BCE's buyout deal in jeopardy as KPMG audit ups debt load

27 November 2008

Plans for the Canadian phone carrier BCE Inc's takeover, in a C$52 billion ($42 billion) leveraged buyout, is in jeopardy as its debt might prove too much in the present economic scenario.

The stock was down 34 per cent, wiping C$10.6 billion in market value on auditor KPMG's observation that BCE would not be able to meet requirements of solvency set in the acquisition agreement with an Ontario Teachers' Plan group.

The deal remains in jeopardy unless KPMG revises its audit opinion, according to BCE.

If the deal fails, chief executive George Cope may have to answer tough questions from shareholders as he seeks to revive sales growth. The stock was trading well below the offer price on fears of credit squeeze and a global recession would prompt buyers or their bankers to opt out.

According to analysts, the failure would deal a big blow to individual shareholders over the short term. Over the long term, however, the company can progress under the present management, they say. 

If completed, the deal would be the second largest debt-funded buyout after KKR & Co's $43.2 billion takeover of TXU Corp last year.