BCE, Buyers, Banks Reach Deal on Completing Buyout By PETER LATTMAN Wall Street Journal
July 4, 2008 1:19 p.m. http://online.wsj.com/article/SB121517863759829001.html?mod=googlenews_wsj The battle for Canadian telecom giant BCE Inc. was settled Friday without any fireworks. BCE, its private-equity buyers and the banks have hammered out a final agreement to complete the $35 billion privatization -- the largest leveraged buyout ever. The pact delays the closing of the deal until December but maintains the transaction's original price struck one year ago. By keeping to the original $42-per-share deal price, BCE avoids having to ask shareholders to approve the transaction again and to repeat the lengthy judicial and regulatory processes in Canada to clear the deal. In recent weeks the banks financing the deal had argued for a lower price, according to people familiar with the matter. Key to the pact is BCE's commitment to not pay out its dividend through year-end. Withholding its dividend payments would boost the company's cash position by some $900 million, giving the financing banks -- led by Citigroup Inc. and Deutsche Bank -- greater comfort in providing the gargantuan roughly $32 billon loan package. BCE said this week it was skipping the payment of its second-quarter $294 million dividend. Also, BCE is expected to generate roughly $600 million in cash flow through the balance of the year, further bolstering the company's balance sheet. The retained dividend and earnings amount to roughly $2-per-share in cash, effectively giving the banks a price reduction without having to change the price of the deal. The delayed closing also allows the banks to avoid having to sell BCE debt to investors amidst brutal fixed-income markets and likely incur sizable write-downs. By December, their hope is that the credit environment will improve. Also, the banks buy themselves some time to clear their existing overhang of unsold debt sitting on their balance sheets before having to bring this deal to market. The accord is an elegant, if protracted, solution to a year-old deal that has had dramatic twists and turns. It also averts litigation that has plagued so many other buyouts, such as the privatization of Clear Channel Communications Inc. Over the past several months the banks have been locked in tough negotiations with BCE's private-equity suitors, a group led by Providence Equity Partners, over the deal's terms. BCE's board has insisted on sticking to the $42-per-share purchase price, according to people familiar with the talks. In recent days the parties, led by Providence Chief Executive Jonathan Nelson and Citigroup's Chad Leat, reached compromise. As part of the pact, the buyout group has agreed to certain concessions on the financing terms. These will include a slightly higher interest rate and tighter covenants, according to a person familiar with the deal. In addition, the buying group has agreed to an increase in the deal termination fee payable to BCE -- from $1 billion to $1.2 billion -- should the transaction not be completed. "The final agreement, with definitive financing now in place, preserves the ... share price announced last June, which the Board believes is very much in the best interest of shareholders, the company and Bell Canada, particularly given current capital market conditions," said BCE Chair Richard Currie in a statement. "We are very pleased to have reached agreement with BCE and that our banks continue to support the transaction," said the buyout group in a statement. Last June, a group that included Providence, Madison Dearborn Partners and Ontario Teachers agreed to buy BCE, the parent of Bell Canada, for $35 billion. Including debt and accounting for currency fluctuations, the deal is valued at about $52 billion, which would make it the largest leveraged buyout ever. BCE is the dominant telecom carrier in Ontario and Quebec, Canada's most populous provinces, and it is also one of country's largest corporations and employers. As part of the deal's closing, the company announced the long planned departure of chief executive officer Michael Sabia. He will be succeeded by BCE President George Cope. As recently as last month, the deal appeared dead after a Canadian appeals court struck down the transaction, ruling that BCE did not treat its bondholders fairly. Weeks later, the Supreme Court of Canada reversed the lower court's decision, reviving deal talks. A salvaging of the BCE deal comes at a time when two of the last remaining large unconsummated buyouts struck during the credit boom's peak collapsed. Huntsman Corp. and buyout firm Apollo Management are engaged in a nasty court battle over the imperiled $6.5 billion LBO of the chemical company. Thursday, Penn National Gaming Inc. and private-equity buyers -- Fortress Investment Group and Centerbridge Partners -- agreed to scuttle the $6.1 billion privatization of the casino company. ================================ George Antunes, Political Science Dept University of Houston; Houston, TX 77204 Voice: 713-743-3923 Fax: 713-743-3927 antunes at uh dot edu ******************************* * POST TO [EMAIL PROTECTED] * ******************************* Medianews mailing list [EMAIL PROTECTED] http://lists.etskywarn.net/mailman/listinfo/medianews
