April 18 (Bloomberg) -- BCE Inc., Canada's biggest telephone company, may become the target of a bidding war.

The Ontario Teachers' Pension Plan, BCE's biggest investor, said yesterday it will consider leading a group to make an offer that would compete with a bid from Kohlberg Kravis Roberts & Co. and a group of Canadian pension-fund managers.

``BCE's officially in play now and I think it's definitely a good thing,'' said Jonathan Popper, a portfolio manager at MFC Global Investments, which oversees the equivalent of $80 billion, including BCE shares.

The Canada Pension Plan Investment Board, the Caisse de Depot et Placement du Quebec, and the Public Sector Pension Investment Board said yesterday they started takeover talks with Montreal-based BCE, whose market value is about C$31 billion ($27 billion). New York-based KKR would be a minority partner.

The bids may reach the ``low to mid-40s,'' Popper said. A buyout of BCE would be the world's second largest, after the $31 billion acquisition of Texas power producer TXU Corp. by KKR and TPG Inc., excluding debt. It would also put BCE in private hands for the first time in more than a century.

Shares of BCE fell 25 cents to C$38.35 in 4:18 p.m. trading on the Toronto Stock Exchange, the first decline in seven sessions. They've added 28 percent since March 29, when the Globe and Mail newspaper said KKR approached pension funds about bidding for BCE.

BCE shares trailed rivals' including Telus Corp. the past five years as Chief Executive Officer Michael Sabia's efforts to cut jobs and shed units failed to win over investors.

Sabia's Efforts

Since taking over in 2002, Sabia has cut 9,000 jobs and sold stakes in CGI, Canada's biggest computer-services company, and Bell Globemedia, now known as CTVglobemedia and owner of the Globe and Mail. In December he agreed to sell the Telesat Canada satellite unit for C$3.25 billion, among his final steps in undoing the C$13 billion expansion led by his predecessor.

``We're encouraged that the company has decided to become open minded to review alternatives,'' said Jim Leech, a senior vice president at Ontario Teachers'. ``We hope to be a participant in the process.''

Teachers', Canada's third-biggest pension fund with C$106 billion in assets, owns 5.3 percent of BCE.

U.S. buyout firm Providence Equity Partners Inc. expects to take part in any Teachers'-led bid for BCE, a person familiar with the transaction said yesterday. Teachers' hasn't yet put together a formal investor group for BCE, the person said.

Investments

Providence, a buyout firm focused on media and communications, invested in more than 100 companies since its inception in 1990, including movie studio Metro-Goldwyn-Mayer Inc. and Warner Music Group. In February, the Providence, Rhode Island-based firm raised $12 billion for its largest ever fund. Providence spokesman Andrew Cole declined to comment on BCE.

``If you own something, it's always delightful to have two others that want to buy it,'' said Bill Procter, senior vice president and fund manager at Toronto-based MacKenzie Financial Corp., BCE's second-largest shareholder. He said he expects a price of at least C$40 a share.

Any transaction would have to ensure ``the company remains Canadian, to meet existing foreign ownership restrictions,'' BCE said in a statement. Canadian law bars foreigners from owning more than 46.7 percent of a domestic phone company.

BCE is one of Canada's oldest publicly traded companies and also is among the country's most widely held stocks. The company, which started operations in 1880, has traded since at least 1905.

Buyout Wave

The Caisse is Canada's largest pension fund manager, while Toronto-based CPP is second. The talks to take the firm private aren't exclusive, BCE said. The company also is exploring other options, which weren't divulged in the statement.

Buyout firms have announced $274 billion in takeovers this year. That compares with $163 billion of global acquisitions announced in the same period last year, according to data compiled by Bloomberg.

A merger between BCE and smaller rival Telus is more likely to occur than a buyout, Scotia Capital analyst John Henderson said yesterday in a report. That deal would value BCE at about C$42 a share, compared with the C$40 the company may get in a transaction with buyout firms.

Claude Boulos, who helps manage about $26.6 billion at Natcan Investment Management in Montreal, also expects a price of more than C$40. The firm owns BCE shares.

``The ball's rolling,'' Boulos said. ``We're in the good position to be able to sit back and see where it goes.''

To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net; Frederic Tomesco in Montreal at tomesco@bloomberg.net

Last Updated: April 18, 2007 16:24 EDT