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BCE buyout hits another snag

KPMG has told BCE that it cannot deliver a solvency opinion before the 11 December scheduled closing of the $42bn transaction.

The $42 billion takeover of Canadian telecom company BCE, the largest proposed leveraged buyout to date, was thrown into doubt Wednesday after KPMG said it wouldn’t be able to deliver a solvency opinion on the merger, a necessary condition of the deal.

The audit firm blamed “current market conditions” and the amount of debt in the deal on its inability to deliver a solvency opinion by 11 December, the date the merger is scheduled to close, BCE said in a statement. 

BCE was set to be taken over by a consortium led by the Ontario Teachers’ Pension Plan and including Providence Equity Partners, Madison Dearborn Partners and Merrill Lynch Global Private Equity. The deal is to be backed by four banks – Citi, Deutsche Bank, Royal Bank of Scotland and Toronto-Dominion Bank. The amount of debt in the deal is reportedly C$34 billion ( €21 billion; $27 billion).

“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,” Siim Vanaselja, BCE’s chief financial officer, said in a statement. “The company disagrees that the addition of the LBO debt would result in BCE not meeting the technical solvency definition.”

Ontario Teachers’ reiterated its support of the deal Wednesday, saying that it would continue to “fulfill its obligations under the terms of the agreement”.

KPMG's announcement is the latest in a series of hurdles that have blocked the BCE takeover from reaching its conclusion. In May, the Québec Court of Appeals ruled in favour of a group of BCE bondholders who were upset by the devaluation of BCE's bonds, which they blamed on the pending LBO. The bondholders felt the take-private should be restructured as a reorganisation, in which they would have voting rights.

The Supreme Court of Canada overturned the appeals court ruling in June, clearing the way for the transaction to move forward. The transaction also hit a wall when the lending syndicate sought to renegotiate the terms of the financing because of the slumping markets. After months of negotiations, the parties reached an agreement and the deal was again free to proceed.