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BCE deal may be in jeopardy due to solvency issues

BCE deal may be in jeopardy due to solvency issues

The largest leveraged buyout in history is in doubt after Canadian telecom company BCE Inc. said Wednesday a preliminary review has found the proposed $35 billion privatization deal may not meet solvency requirements.
BCE, the parent of Bell Canada, is being privatized by an investment group led by the Ontario Teachers Pension Plan Board and several U.S. partners. The deal, which had been set to close on Dec. 11, would also be the biggest takeover in Canadian history.
A review by accounting firm KPMG found that BCE would not meet the solvency tests of the privatization agreement, partly due to the amount of debt involved in the transaction and current market conditions, BCE said. The company must meet the solvency requirements for the acquisition to be completed.
BCE spokesman Mark Langton said if KPMG doesn't change its mind, the deal is unlikely to proceed because it is a condition of closing.
"We are disappointed with KPMG's preliminary view of post-transaction solvency, which is based on numerous assumptions and methodologies that we are currently reviewing. The company disagrees that the addition of the (leveraged buyout) debt would result in BCE not meeting the technical solvency definition," BCE Chief Financial Officer Siim Vanaselja said in a statement.
BCE said it is working with KPMG and the proposed buyers to meet the closing requirements.
Shareholders overwhelmingly approved the buyout group's offer of 42.75 Canadian dollars per share ($34.50) in September of 2007.
The deal was agreed to in June 2007, just before credit markets began to unravel in North America.
In premarket trading, U.S.-listed shares of BCE plunged $12.28, or 39.3 percent, to $19. The stock has ranged from $25 to $40.44 over the past year.
If the deal doesn't proceed, the banks that agreed to finance the deal would be off the hook for what could have been billions of losses. Citigroup is directly on the hook for $13 billion of the $35 billion in loans backing the deal. The Royal Bank of Scotland, Toronto-Dominion Bank and Deutsche Bank were to provide the rest. The inability for the banks to sell the debt in debt markets could have meant billions of losses for the banks.
The Toronto-based Ontario Teachers' Pension Plan _ with assets of $108 billion Canadian (US$85 billion) in 2007 _ invests and administers the retirement funds for Ontario's 353,000 active, inactive, and retired teachers. U.S.-based Providence Equity Partners and Madison Dearborn Partners LLC are also involved in the proposed buyout.
BCE, which has more than 54,000 employees, had annual revenue of $17.8 billion Canadian ($14.1 billion) in 2007. It had 5.8 million wireless subscribers, 8.64 million phone lines, 1.94 million Internet subscribers and 1.82 million satellite television subscribers in 2006.
New Chief Executive George Cope took over on July 11 despite the deal not closing yet. Cope has refocused the Montreal telecom operator as it faces more intense competition in its wireless and Internet data businesses.
Langton couldn't say what a failed deal would mean for Cope and the new management.
The deal has been in some doubt for months because of the credit crisis and because a court ruling temporally put it in jeopardy. Earlier this year, Canada's Supreme Court overturned a lower court ruling that said the sale of BCE didn't adequately consider bondholders' interests.


Updated : 2021-10-25 09:32 GMT+08:00