Some breakups are more expensive than others. Bell Canada Enterprises (BCE) today announced that its privatization deal, at one time valued at nearly US$50 billion, will not go forward.
As a result, it said it’s now seeking a US$1.2 billion breakup fee from its would-be purchasers.
The Canadian Telecom giant, which has phone, Internet, wireless, satellite TV and media holdings like CTV and The Globe and Mail newspaper, had been set to be acquired by a consortium of investment firms, taking the company private and off the Toronto and New York Stock Exchanges.
The transaction had been valued at US$48.5 billion when it was announced in July 2007 — making it the largest leveraged telecom buyout to date — and had been expected to close today.
Instead, BCE revealed today that the deal, now carrying an approximate valuation of US$27.8 billion, has been scuttled due to its failure to meet a financial solvency test from auditor KPMG. The solvency test failure had been first reported at the end of November and had to be corrected by today for the deal to go forward. It wasn’t.
As a result of the deal’s collapse, BCE is now calling for payment of its $1.2 billion breakup fee from its former partners in the transaction, who had been led by the Ontario Teachers Pension Plan, Providence Equity Partners, Madison Dearborn Partners and Merrill Lynch Global Private Equity.
“All closing conditions have been satisfied by BCE, other than the solvency opinion, a condition to closing that was to be satisfied by its nature at the effective time,” BCE said in a statement. “Under such circumstances, the agreement provides that the break up fee will be owed to BCE by the Purchaser.”
The buyers, known collectively as BCE Acquisition group, however, said they disagree with BCE’s assessment that the fee still needs to be paid.
“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,” the group said in a statement of its own. “Accordingly, the Purchaser terminated the agreement in accordance with its terms. Under these circumstances neither party owes a termination fee to the other.”
While BCE and its onetime buyers are squabbling over the breakup fee, the banks that were going to help finance the deal are trying to sit on the sidelines. Citigroup, Deutsche Bank, Royal Bank of Scotland and Toronto-Dominion Bank, had been committed to help finance the debt portion of BCE’s buyout.
“As a result of the termination of the acquisition agreement, the banks’ obligations under the signed financing documents terminate today,” the banks said in a joint statement. “The banks are not in a position to comment on any dispute between BCE and the purchaser.”
As for BCE, its next steps will be to issue a common share dividend beginning Jan. 15th. As well, BCE noted in a statement that it would pursue a share buyback program. BCE has not yet disclosed the amount of the dividend or the share buyback.