The largest leveraged buyout on record for a telecom vendor may not happen after all.
Bell Canada Enterprise (BCE) has revealed that its plans to be acquired may not pass muster on a key provision after its auditing firm KPMG said it does not believe that BCE will pass a required solvency test for the deal to be completed.
The deal, valued at US $48.5 billion when it was announced in July of 2007, was set to close on December 11th. The acquisition would take the company private and off the Toronto and New York Stock Exchanges.
BCE was set to be acquired by a consortium of investment firms led by the Ontario Teachers Pension Plan, Providence Equity Partners, Madison Dearborn Partners, LLC and Merrill Lynch Global Private Equity.
“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,” Siim Vanaselja, BCE’s CFO, said in a statement. “The company disagrees that the addition of the LBO [leveraged buyout] debt would result in BCE not meeting the technical solvency definition.”
BCE is a Canadian Telecom giant, with phone, internet, wireless, Satellite TV and media holdings, including CTV and The Globe and Mail newspaper.
KPMG’s concern is that the indebtedness involved in the LBO financing agreement, based on current market conditions, would violate terms of the privatization agreement that call for financial solvency.
The investor group that is acquiring BCE, now called BCE Acquisition, issued its own statement on the solvency issue.
“The delivery of the solvency opinion is a condition to the completion of the acquisition of BCE,” according to BCE Acquisition. “The purchaser has been working closely with BCE to take the actions required by the definitive agreement in connection with the transaction and will continue to fulfill its obligations under the terms of the agreement.”
For its part, Bell noted in a release that it is still working with KPMG and its investors to try and satisfy the closing conditions for the deal. However Bell is clear that if KMPG does not revise its opinion by December 11 then the deal will not likely proceed.
Andrew Willis, in a blog post for the Globe and Mail, speculated that, if the deal falls through, BCE is likely to engage in a share buyback program to placate shareholders.
“If the KPMG decision stands, and it likely will, Mr. Cope and his crew will quickly move to life without a buyout,” Willis wrote.” The team, and the board, have prudently prepared for this day. BCE is flush with cash after selling divisions such as Telesat and suspending quarterly dividends”
Bell’s CEO also touted the financial resources of his company, despite the KPMG audit.
In a statement, George Cope, president and CEO of BCE, said “BCE today enjoys solid investment grade credit ratings, has $2.8 billion of cash on hand, a low level of mid-term debt maturities, and continues to deliver solid operating results.”
