June 30 (Bloomberg) -- Investors led by the Ontario Teachers' Pension Plan and Providence Equity Partners Inc. agreed to buy BCE Inc., Canada's biggest phone company, for C$34.2 billion ($32.1 billion) in the largest leveraged buyout.

The investment group will pay C$42.75 a share in cash, Montreal-based BCE said today in a statement. Teachers', BCE's biggest shareholder, trumped two bids from groups led by the Canada Pension Plan Investment Board and Cerberus Capital Management LP. BCE closed yesterday at C$40.34.

The deal places Canada's most widely held stock in private hands for the first time in more than a century and may lead to more private equity forays in the country. BCE put itself up for sale in April after it lost about 1 million wireline subscribers since 2004 and after its wireless revenue growth failed to match that of rivals such as Rogers Communications Inc., whose stock returns have dwarfed BCE's the last five years.

``It's been very difficult to get the company turned around and running more efficiently,'' said Rob Callander, who helps manage about C$1 billion including BCE shares at Caldwell Securities Ltd. in Toronto. ``The market has reached a point where it's said, `No more time for you.'''

Toronto-based Ontario Teachers' offer is 42 percent higher than BCE's share price on March 28, the day before the Globe and Mail newspaper first reported a potential sale.

Biggest Ever

The buyers ``believe as we do that there is increasing market potential and all kinds of opportunities open to the business,'' BCE Chairman Richard Currie said in a conference call with reporters earlier today.

Including the assumption of C$16.9 billion in debt, preferred shares and minority interests, the deal is worth C$51.7 billion, topping February's $43.2 billion buyout offer for Texas power producer TXU Corp. by Kohlberg Kravis Roberts & Co. and TPG Inc., formerly Texas Pacific Group. Financing for the deal is ``fully committed,'' the buyer group said. Excluding debt, the BCE sale is also bigger than the TXU deal.

Teachers' will own 52 percent of the BCE equity, Providence will own 32 percent, Chicago-based Madison Dearborn Partners LLC 9 percent and ``other Canadian investors'' 7 percent, the statement said. The phone company, which began operations in 1880, will remain based in Montreal. Under Canadian law, foreigners can't own controlling stakes in telecommunications companies.

`Suddenly it's done'

The deal, which BCE expects to be completed in the first quarter of next year, includes a breakup fee of C$800 million payable by BCE, and a ``reverse breakup fee'' of C$1 billion payable by Teachers'. Details of when those fees become payable weren't disclosed, nor were details of the other bids. The purchase requires two-thirds support from shareholders.

Before the Globe and Mail first reported a possible BCE buyout, the stock had returned 8.2 percent in the past five years excluding dividends. Shares of Rogers tripled in that period.

``This deal opens up the field in Canada for big takeovers coming from private equity,'' said Stephen Gauthier, a partner in Montreal-based investment firm Gauthier & Cie., which manages about $18 million, including BCE shares. ``Five years ago I didn't think this could happen. Suddenly it's done. People think: Let's do another one.''

Telus Withdraws

Teachers' faced off with fewer rivals for BCE than initially expected, as Telus Corp. and the Caisse de Depot et Placement du Quebec withdrew from the bidding this week. The Canada Pension Plan bid with Kohlberg Kravis Roberts.

Telus, Canada's second-biggest phone company, decided against an offer less than a week after announcing talks with BCE, citing ``inadequacies'' in the bidding process. Investors had expected Telus, which only announced its decision to join the fray on June 21, to submit the highest bid because it could cut the most costs.

``There wasn't enough time and there was too much involvement from management,'' Gauthier said in an interview before today's announcement. ``There's no doubt Telus would have been the highest bidder. I've never seen anything like this, not even close. I'm a little bit upset about how things were run.''

BCE and Telus couldn't agree on the sharing of confidential data and Telus wouldn't sign a non-disparagement clause, Currie said today in the conference call.

Shareholders

BCE is 6.3 percent owned by Teachers'. Last quarter, BCE's wireless revenue climbed 8.1 percent, compared with 22 percent at Rogers and 13 percent at Telus.

Davies, Ward Phillips & Vineberg; Stikeman Elliott; and Sullivan & Cromwell provided legal advice to BCE. Goldman Sachs Group Inc. led the bidding process, with BMO Capital Markets, CIBC World Markets and RBC Capital Markets also providing financial advice. Greenhill & Co. provided independent advice to the oversight committee.

Citigroup Inc. and Toronto-Dominion Bank were among the advisers for the Teachers' group.

Ontario Teachers' manages about C$106 billion in retirement funds for 271,000 retired and active teachers in Canada's most populous province.

Telecom Investments

Teachers' more than quadrupled its BCE stake since 2004 and in March filed a Schedule 13D, paving the way for the fund to take a more ``active'' role. Teachers' said today that senior BCE management will continue to direct the company.

Providence Equity has raised $21 billion for seven funds since it was founded in 1989 by Chief Executive Officer Jonathan Nelson, making it the largest buyout firm focused on the media and telecommunications industries.

The Providence, Rhode Island-based firm has invested in more than 100 companies, including wireless carriers American Cellular Corp. and VoiceStream Wireless Holding Corp., movie studio Metro-Goldwyn-Mayer Inc., German cable company Kabel Deutschland GmbH and Univision Communications Inc., the largest U.S. Spanish-language broadcaster.

Madison Dearborn manages more than $14 billion, including a $6.5 billion leveraged buyout fund it raised last year. In May, the firm agreed to buy U.S. computer reseller CDW Corp. for about $7.3 billion.

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: June 30, 2007 16:21 EDT