Hedge funds face a pounding on BCE |
Date: Friday, May 23, 2008
Author: Andrew Willis, Streetwise Blog, The Globe and Mail.com
When hedge fund managers compare scars, the worst wounds in the room date back to General Electric's aborted takeover of Honeywell International.
The BCE meltdown that is coming Thursday morning has the potential to inflict the same sort of carnage in the sector as that failed $42-billion (U.S.) deal, which played out in 2001.
BCE shares are expected to open on the TSX at $32 (Canadian) Thursday, based on early trading in the stock in New York.
That's down 15 per cent from Wednesday's close of $37.12, prior to the shocking Quebec court decision that puts the $35-billion buyout in jeopardy.
BCE is a big, liquid stock that's become a favourite holding of what's known as the risk arb crowd – the hedge funds that play takeovers. These investors likely own a third of the phone company's shares, or more. Honeywell had the same sort of following.
When European regulators nixed GE's bid for Honeywell, the hedge funds took a pasting. The failed deal killed performance that year at many funds, and in doing so, killed performance fees.
BCE has the potential to be the same sort of catastrophic event for the hedge fund industry.
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