BCE to Be Sold to Teachers-Led Group for Nearly $52 Billion

Jun 30, 06:06 PM

Current Headlines: By JOHN VALORZI

TORONTO (CP) - Canada's largest telecom company, BCE Inc., is being acquired by an investment group led by the Ontario Teachers Pension Plan Board in the biggest corporate takeover in Canadian history, a friendly cash and debt deal worth nearly $52 billion.

The owner of Bell Canada said Saturday it had reached an agreement to be bought by a group led by Teachers Private Capital, the investment arm of the pension plan - along with U.S.-based Providence Equity Partners and Madison Dearborn Partners LLC - beating rival offers from several other bidders.

For thousands of small investors in the widely held company, who had long complained about BCE's lagging share price, the deal allows them to cash out at a 40 per cent premium above the shares' average price in the first quarter, before the company put itself up for sale.

For consumers, the privatization of BCE likely won't have much impact because the company will still be run by the same management team led by president and CEO Michael Sabia, and will pursue the same corporate strategies to cut costs and grow Bell Canada's wireless, data and high-growth businesses in a highly competitive telecom sector.

Sabia told a conference call with the media Saturday that the deal "represents very, very substantial value for our shareholders" and a premium price "that we're very proud of - a 40 per cent premium over the average trading price during the first quarter of 2007."

"The transaction, I think, delivers to our shareholders the real economic benefits of a lot of the work done over the last number of years; work that's addressed the need to focus our company on our core business, on our core capabilities, and to strengthen Bell with a new cost structure, with new competitive capabilities in the new world of telecom," he added.

"Based on this transaction, Bell will continue as a Canadian corporation held in the majority by a Canadian pension plan, and probably over time other pension plans, that represent a very large number of Canadians."

The all-cash transaction is valued at C$42.75 a share - or $51.7 billion in total - and includes $16.9 billion of debt, preferred equity and minority interests. The cash portion of the deal is about $34.8 billion and gives Teachers majority control of the company.

BCE said it expects the deal to close in the first quarter of next year. The transaction carries with it an $800 million penalty fee payable by BCE in certain circumstances, and a reverse break-up fee of $1 billion payable by the buyers if the deal fails to close.

Richard Currie, chairman of the BCE board, said the proposed transaction "concludes a comprehensive and disciplined" review of the company's strategic alternatives begun in mid-April.

"It will deliver substantial value creation for our shareholders. In addition, a majority of the equity will be owned by Canadians."

Montreal-based BCE (TSX:BCE) had other potential bidders, including New York-based Cerberus Capital Management LP and the Canada Pension Plan Investment Board. However, Telus Corp. (TSX:T) - Canada's second-largest telecom company - pulled out of the bidding last Tuesday and complained how the auction process was handled, .

The Teachers Pension Plan was already BCE's largest shareholder with a 6.8 per cent stake.

Under the deal, which BCE's board of governors is recommending unanimously to shareholders, the equity ownership would be as follows: Teachers Private Capital 52 per cent, Providence 32 per cent, Chicago-based Madison Dearborn nine per cent and other Canadian investors seven per cent.

The Ontario teachers pension group - with assets of $106 billion in 2006 - invests and administers the retirement funds for Ontario's 167,000 teachers and 104,000 retired teachers. The fund has major investments in numerous companies and sectors, including oil and gas, commercial real estate, infrastructure and financial services as it seeks high returns to pay for future retirement benefits for its members.

BCE, which has more than 54,000 employees, had annual revenue of $17.7 billion in 2006. It has 18.2 million customer connections, including 5.8 million wireless subscribers, 8.64 million phone lines, 1.94 million Internet subscribers and 1.82 million satellite television subscribers. The company is Canada's second-biggest cellphone operator in central Canada, behind Rogers Communications (TSX:RCI.B) and operates the Bell ExpressVu satellite TV service.

Other BCE holdings include interests in CTVglobemedia, one of the Canada's biggest media companies.

Jim Leech, senior vice-president of Teachers' Private Capital, said the pension fund has been a major BCE shareholder since the early 1990s and backs the company's growth strategy.

"We made it clear in our proposal that we have carefully considered the potential for BCE and its ongoing status as a Canadian icon. We strongly believe that all BCE shareholders, Canadian consumers, and employees, including senior management, who will continue to direct the company from its headquarters in Montreal, will benefit from this transaction."

Jonathan Nelson, CEO of Providence Equity Partners, an investment company based in Providence, R.I., said "this is a unique opportunity to contribute to and participate in the growth of one of the world's most significant communications companies."

The transaction requires approval of two-thirds of outstanding common and preferred shares, voting as a class.

Shareholders will be asked to vote on the deal at a special meeting. The deal is also subject to approval of the CRTC, the federal Competition Bureau, Industry Canada and other government agencies.

In the BCE conference call, CEO Sabia said the Teachers fund and other proposed new owners of the company are expected to back BCE's growth strategy.

"The Teachers consortium has made clear its intention to build on the company's strength by continuing to invest in its growth platforms, be they wireless, our broadband business, our video business, etc. And that investment and that like-mindedness about investing to grow the business is one of the things that we're very proud of that we've been able to accomplish in the context of the kind of value we've delivered for our shareholders."

Meanwhile Saturday, Catalyst Asset Management Inc., a Toronto investment company that offered its own proposal last week to restructure BCE by changing its capital structure, urged shareholders to reject the Teachers-led going-private bid. Catalyst said that transaction will trigger capital-gains taxes while the Catalyst plan provides shareholders with a tax free rollover of at least two thirds of the money they get.

"The Catalyst proposal will preserve Bell Canada as Canada's most widely held public company and in so doing will maximize Ottawa's tax collection base by preserving Bell Canada's large base of taxable investors, unlike the sale to private equity whose principals are non taxable pension funds and/or taxpayers in foreign tax jurisdictions."