The USD50bn leveraged buyout of Bell Canada’s parent BCE, the largest such deal in history, by four private equity investors, has been cast in doubt by an assessment from the company’s aud
The USD50bn leveraged buyout of Bell Canada’s parent BCE, the largest such deal in history, by four private equity investors, has been cast in doubt by an assessment from the company’s auditor, KPMG, that given current market conditions it would not be solvent after taking on the USD33bn in debt required to finance the deal.
The solvency report is a condition for closing of the deal, which at the very least is now set to miss the scheduled completion date of December 11. Analysts say the setback could prompt a fresh renegotiation of the purchase price, CAD42.75 (USD34.80) a share, renewed efforts by Citigroup, Deutsche Bank, Royal Bank of Scotland and Toronto-Dominion Bank to escape their commitments to financing the deal, or both.
BCE’s share price, which had closed at CAD38.35 on the Toronto Stock Exchange on Tuesday, opened more than a third lower CAD23.80 the following day.
BCE and the proposed buyers Providence Equity Partners, Madison Dearborn Partners, Teachers’ Private Capita (the private investment arm of the Ontario Teachers’ Pension Plan) and Merrill Lynch Global Private Equity have already revised the terms of the deal by agreeing to suspend dividend payments until the end of this year and reducing the purchase price, prompting shareholders to sue the company.
The requirement for a solvency opinion, an unusual feature of the acquisition terms and conditions, was included in order to provide reassurance to BCE’s bondholders – which had also taken the parties to court – that the company would remain capable of meeting its debt obligations.
BCE has received a preliminary view from KPMG that, based on current market conditions, its analysis to date and the amount of indebtedness involved in the leveraged buyout financing, it did not expect to be able to certify that BCE would meet the solvency tests by December 11, although it did indicate that the company would meet all solvency tests under its current capital structure.
‘BCE today enjoys solid investment grade credit ratings, has CAD2.8bn of cash on hand, a low level of mid-term debt maturities, and continues to deliver solid operating results,’ says president and chief executive George Cope.
Siim Vanaselja, the company’s chief financial officer, says: ‘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. The company disagrees that the addition of the LBO debt would result in BCE not meeting the technical solvency definition.’
BCE says it is working with KPM and the purchasing consortium in an attempt to satisfy all closing conditions but acknowledges that if KPMG cannot deliver a favourable opinion on December 11, ‘the transaction is unlikely to proceed’.
Through the acquisition vehicle, BCE Acquisition Incorporated, the equity firms said: ‘The delivery of the solvency opinion is a condition to the completion of the acquisition of BCE. The purchaser has been working closely with BCE to take the actions required by the definitive agreement in connection with the transaction and will continue to fulfil its obligations under the terms of the agreement.’
