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On Saturday, June 30, 2007, a group led by the Ontario Teachers' Pension Plan agreed to pay C$52.3 billion ($51.8 billion) or C$42.75 per share for BCE Inc., the owner of Canada's largest telecom operator. It was the largest buyout announcement ever. No one could have foreseen the topsy-turvy ride the deal would take in the ensuing 12 months.
First, the world's biggest buyout got bigger as the summer progressed. The Canadian dollar surged, so the deal worth $48.5 billion when it was signed ballooned in U.S. dollars to about $57 billion in September. That was important because Ontario Teachers' partners Providence Equity Partners Inc., Madison Dearborn Partners LLC and Merrill Lynch & Co. are U.S firms. It was also important because nasty things began to happen in the debt markets shortly after the deal was signed. The subprime mortgage crisis whacked credit markets, and suddenly investors began to wonder whether the deal would close. The litigation surrounding the buyout of Clear Channel Communications Inc. only accentuated those fears. Then the BCE buyout was walloped with a sucker punch from a Canadian court. The Quebec Court of Appeals sided with irate debtholders who said their interests weren't considered in the deal. The shares sank as low as C$31 -- a discount of more than 27% to the buyout price -- after the ruling. They have recovered somewhat since the Supreme Court of Canada reversed the ruling. At the one-year-and-waiting mark, it doesn't feel like we're a lot closer to the deal being done. Of course, the buyout group has jumped through a lot of the hoops that needed to be cleared, but it is still locked in delicate negotiations with its banks. With BCE shares closing Friday at C$36.76, the market is acting as if it expects the deal to close with a share price in the high 30s, if not at the original C$42.75. But there's a funny dynamic at play here. Though the BCE share price shows the market is fairly optimistic about the phone company, the market also thinks the banks it is negotiating with are face-down in a pool of blood. Citigroup Inc. shares are down 64% in the past year, trading at a 10-year low of $17.25. Deutsche Bank AG stock is at a four-year low having lost more than half its value since May 2007. Royal Bank of Scotland Group plc has lost almost two-thirds of its value in 15 months. The market is saying these banks are struggling with a once-in-a-generation crisis but will still find it in their hearts to put up a few billion so Ontario Teachers' and its chums can close the BCE deal. It doesn't make a lot of sense. This story's still far from over. Stay tuned. We'll check back in at the two-year mark. - Peter Moreira CategoriesPrivate capital video
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