BCE Inc. | BCE
Ontario Teachers' et al.

Deal value $34 billion

Spread 10/07/08 $7.15, or 28.8%

It all happened Oct. 6. Not just an agreement among Wachovia Corp., Wells Fargo & Co. and Citigroup Inc. to forgo litigation and seek a brokered resolution of the Wachovia takeover with the Federal Deposit Insurance Corp. Not just a plunge of the Dow Jones Industrial Average below 10,000. But the fact that Mars Inc. closed its deal to acquire Wm. Wrigley Jr. Co. for $23 billion.

The Wrigley deal included an $11.6 billion equity commitment from Mars and a $2.1 billion commitment from Berkshire Hathaway Inc. Goldman, Sachs & Co. put up $5.7 billion of debt to take out Wrigley shares and refinance debt and a bank group provided $12 billion more. What banks? J.P. Morgan Chase & Co., Bank of America Corp., BNP Paribas SA, Citigroup Inc., Deutsche Bank AG, Lloyds TSB Bank plc and Royal Bank of Scotland Group plc.

BofA is raising $10 billion of equity capital, J.P. Morgan is absorbing Washington Mutual Inc., BNP Paribas is
buying part of Fortis SA/NV and the U.K. is sorting out plans to shore up RBS and Lloyds.

Nevertheless, the Mars-Wrigley merger, in which the seller lacked a specific performance right over a breach of the contract, was financed amid the current liquidity crunch.

The banks also lined up to fund the $34 billion BCE Inc. buyout by Ontario Teachers' Pension Plan, Providence Equity Partners Inc., Madison Dearborn Partners LLC and Merrill Lynch Global Partners Inc. (soon to be part of BofA), Citi, Deutsche, RBS and Toronto-Dominion Bank -- that is, much the same crowd.

BCE went through a face-off among buyers, seller and banks in June that ended up at the top of the Canadian court system. The parties subsequently entered fully negotiated and executed credit documents, and the reverse breakup fee was increased to $1.2 billion. An outside close date for the deal was set at Dec. 11. Still, the BCE spread is currently $9.55, or 29%.

The Mars deal is a strategic combination with less leverage. A fair amount of the worry in the BCE spread is over the likelihood that the banks, which are committed to funding BCE beyond the normal situation, may simply not be able to do so. In the BCE case, one arb says, the syndication is thin, compared with the Anheuser-Busch Cos. buyout by InBev SA with its 19-bank group. So what happens to the syndicate if just one bank fails to show up for the BCE funding?

The Anheuser-InBev $45 billion financing has commitments from each of the banks on the Wrigley deal and a host of others, including Banco Santander SA and Barclays plc, both recent bidders for troubled bank assets, Bank of Tokyo-Mitsubishi UFJ Ltd., which is buying Morgan Stanley equity, and Fortis, recently rescued. InBev says the financing for the Anheuser deal, which could close by late November, is fully committed and that it's confident. The deal is trading at a spread of $7.15, or 11.4%.

One sign of resilience: The Wrigley financing came through despite the Cubs bombing in the playoffs.