Thursday, November 27, 2008

Bell Canada's Privatization Faces Scrutiny

The leveraged buyout deal under which BCE (Bell Canada) was to become a privately held company is facing greater financial scrutiny.


KPMG has informed BCE that, based on current market conditions, its analysis to date and the amount of indebtedness
involved in the LBO financing, it does not expect to be in a position to deliver on the scheduled effective date of BCE's privatization, December 11,
2008, an opinion that BCE would meet the solvency tests as defined in the definitive agreement, as amended. The receipt at the effective time of a
positive solvency opinion is a condition to the closing of the transaction. At the same time, KPMG indicated that BCE would meet all solvency tests
under its current capital structure.


"BCE today enjoys solid investment grade credit ratings, has $2.8 billion of cash on hand, a low level of mid-term debt maturities, and continues to
deliver solid operating results," said George Cope, President and CEO of BCE and Bell.


"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," said Siim Vanaselja, BCE's Chief Financial Officer.


BCE said it continues to work with KPMG and the Purchaser to seek to satisfy all closing conditions. Should KPMG be unable to deliver a favourable
opinion on December 11, 2008, however, the transaction is unlikely to proceed.http://www.bce.caIn July 2008, BCE announced a final agreement with a company formed by an investor group led by Teachers' Private Capital, the private investment arm of the Ontario Teachers' Pension Plan, Providence Equity Partners, Madison Dearborn Partners, and Merrill Lynch Global Private Equity. Key terms include:

  • The purchase price will remain $42.75 per common share;


  • The Purchaser and the Lenders have delivered fully negotiated and executed credit documents for the purpose of funding the transaction, including an executed credit agreement and other key financing documents;

  • The reverse break fee payable by the Purchaser in the circumstances contemplated by the definitive agreement has been increased to $1.2 billion;

  • Closing will occur on or before December 11, 2008; and

  • Prior to closing, the company will not pay dividends on its common shares but will continue to pay dividends on its preferred shares.

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