buyers come in," said Orrico, who added that his firm's fund bought a bit more BCE stock on Monday following the deal's announcement.

The deal values BCE at 40 percent higher than the undisturbed average trading price of its shares in the first quarter of 2007, prior to the possibility of a privatization transaction surfacing publicly, the consortium said in a statement.

It is the latest deal in the telecoms market following the $25.7 billion takeover of Alltel Corp. AT.N. That deal's value was around nine times analysts' estimates for Alltel's 2007 earnings, and eight times estimates for 2008, compared with an industry average of seven times earnings.

($1=C$1.0547)

(Additional reporting by Nick Zieminski)