By Tom Bradley

The Ontario Teachers Pension Plan ("Teachers") came within a hair of buying BCE at $42.75. Clearly the powers that be at Teachers thought enough of the BCE franchise that they were willing to pay up for it and use substantial amounts of leverage to do it. By taking the company private, they would have moved decisively to surface value, including management changes, capital investments, and financial and tax restructuring.

But the deal didn’t go through and we learned this week that Teachers has sold 30 million shares at $23 ($713 million), which represents a substantial portion of the 40 million shares it held at March 31st.

Now, we all know that the world has changed and the economy is weaker than it was when the deal was being pursued. Particularly in Ontario.

But $23?

Also, the competition for wireless telephone customers is intensifying with new players coming into the market and Rogers continuing to take advantage of its technology lead.

But $23?

I don’t pretend to know what the thinking was behind the sale. In light of the fact that BCE has Teachers’ man at the helm (George Cope) and is implementing a strategy that Teachers supported, it is hard to figure. It may have happened for structural reasons. The private equity division was where the action was during the takeover attempt, while these shares were likely sold by the ‘public equities’ division. The two teams obviously have a very different view of what BCE is worth.

But $23?

It speaks to how structural issues and size can lead to head-scratching decisions at times, issues we write about a lot in this space. We want our managers as ‘unconstrained’ as possible – no marketing or organizational issues getting in the way of investment decisions. We also want our money managers to be ‘right-sized’. Teachers has some advantages over smaller managers (see Size a Liability of Nimble Field of Stocks and Bonds), but one of them isn’t nimbleness and cost of trading. It had to move BCE down a buck or more (4%+) to sell their shares.