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$35B Buyout of Canadian Telecom Company Dead

The Associated Press

TORONTO -- The largest leveraged buyout in history is dead after a group of buyers of the Canadian telecom company BCE (BCE Quote) said an audit found the proposed $35 billion deal to take the company private did not meet solvency requirements.

An investment group led by the Ontario Teachers Pension Plan Board and several U.S. partners had expected to complete its deal for BCE, the parent of Bell Canada, on Dec. 11. It also would have been the biggest takeover in Canadian history.

But 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. The company had to meet the solvency requirements for the acquisition to be completed.

The buyers announced the decision early Thursday.

"Because KPMG has concluded that a required test for the solvency opinion was not met, this mutual condition to completion of the acquisition could not be, and was not, satisfied," said Thursday's statement. "Accordingly, the purchaser terminated the agreement in accordance with its terms."

Shareholders overwhelmingly approved the buyout group's offer of 42.75 Canadian dollars per share in September of 2007.

BCE management had agreed to the deal in June 2007, just before credit markets began to unravel in North America.

The group said in the statement that no break-up fee will be paid.

The banks that agreed to finance the deal will now be off the hook for billions of loans. Citigroup was directly on the hook for at least $11 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. It could have meant billions of losses for the banks.

Some analysts speculated the banks would try to get out of the deal.

The Toronto-based Ontario Teachers' Pension Plan -- with assets of $108 billion Canadian ($87 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 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. It is Canada's largest communications company.

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.

The deal has been in some doubt for a year for a variety of reasons, including 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.

Canadian regulators also ordered some of aspects of the deal to change. BCE, the buyers and the banks also re-negotiated the deal in July so that the dividend would be eliminated and the closing would be put off until December.