BCE buyout dead.

[rafterman]

Not yet official but absent greenlight from KPMG on a "solvency test" deal will not close on Dec 11 and is likely dead.

Opening bids on BCE this morning $24 down $14 (40%) from yesterday's close.

Might be a buy for aggressive investors looking for gain over the next couple of days once the market absorbs the news.

Damn, too bad for all those Bay Street investment bankers who have been burning the midnight oil for the past six months or more.

Landmark BCE takeover in doubt
JOHN PARTRIDGE
09:05 EST Wednesday, Nov 26, 2008

The massive planned privatization of telecommunications giant BCE Inc. is in jeopardy after the company failed a preliminary solvency test conducted for the would-be purchasers, led by the Ontario Teachers' Pension Plan Board.

BCE said Wednesday it received a “preliminary view” from auditing firm KPMG that “based on current market conditions, its analysis to date and the amount of indebtedness involved,” it does not expect to be able to deliver an opinion on the closing date of Dec. 11 that BCE “would meet the solvency tests as defined in the definitive agreement.”

Unless this changes by that date, BCE warned, “the transaction is unlikely to proceed.”

It added, however, that it is continuing to work with KPMG and the purchaser to seek to satisfy all closing conditions.”

Teachers concurred in a terse statement.

“The delivery of the solvency opinion is a condition to the completion of the acquisition of BCE,” spokeswoman Deborah Allen said in a brief telephone interview. “There's no more that we can say.”

BCE, which would be saddled with an additional $32-billion in debt after the leveraged buyout, is disputing KPMG's findings.

“We are disappointed with KPMG's preliminary view of post-transaction solvency, which is based on numerous assumptions and methodologies that we are currently reviewing,” BCE chief financial officer Siim Vana said in the release.

“The company disagrees that the addition of the LBO debt would result in BCE not meeting the technical solvency definition.”

There has been speculation that the market rout has left BCE's pension plan so under-funded that the auditors have been unable to deliver a favourable opinion, although one person familiar with the matter said Wednesday that this is not the case.

“It's just the addition of that much debt in this capital market,” the person said.

In BCE's statement, chief executive officer George Cope noted that KPMG had also indicated that BCE would meet all solvency tests under its current capital structure.

“BCE today enjoys solid investment grade credit ratings, has $2.8-billion of cash on hand, a low level of mid-term debt maturities, and continues to deliver solid operating results,” Mr. Cope said.

BCE spokesman Mark Langton said the company learned of KPMG's preliminary assessment after stock markets closed Tuesday.

“We disagree with the opinion,” he said in a telephone interview. “We've formulated our own set of numbers and they do not match with theirs. So we disagree with their conclusion.

“Now we have until Dec. 11 to work with them to see if they can come to a different conclusion, but if their preliminary view . . . doesn't change, then yeah, the transaction is unlikely to proceed.”

More to come

© Copyright The Globe and Mail

 

[danmand]

Damn, too bad for all those Bay Street investment bankers who have been burning the midnight oil for the past six months or more.

At $600 per hour, I think they will do OK.

 

[gabeti]

Bad news.

 

[rafterman]

so can u explain for me i dont know much about this, is that gonna affect people with Bell phones? Does this mean they maybe could go out of business??

Basically Ontario Teacher's Pension Fund was trying to buy BCE (take it private). This means the purchase will not no through, everthing will revert to the way it was, BCE will remain a publicly traded stock like Telus and you will continue to enjoy the same great level of service as ever.

 

[dcbogey]

Bad news.

For whom?

 

[rafterman]

For whom?

Investors who bought the stock at $38 yesterday hoping to get $42.75 on Dec 11. Instead of up 11% down 40% this morning.

 

[dcbogey]

Investors who bought the stock at $38 yesterday hoping to get $42.75 on Dec 11. Instead of up 11% down 40% this morning.

I feel no sympathy for them. There was a reason BCE was trading well below the take-out price. They took a chance and it seems they got burned. Such is life in the market - the world's biggest casino.

 

[RTRD]

No...

so can u explain for me i dont know much about this, is that gonna affect people with Bell phones? Does this mean they maybe could go out of business??

...it doesn't.

It does mean however...


1) There will be MORE BCE layoffs. Which is needed anyway - trust me.

