Telus Corp. pulled the plug Tuesday on its bid for larger rival BCE Inc., only days after it touted a megamerger of the country's two biggest telecom companies as a means to create a "national champion" that would benefit all Canadians.
The abrupt move came as two other major players -- Toronto-based buyout specialist Onex Corp. and the Caisse de depot et Placement du Quebec -- dropped out of a competing bid led by the Canada Pension Plan Investment Board and U.S. private equity firm Kohlberg Kravis Roberts & Co.
"The inadequacies of BCE's bid process did not make it possible for Telus to submit an offer," Vancouver-based Telus said in a release. The company declined to elaborate.
Shares of BCE, Canada's most widely held corporation, fell $1.23, or three per cent Tuesday to $39.49 on the Toronto Stock Exchange. Telus rose 19 Canadian cents to $62.19.
BCE, the parent company of telephone giant Bell Canada, has been approached by a number of buyout groups and U.S. private equity firms interested in teaming up with Canadian partners. As a federally regulated company, no non-Canadian entity can own more than 47 per cent of the business.
One of the groups is led by the Ontario Teachers' Pension Plan and U.S. partner Providence Equity Partners, which confirmed on Monday it plans to submit a bid for BCE. A third proposal has been tabled from U.S.-based Cerberus Capital Management and includes the Hospitals of Ontario Pension Plan.
As recently as Monday, Telus was praising its bid as the best possible outcome for Canadians and BCE shareholders, one that would avoid the uncertainties of foreign ownership and ensure the country maintains a national provider with economic heft like Germany's Deutsche Telekom AG.
Critics had feared a Telus-BCE merger would reshape Canada's telecom landscape by removing one of the industry's three big competitors, leaving only Toronto-based Rogers Communications Inc. as the alternate choice for wireless phone services.
But National Bank Financial analyst Greg MacDonald believes it's too soon for investors to assume Telus is no longer interested in Montreal-based BCE or that the company will inevitably be sold to an Ontario Teachers' consortium or CPP-led group.
"We believe the Bell Canada board will feel obligated to extend the bidding deadline to accommodate the bidders and maximize the effectiveness of the auction process," he said Tuesday in a research note to clients.
Industry observers say the fact that three major players -- Telus, Onex and the Caisse -- have chosen to withdraw is evidence that BCE's board needs to revisit the company's bidding process to guarantee the best outcome for shareholders.
If that happens, it's always possible Telus will return to the table, said Iain Grant, a telecom consultant with the SeaBoard Group.
"Bell has been a business icon for 100 years and is walking and talking as if it's in control of its destiny with an assumed arrogance as one of Canada's largest corporations," he noted.
"But when you're in play, all that goes away. You learn how humbly small you are. The fact that there are four players ostensibly large enough to write a cheque to buy you suggests you are no longer in control."