PrefBlog

BCE Acquisition has announced:

that the agreement to acquire BCE Inc. (TSX, NYSE: BCE) has been terminated in accordance with its terms.

Receipt of a solvency opinion from a nationally recognized valuation firm was included in the June 30, 2007 definitive agreement between the Purchaser and BCE as a mutual closing condition. The agreement of the Purchaser and BCE to both the selection of KPMG to serve as the valuation firm and the form of the solvency opinion was reflected in the July 4, 2008 amendment to the definitive agreement. Because KPMG has concluded that a required test for the solvency opinion was not met, this mutual condition to completion of the acquisition could not be, and was not, satisfied. Accordingly, the Purchaser terminated the agreement in accordance with its terms. Under these circumstances neither party owes a termination fee to the other.

There is no telling what will happen now. In an ideal world, we return to the status quo ante and the BCE Prefs retain their Pfd-2(low) / P-2(low) credit rating. But Bloomberg reports other ideas:

BCE Inc., the Canadian phone company that had been planning to go private for the past 18 months, may have to buy back shares or restore its dividend to placate investors now that its leveraged buyout has fallen apart.

But I’m afraid that in the absence of strong, credible statements from BCE regarding their capital structure going forward, BCE prefs remain rather more speculative than I like.

The last post in this saga was BCE Buyout in Trouble; Prefs Plunge.

BCE has the following preferred shares outstanding: BCE.PR.A, BCE.PR.B, BCE.PR.C, BCE.PR.D, BCE.PR.E, BCE.PR.F, BCE.PR.G, BCE.PR.H, BCE.PR.I, BCE.PR.R, BCE.PR.S, BCE.PR.T, BCE.PR.Y & BCE.PR.Z

Update, 2008-12-11: BCE is desperately grandstanding:

BCE Inc. (TSX, NYSE: BCE) today announced that it received last evening from the Purchaser, a company formed by an investor group led by Teachers’ Private Capital, the private investment arm of the Ontario Teachers’ Pension Plan, and affiliates of Providence Equity Partners Inc., Madison Dearborn Partners, LLC, and Merrill Lynch Global Private Equity, a notice purporting to terminate the Definitive Agreement dated June 29, 2007, as amended. BCE disputes that the Purchaser was entitled to terminate the Definitive Agreement, as such notice was delivered prematurely, prior to the outside date for closing of the transaction, and therefore invalid. Given the Purchaser’s position, the BCE privatization
transaction will not proceed.

As previously announced, the closing of the privatization transaction is contingent upon the fulfillment of several closing conditions, including, pursuant to Section 8.1(f) of the Definitive Agreement, the receipt at the effective time of a positive solvency opinion from KPMG. Earlier this morning, KPMG confirmed that it would not be able to deliver an opinion that BCE would
meet, post transaction, the solvency tests set out in the Definitive Agreement.

In light of these developments, BCE will be terminating the Definitive Agreement in accordance with its terms, and will be demanding payment of the $1.2-billion break-up fee from the Purchaser. All closing conditions have been satisfied by BCE, other than the solvency opinion, a condition to closing that was to be satisfied by its nature at the effective time. Under such circumstances, the agreement provides that the break up fee will be owed to BCE by the Purchaser. The Purchaser has taken the position that it is not obligated to pay the break-up fee.

In addition, the BCE Board intends that immediately following termination of the Definitive Agreement in accordance with its terms, it will address a reinstatement of its common share dividend beginning with its fourth quarter common share dividend payable on January 15, 2009, and that it will return capital to its shareholders through a Normal Course Issuer Bid.

I would have a lot more confidence in the credit quality of the BCE Prefs if they indicated the size of the Normal Course Issuer Bid.

This entry was posted on Thursday, December 11th, 2008 at 1:52 am and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.