Updated from 1:25 a.m. EST

The group trying to buy Canadian telephone company

BCE

(BCE) - Get Report

terminated its offer because auditor KPMG concluded the deal to take the company private did not meet solvency requirements.

The merger agreement expired Thursday at 12:01 a.m. The buying group, Ontario Teachers' Pension Plan, Providence Equity Partners, Madison Dearborn Partners, and Merrill Lynch Global Private Equity, terminated the transaction because conditions of the deal weren't satisfied. The private-equity buyers also said in a statement Thursday that "under these circumstances neither party owes a termination fee to the other. "

The

Wall Street Journal

reports the breakup fee was $1.2 billion. BCE is expected to sue the private-equity group over the breakup fee, according to the

Journal

.

The takeover of BCE -- valued anywhere from $27 billion to $35 billion -- was signed in June 2007 as the credit markets began to soften and would have been the largest buyout ever if it closed at that time. But the deal was dealt a setback last week when KPMG said BCE could become insolvent if it were piled with the debt required for the deal as structured, the

Financial Times

reported last week.

The

Journal

reports that

Citigroup

(C) - Get Report

,

Deutsche Bank

(DB) - Get Report

,

Royal Bank of Scotland

(RBS) - Get Report

, and

Toronto Dominion Bank

(TD) - Get Report

won't have to provide $34 billion in debt to fund the deal, saving them from absorbing as much as $12 billion in losses from selling the debt package at steep markdowns or by holding the debt on their books.

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.

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