Dec. 18 (Bloomberg) -- BCE Inc., seeking a C$1.2 billion ($1.01 billion) breakup fee, accused the Ontario Teachers’ Pension Plan and private-equity firms in a lawsuit of withdrawing from a takeover prematurely.

BCE, Canada’s biggest telecommunications company, filed the complaint yesterday in Montreal, where it’s based, following the Dec. 11 collapse of the C$52 billion deal.

Teachers’, based in Toronto, and its partners terminated the planned buyout just after midnight on Dec. 11 because auditor KPMG LLC determined the deal would leave BCE insolvent. The transaction, which would have been the second-biggest leveraged buyout after the sale of TXU Corp., required a clean bill of financial health from the auditor to close.

“The purchaser’s purported termination was premature and invalid,” BCE said in its statement of claim.

BCE rose C$1.05, or 4.8 percent, to C$23 at 4:15 p.m. in trading on the Toronto Stock Exchange. The stock had dropped 42 percent this year.

The buyers pulled out almost 24 hours ahead of the Dec. 11, 11:59 p.m., deadline for the transaction’s completion, BCE said in the complaint. The failure of the transaction to close “was directly related to both the burden of the loan financing arranged by the defendants and the deterioration in global market condition, each of which was a risk borne by the defendants,” BCE said.

Asked Judge

BCE asked the judge to order Teachers’ to pay C$704.4 million. The company is demanding C$386.4 million from Providence Equity Partners VI International LP, C$85.6 million from Madison Dearborn Capital Partners V-A LP, C$22.7 million from Madison Dearborn Capital Partners V-C LP, and C$877,094 from Madison Dearborn Capital Partners V Executive A LP.

BCE failed to meet the terms of the agreement and the buyers were entitled to walk away, said Deborah Allan, a spokeswoman for the buyer group. Teachers’ and its partners will defend against the claim and are “confident” they will prevail, she said.

“We are very disappointed that BCE has resorted to this litigation, which is based on the failure of a mutual closing condition that BCE insisted be included in the original acquisition agreement,” Allan said today in a telephone interview. “Neither party has a right to a termination fee in these circumstances.”

BCE likely won’t be successful in its bid to recover the breakup fee, said Theo Peridis, a professor of strategic management at the Schulich School of Business at York University in Toronto, in an interview before the suit was filed.

“It’s very unlikely a judge would find in their favor,” Peridis said. With all the lawyers involved in the deal, it’s unlikely the buyers “would have made that kind of a mistake” to put themselves on the hook to pay the breakup fee.

Peridis said the buyers might offer to settle the case out of court, if there’s a potential “gray area.”

The buyers may “throw a bone to them,” he said.

The BCE failure brings the value of canceled LBOs since credit markets began seizing up to almost $100 billion. Financing for transactions evaporated after record subprime- mortgage defaults triggered a flight from debt investments, including leveraged loans used to fund buyouts.

The case is Between BCE Inc. and Ontario Teachers’ Pension Plan, Quebec Superior Court (Montreal).

To contact the reporters on this story: Joe Schneider in Toronto at jschneider5@bloomberg.net.

Last Updated: December 18, 2008 16:52 EST