BCE Merger Suddenly In Jeopardy (BCE)

There is one huge going-private transaction which has yet to close and has been pending for what feels like an eternity.  BCE, Inc. (NYSE: BCE) in Canada has been in the works for more than a year.  This morning the company made an announcement which may throw the going-private deal led by the Ontario Teachers Pension Plan in jeopardy.

BCE would be burdened with an additional $32-billionin debt after the leveraged buyout transaction.  Auditor KPMG has determined that BCE would not meet the deal’s solvency conditions if the transaction goes through.  The closing date is expected to be December 11.

BCE has said that it disagrees with the notion and the acquisitiongroup called BCE Acquisition said that it will continue to fulfill itsdeal pact obligations.  Of course, it also noted that solvency is acondition that has to be met for closing.  It said it is working withBCE to take the required actions.

We have wondered if the capital market malaise has been an issue forthe giant buyout because you know the Ontario Teachers Pension Plan hasnot been immune to the current environment.  It looks like the currentstructure of BCE is not the issue.  It seems that it is all of theadd-on debt that has created this concerns about solvency.

The good news is that it has a couple weeks to get everything in line.The bad news is that this puts the deal at risk or at least in asituation where some renegotiation and delays come back into play.  Or the bad news can go to the extreme where BCE has to stay public and where its share price has to reflect the new current stock and bond market conditions.

After all of the infighting between the BCE debtholders and thosewanting the merger to go through, this will end up being one of thelongest sagas of all time in the land of the giant going-privatetransactions.

BCE is being crushed pre-market.  Its shares are down a sharp 35% at$19.70 pre-market on more than 3 million shares.  Its 52-week tradingrange was $25.00 to $40.44. 

Jon C. Ogg
November 26, 2008