Two domestic firms pull out of BCE bidding group

26 Jun 2007

According to Canadian newspaper the Globe and Mail, two domestic companies, private equity house Onex and pension fund Caisse de Depot et Placement du Quebec, have pulled out of a planned consortium bid for a controlling stake in the country’s largest telecoms group, BCE, parent of Bell Canada and Bell Aliant. The pair were part of a bidding group led by Canada Pension Plan Investment Board and including US buyout firm Kohlberg Kravis Roberts & Co, but withdrew amid concerns about the process and the surprise emergence of rival national telco TELUS as a participant in merger talks with BCE. The Canada Pension Plan consortium was reportedly assembled with assistance from BCE chief executive officer Michael Sabia and was thought to be the preferred bidder, but the departure of two key players could critically derail its ambitions.

Meanwhile, a rival consortium, led by the Ontario Teachers’ Pension Plan, has become the first of the potential bidders for BCE to formally confirm that it will make an offer for the firm, valued at around CAD32 billion (USD30 billion), in partnership with US-based Providence Equity Partners and with debt backing from Citigroup, Toronto Dominion Bank and Deutsche Bank. A third group aiming to launch a leveraged buyout consists of the Hospitals of Ontario Pension Plan, US-based Cerberus Capital Management, Pacific Century Group (led by Hong Kong telecoms billionaire Richard Li) and, according to some reports, CanWest Global Communications (parent of the National Post).

There is also another alternative offer on the table for BCE to consider. Last Friday, Toronto-based investment bank Catalyst broached a complex proposal to recapitalise and preserve BCE as a broadly held stand-alone Canadian-owned public company. It is advancing an all-paper transaction, in which BCE stockholders would receive one so-called ‘stapled security’ – combining equity and a subordinated debt component – for each of their shares. The ownership of Bell Canada Enterprises (BCE) is distributed, with shares listed in Canada, the USA and Europe; its largest single shareholder is the Ontario Teachers Pension Plan (6.3%).

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