BCE Accepts $48.5 Billion LBO

The Ontario Teachers' Pension Plan-led buyout of the Canadian telcothe largest leveraged buyout everhas observers speculating on what's to come

Canada's largest telecom group, BCE (BCE), announced on June 30 that it has accepted a buyout offer worth $48.5 billion from a group that includes the Ontario Teachers' Pension Plan. The deal is reported to be both the largest leveraged buyout ever and the largest buyout of any kind in Canadian corporate annals.

Investors joining the pension plan's investment arm, Teachers Private Capital, are Providence Equity Partners and Madison Dearborn Partners. The consortium will take BCE, known for its generous dividends, private. "This represents very, very substantial value for our shareholders," Chief Executive Michael Sabia said in a conference call announcing the deal. He also said it was a good deal for both private and institutional investors, and he described the price as "compelling." The group will pay $40.13 a share, a premium of approximately 6% above the stock's closing price on June 29. The all-cash transaction will include $15.9 billion in debt.

Canadian law demands that telecom companies be majority-owned by Canadian concerns. Teachers Private Capital, which currently holds about 6% of BCE, will own 52%. According to a statement issued by BCE, Providence will hold 32%, Madison Dearborn 9%, and other Canadian investors 7%. The deal, which is subject to regulator and shareholder approval, is expected to close in the first quarter of next year.

A Sign of What's to Come?

Bloomberg has speculated that the record-setting deal could lead to more private equity deals in Canada.

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

There is also speculation reported in the Financial Times and elsewhere that BCE rival Telus (TSX), which pulled out of the bidding early last week, might return with a hostile bid. Telus dropped out of the bidding when the two companies couldn't agree on the sharing of confidential data, BCE Chairman Richard Currie said in a June 30 conference call. Sabia, who says he believes the Teachers' deal will be better for consumers than a Telus deal, says he will entertain such a bid if one is forthcoming,

The Ontario Teachers' Pension Plan is highly unusual, points out Steve Rosenbush in the Deal Flow blog, because Ontario is one of the very few pension plans that makes its own private equity investments. "We've been leaders in private equity since we entered the field 10 years ago. We're there for the return," Jim Leach who runs the $6 billion private-equity fund at the pension plan, told Rosenbush in an interview last year (see BusinessWeek.com, 11/7/06, "The Money Behind the Private Equity Boom").

The telecom, which will remain based in Montreal, is also part owner of Canada's CTV television network and the Globe and Mail newspapers.