The credit markets squeeze again. After promising news in early November, it turns out Canadian telecom giant BCE Inc.'s $35 billion privatization deal may have hit a roadblock. BCE said it received a
preliminary view from KPMG that, based on current market conditions, showed the amount of debt involved in the LBO financing would not put BCE in a position to close the deal by Dec. 11 as planned. This would be Canada's biggest takeover in history, as an investor
group led by the Ontario Teachers' Pension Plan looks to buy the
Montreal company.
BCE doesn't think there is a solvency issue. CFO Siim
Vanaselja said in a statement, "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." It will be very hard to
convince KPMG that the deal is worthy. One report noted that it was like asking KPMG to say "a highly leveraged structure dreamed up at the height of the LBO boom still makes sense in the midst of the worst credit crisis seen since the Great Depression."
The deal was looking good a couple weeks ago. On Nov. 10, The Deal's Peter Moreira noted BCE offered to buy back about $1.95 billion of debt issued by its main subsidiary, Bell Canada, and a judge in Saskatchewan denied a group of shareholders an injunction against the sale of the largest telecom in Canada. Earlier, it was noted that National Bank Financial analyst Greg MacDonald said if the deal does collapse, BCE has more than $3 billion in cash and would receive a C$1.3 billion breakup fee -- this means BCE could buy back 15% of its shares and increase its previous dividend by 28% to $1.85. -
Baz Hiralal
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