BCE buyout collapses

Ontario Teachers Pension Plan with a group of US private-equity firms had agreed to buy BCE in June 2007 for $34.8 billion in Canadian dollars, but last night accounting firm KPMG said the company had too much debt, causing the biggest takeover in CanadaÔÇÖs history to collapse on the day it was supposed to have been completed.┬á The acquisition was terminated by the purchasing group, which also includes Madison Dearborn Partners, Providence Equity Partners, and Merrill Lynch & Co., after auditor KPMG said it would leave CanadaÔÇÖs largest phone company insolvent. ┬á BCEÔÇÖs sales have stagnated for four straight quarters, contributing to falling profit. The company is the parent of Bell Canada, and is firing workers and selling property to compensate for declining landline customers, losing 72,000 in the last quarter.┬á Ontario TeachersÔÇÖ and the buyout firms had agreed to pay C$42.75 a share to take BCE private but the stock closed at C$23.02 yesterday in Toronto, 46 percent less than the offer price. ┬á BCE said it is entitled to a C$1.2 billion breakup fee, arguing that the buyers walked away prematurely. However, since the transaction required KPMG to give the company a clean bill of financial health to close, the group said no termination fee is owed.┬á The dealÔÇÖs collapse is a benefit to Citigroup Inc. and other lenders, such as Deutsche Bank AG, Toronto-Dominion Bank and Royal Bank of Scotland Group who agreed to provide about C$34 billion of financing for the transaction. The termination helps them avoid selling loans into a market where debt used to fund LBOs is trading below face value. Based on current prices for leveraged loans, the banks faced a potential loss of at least C$10 billion had they been forced to fund the takeover.