Bell Canada in world's largest leveraged buyout

05 July 2008

Bell Canada Enterprises (BCE) today announced the company has entered into a final agreement with a company formed by an investor group led by Teachers' Private Capital, the private investment arm of the Ontario Teachers' Pension Plan, Providence Equity Partners Inc., Madison Dearborn Partners, LLC, and Merrill Lynch Global Private Equity.

It maybe recalled that even after receiving the nod from the highest court of the land, analysts doubted fruition of the sale after the sponsoring banks raised objections. Accordingly, the latest agreement has a lot to placate them. (See: World's largest leveraged buyout gets Canadian Supreme Court nod)

BCE shares last month traded as much as 25 per cent below the offer price on concern that banks funding the purchase, including Citigroup Inc. and Deutsche Bank AG may back out or reduce the price as financing costs rise and the US economy slows.

The buyout group and BCE made several changes to the agreement to win the backing of the bankers, who will provide C$34 billion in financing. The closing was pushed back almost three months from 30 September, giving the bankers more time to sell debt to pay for the purchase.

The dividend for the second quarter, which had been deferred last week, won't be paid, though preferred shareholders will get a dividend. The buyers must also pay a break fee of C$1.2 billion or 20 per cent more than in the original agreement, if the purchase doesn't get done.

Analysts opined that not paying the dividend was obviously a conciliatory gesture towards the banks, and it had effectively reduced the takeover price by more than a dollar a share. The majority also agreed that the risk to financing which had earlier threatened the deal was no longer there.