Buyers pull plug on BCE over solvency concerns - Mobile World Live

Buyers pull plug on BCE over solvency concerns

28 OCT 2009

The planned leveraged buyout (LBO) of Canada’s BCE – parent company of Bell Canada and Bell Canada Mobility – has collapsed as it has been unable to meet the solvency requirements of the deal. In a statement, the private-equity buyers – led by Providence Equity Partners and Ontario Teachers’ Pension Plan – said they had pulled the plug on the deal following news from KPMG, BCE’s auditor, that “a required test for the solvency opinion was not met.” KPMG had warned last month that that the current crisis in the world’s credit markets has led to concerns that the buyout could see the new company take on too much debt, a conclusion that was disputed by BCE at the time. In their statement, the private-equity firms noted that “neither party owes a termination fee to the other” in such circumstances. However, Reuters noted that the original agreement included a CAD1.2 billion (US$1 billion) termination fee under certain conditions and speculated that there could be a legal battle over a break-up fee.

The US$41 billion buyout was first announced in June 2007 and, at the time, was considered the largest private-equity deal in history. However, since the global crisis began many similar deals have either been scrapped or ended up in litigation; BCE faced several attempts from shareholders to block the deal. Reuters notes that the collapse of the deal is considered good news for the banks financing the deal – led by Citigroup, Deutsche Bank, the Royal Bank of Scotland and Toronto Dominion – as they had been struggling to sell on leveraged loans in the current economic climate. According to recent figures from Reuters LPC, BCE accounted for US$23.05 billion of the US$72.9 billion in leveraged loans that still need to be sold.

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