Leveraged Buyout (LBO) of BCE Inc.: Hedging currency risk

Colette Southam, Ahsen Amir-Ali, Samir Meghj

Research output: Contribution to specialist publicationArticleEducation

Abstract

In 2007, an analyst in the derivatives group of investment bank Grenfeld & Co. was asked to devise a hedging strategy for Providence Equity Partners (Providence) in Bell Canada Enterprises (BCE Inc.). Providence was based in the United States and any strategy would involve significant foreign exchange rate risk due to the conversion of returns into U.S. dollars. The analyst needed to consider several long-term hedging strategies that Grenfeld & Co. could recommend to Providence. Her vice-president had asked that she create a hedging strategy by initially assuming a 25 per cent IRR for the investment and its performance, based on two outcomes at the end of the investment (investment horizon = five years): a zero per cent IRR and a 25 per cent IRR.
[Extract]On July 2007, Carolyn Izuku, a second year Analyst in the derivatives group at the investment bank Grenfeld & Co. mulled over her desk as she decided how to proceed with her pitchbook. Her VP, Raymond Blackwell had asked her to determine the best hedging strategy for Providence Equity Partner’s (Providence) investment in Bell Canada Enterprises (legally BCE Inc.). Because Providence was based in the US, it would have to convert returns from the Canadian based BCE into US dollars, creating significant foreign exchange rate risk. Izuku now had to consider several long term hedging strategies that Grenfeld & Co. could recommend to Providence. This engagement would be a massive windfall for Grenfeld & Co. and her performance would determine if Grenfeld & Co. would be chosen as an advisor to Providence.
Original languageEnglish
Number of pages8
No.9B08N023
Specialist publicationIvey Publishing [Case Studies]
PublisherIvey Business School
Publication statusPublished - 8 May 2008

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