FORTUNE MAGAZINE Private Money 2008
Last Updated: May 20, 2008: 11:14 AM EDT
Email | Print    Type Size  -  +

Bell Canada buyout in trouble

Wall Street banks seek to renegotiate terms of the largest private-equity deal ever proposed.

By Stephanie Mehta, global editor

NEW YORK (Fortune) -- Closing the biggest leveraged buyout ever just got a little more complicated.

The banks providing financing in the takeover of Bell Canada parent BCE (BCE), are reportedly seeking to renegotiate terms of that deal. Providence Equity Partners, Ontario Teachers' Pension Plan and Madison Dearborn are seeking to take BCE private for roughly $51 billion.

The reason for the financing snafu? Banks are feeling squeezed because of losses from the subprime crisis, and their stomach for financing leveraged buyouts has diminished from even a year ago, when the Bell Canada sale was brokered.

In the end, the BCE buyout will likely happen - but the giant telco may need to take a haircut on its record-setting pricetag.

The banks' maneuvering is similar to how lenders recently held up closing of the $18 billion buyout of Clear Channel Communications (CCU, Fortune 500). But in the Clear Channel deal, the lenders reportedly worried that the private equity buyers acquiring the company weren't completely committed to the deal.

In the case of Bell Canada, the buyers - including Providence Equity Partners, Ontario Teachers' Pension Plan, and Madison Dearborn - are, by all accounts, eager to close. Indeed, Providence CEO Jonathan Nelson said as much in a recent Fortune profile. And Ontario Teachers' is one of the largest shareholders of BCE stock, and as such stands to benefit from the buyout moving ahead at its original price.

Chances are the deal will move ahead, but at a lower price. The lenders surely will push for it as a way of reducing their risk, and BCE may have little choice but to comply. Why? There aren't a lot of other would be buyers out there: Private equity firms would be hard-pressed to find financing in the current credit environment. And because local law requires BCE to be majority-owned by Canadians, there aren't a whole lot of strategic buyers to be found. (Ontario Teachers' fulfills the Canadian ownership requirement in the pending deal.)

Just how much of a haircut would BCE have to take? Investors are betting it could be more than a trim: BCE shares Monday closed down nearly 6%.  To top of page

Company Price Change % Change
Ford Motor Co 8.29 0.05 0.61%
Advanced Micro Devic... 54.59 0.70 1.30%
Cisco Systems Inc 47.49 -2.44 -4.89%
General Electric Co 13.00 -0.16 -1.22%
Kraft Heinz Co 27.84 -2.20 -7.32%
Data as of 2:44pm ET
Index Last Change % Change
Dow 32,627.97 -234.33 -0.71%
Nasdaq 13,215.24 99.07 0.76%
S&P 500 3,913.10 -2.36 -0.06%
Treasuries 1.73 0.00 0.12%
Data as of 6:29am ET
Sponsors

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.