US private equity firms Madison Dearborn Partners and Providence Equity Partners, as well as Teachers’ Private Capital, the buyout arm of the Ontario Teachers’ Pension Plan, has agreed to pay C$51.7 billion ($48.5 billion) for BCE in what is the largest-ever leveraged buyout agreed to date. The transaction includes C$16.9 billion of debt, and values BCE at 7.8 times EBITDA for the 12-month period ending 31 March 2007.
Under terms of the agreement, shareholders in the Canadian telecom company will receive C$42.75 per share, representing a 40 percent premium over the first quarter of 2007 when bid speculation began.
Canada’s largest telecom company received offers from two other buyout consortiums: Cerberus Capital Management and Hospitals of Ontario Pension Plan backed one group, while Kohlberg Kravis Roberts and the Canada Pension Plan Investment Board backed the other (pension fund Caisse de dépôt et placement du Québec and Onex Corporation dropped out of the KKR group last week). Rival telecom group Telus was also interested in the company, although it pulled out of the bidding last week.
Under terms of the agreed deal, Teachers’ will acquire a 52 percent stake in BCE, Providence will acquire a 32 percent stake, Madison Dearborn 9 percent and other Canadian investors 7 percent. The stake Teachers’ previously held in BCE was undisclosed, but it is known to be a long-standing shareholder in the company.
Expected to close in the first quarter of 2008, the transaction must be approved by two-thirds of the company’s shareholders.
The LBO includes a break-up fee of C$800 million ($751 million), and a reverse break-up fee of C$1 billion.
Both the Cerberus group and Telus may brave the break-up fee and continue to pursue a deal, according to a report in Canada’s Globe and Mail.
A source close to Cerberus told the newspaper that “it’s not over until we say it’s over”, while Telus CEO Darren Entwistle said the BCE rival was keeping its options open.
“It’s been a hallmark of our company that we do not close doors,” Entwistle said.
The BCE buyout – along with other private equity deals including GSO Capital’s $1.1 billion buyout of Reddy Ice – was widely credited with a corresponding surge on Wall Street’s first day of third quarter trading. The Dow Jones Industrial Average rose 126.81 points to 13,535.43, while the Standard & Poor’s 500 climbed more than 16 points to 1,519.43 and the Nasdaq hit 2,632.20, an increase of 29.07 points, or 1.12 percent.