BCE Deal in Jeopardy

By Rob Gilles

TORONTO -- The largest leveraged buyout in history is in doubt after Canadian telecom company BCE (BCE) 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.