July 5, 2008

Accord With Lenders Saves Takeover of Bell Canada

By Ian Austen

A Canadian-led investor group appeared Friday to have salvaged a deal worth about $35 billion to acquire BCE, the parent of Bell Canada, by delaying its closing date and canceling dividend payments.

The consortium of banks, which had agreed to provide financing for the purchase, were demanding changes to lending terms made a year ago before the onset of a global credit market crunch.

The purchase, led by the Ontario Teachers' Pension Plan and including private equity investors, was originally scheduled to close last Monday but that deadline was extended because of the talks with the banks as well as a legal challenge. Because the deal is structured under a unique Canadian court process, repricing the agreement to alleviate the lenders' concerns would have been difficult and time consuming.

The new agreement, however, effectively reduces the purchase price by about $2 a share by moving the closing date to Dec. 11 and halting dividend payments to holders of common shares. As originally planned, the buyers will pay 42.75 Canadian dollars a share, or $41.92, for the company. When the deal was announced it also included the assumption of $15.9 billion in debt.

William Fox, a spokesman for BCE, declined to estimate the increase in the company's cash position that would come from canceling the dividend payments. On Monday, BCE, based in Montreal, announced that it was deferring its second-quarter common share dividend payment and it estimated a savings of about 294 million Canadian dollars.

The savings from canceling two additional dividend payments as well as other cash generated by the company over the coming months will effectively reduce the purchase price by about $1.5 billion. That increased cash position will make the four banks, Citigroup, Deutsche Bank, Royal Bank of Scotland and the Toronto-Dominion Bank, less anxious about the huge lending commitment and the delay will also give them more time to syndicate their loans. An unknown portion of the savings will be also passed along to the lenders.

Deborah Allan, a spokeswoman for the teachers' pension plan, said, "I think everyone will see this as being positive." The other main buyers include Providence Equity Partners, Madison Dearborn Partners, and Merrill Lynch Global Private Equity.

Michael Sabia, the chief executive of BCE, had been scheduled to leave the company when the transaction closed. He will now step down on July 11 and be succeeded by George Cope, who now heads the Bell telephone operations in Ontario and Quebec.

The purchase, the largest leveraged buyout to date, was announced just over a year ago. But it ran into an unexpected hurdle in addition to the credit market squeeze. Bondholders began a legal challenge to the deal that was only settled in BCE's favor by the Supreme Court of Canada last month.

Originally published by The New York Times Media Group.

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