2) There will be more cost cutting efforts in order to get the numbers to work so that someone else may take a run at this - BCE DESPERATELY wants to be taken over. Not likely, given the current credit crisis. Probably puts some of the ambitious wireless plans on hold as well. Not good news for MLAM.

3) MLAM gets to chuckle to himself ("told ya") albeit it in a bittersweet manner (see "2")

4) MLAM will be receving some phone calls soon from people who'd either

• Would like his help evaluating new deals that involve BCE or
• Would like his help finding new jobs.

The former are welcome to call. The latter can kiss my ass.

 

[gabeti]

I feel no sympathy for them. There was a reason BCE was trading well below the take-out price. They took a chance and it seems they got burned. Such is life in the market - the world's biggest casino.

Indeed. Bad new for investors but also bad news for the people who will be layed off.

 

[dcbogey]

Indeed. Bad new for investors but also bad news for the people who will be layed off.

It's bad news for the arbitrage players but for long-time investors they won't have a huge capital gain to declare. And the dividend, at some level, will likely be re-instated. I do feel a little sorry for the employees that will likely get laid off, but I suspect many of those would have been gone if the deal went through anyway.

 

[fjdude]

I have no idea what these private equity shops see in BCE!!! An LBO of a pretty leveraged company while credit spreads are on the rise and continue to do so. Maybe charge their high mgmt fees and other BS admin fees and file for bankruptcy later???

 

[Never Compromised]

means the purchase will not no through, everthing will revert to the way it was, BCE will remain a publicly traded stock like Telus and you will continue to enjoy the same great level of service as ever.

The teachers also own the Toronto Maple Leaf's don't they? From a financial POV that is a great deal. A real cash cow. But from the fan's POV, the Leaf's have won the cup how many times in the last several years, despite being one of if not the wealthiest team in the league?

 

[to-guy69]

Any speculation on how soon the layoffs would come and at what numbers? It was only a few short months ago that 6% of their workforce was axed.

 

[doggee_01]

the teachers allready own about 6% of bce stock so they will also take a large hit with the drop in stock price. bce is sitting on a pretty big pile of cash and i forsee them spending a large amount in a stock buyback to push the stock price back up probably close to $30 so buying now might be a deal but all the people that brought at $38 are gonna lose big!..

 

[train]

At $600 per hour, I think they will do OK.

If it's a normal investment banking deal 90% of the fees are based on the completion of the transaction.

The guys that get paid the $600 to $1,000 per hour regardless are the bloodsucking lawyers.

 

[Nickelodeon]

It's bad news for the arbitrage players but for long-time investors they won't have a huge capital gain to declare. And the dividend, at some level, will likely be re-instated. I do feel a little sorry for the employees that will likely get laid off, but I suspect many of those would have been gone if the deal went through anyway.

It's also bad news for long term retired investors who would have preferred a payout at $42. With precious little value left on the stock market, this would have carried retired investors over for a couple years, in the hopes that their portfolio goes back up. I suspect there are tens of thousands of people in this position....as badly affected as any layoff.

I think this is why this is considered devastating headline news, not because the traders are losing money.

 

[doggee_01]

yes i think blue is right lots of bce stock is held by little old ladies--used to be a safe investment with a good dividend lot of retired folks are gonna get hurt

 

[rafterman]

Damn, too bad for all those Bay Street investment bankers who have been burning the midnight oil for the past six months or more.

I guess maybe the bosses are breathing a sigh of relief that they don't have to go through with a deal where there under water on the value of what they're financing the day it gets funded due to the global economic meltdown.

 

[dcbogey]

It's also bad news for long term retired investors who would have preferred a payout at $42. With precious little value left on the stock market, this would have carried retired investors over for a couple years, in the hopes that their portfolio goes back up. I suspect there are tens of thousands of people in this position....as badly affected as any layoff.

I think this is why this is considered devastating headline news, not because the traders are losing money.

I wouldn't be so sure of that. When the deal was initially announced there was a lot of grumbling from those retires about the capital gain taxes they would have to pay. If they had their choice, I think many would prefer the dividend income for the forseeable future over the capital gain. When (if?) BCE starts paying the dividend again, all those "widows and orphans" will be happy.