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Ending an era, Teachers unloads BCE stake

Sale of 4-per-cent share in telecommunications giant - once fund's single largest holding - signals demise of tumultuous relationship

From Monday's Globe and Mail

TORONTO — The Ontario Teachers' Pension Plan has quietly sold much of its stake in BCE Inc., BCE-T signalling an end to the stormy relationship between the institutional investor and Canada's largest telecom company.

Teachers sold 30.6 million shares of BCE worth $713-million in four large trades on Friday, according to several sources in the financial community. The fund's 4-per-cent stake in the telecommunications company was sold through TD Securities to a number of fund managers.

The sale came with Montreal-based BCE in a period of relative calm, as recently appointed chief executive officer George Cope makes steady progress on challenges common to companies in communications: Winning new clients in all sectors of telecom, and stanching the bleed of market share in traditional home and business phones.

A spokeswoman for Teachers declined to comment. A BCE spokesperson could not be reached for comment.

"It makes sense for Teachers to cut down on their exposure to BCE. There's nothing on the horizon that's going to galvanize the stock," said a portfolio manager who was aware of Friday's trading. At the end of 2008, BCE was the single largest holding in Teachers' $88-billion portfolio.

The pension plan had a 50.8-million-share stake worth $1.2-billion, but in its last regulatory filing as of March 31, the stake had shrunk to 39.8 million shares.

The BCE shares sold Friday went for $23 each.

That is well below the $42.75 takeover bid for BCE tabled by Teachers back in 2007. Analysts such as Peter Rhamey at BMO Nesbitt Burns forecast BCE will be commanding somewhere around $29 in a year's time, and rival money managers said Teachers likely sees better opportunities elsewhere.

That quiet exit is a sharp contrast to the wild ride Teachers took with BCE. The fund first built a stake in the telecom company in 2006 when then-fund portfolio manager Brian Gibson and his team decided the telecom play was undervalued compared with rivals. Teachers took an activist role with BCE's then-chief executive officer Michael Sabia and the board, pushing for operational changes that could boost the stock price.

While Teachers' push meshed with many of BCE's own plans - a sale of satellite unit Telesat went particularly well - tensions over business strategy built up between the phone company and its institutional owners in the wake of an aborted move to convert BCE into an income trust.

In the spring of 2007, at the height of the private equity boom, Teachers and several other institutions furiously lobbied the company to consider a leveraged buyout. Mr. Sabia and the board resisted, in large part because they saw greater long-term benefit to shareholders from remaining a public company.

That April, Teachers effectively put BCE in play by moving from a passive to an activist stance in U.S. regulatory filings, a move made despite heated appeals from Mr. Sabia and BCE chairman Richard Currie to hold back.

BCE subsequently drew three private equity bids, with Teachers and two American private equity funds winning the day by tabling a $35-billion buyout offer, the largest leveraged buyout bid ever made - funded in part by TD Securities.

Teachers subsequently pushed Mr. Sabia out of the corner office and installed Mr. Cope as CEO. However, the bid fell apart last year, a week before it was scheduled to close, when outside accounting firm KPMG refused to sign off on an opinion that the company would be solvent after the takeover. BCE is suing Teachers for walking away.

Part of the lore of this investment concerns the difference in views on BCE between Jim Leech, who is now the pension fund's CEO, and Mr. Gibson. While Mr. Leech championed the buyout, Mr. Gibson favoured selling the fund's BCE stake in the spring of 2007. Mr. Gibson subsequently left Teachers and is now a senior executive at the $70-billion Alberta Investment Management Corp., a rival public sector plan.

Mr. Sabia is now CEO at the Caisse de dépôt et placement du Québec, Canada's largest pension plan and an occasional rival of Teachers.

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