Pension showdown looms for Canada’s BCE

Teachers’ is the latest, major Canadian pension fund to enter take-private talks for $30 billion telecom giant BCE. Like the pensions in the two other bidding groups, Teacher’s has partnered with a heavyweight US private equity firm.

The private investment arm of the Ontario Teachers’ Pension Plan, Teachers’ Private Capital, has officially joined the impending battle between Canada’s pension funds for the country’s telecom giant, BCE. Teachers’ has partnered with Rhode Island-based Providence Equity Partners, just as the other Canadian pensions expected to bid have been backed by some of the US’ largest private equity firms.

At least two name brand-heavy consortiums are already in discussions with the $30 billion (€22 billion) BCE: Cerberus Capital Management and Hospitals of Ontario Pension Plan are leading one group, while the other includes Kohlberg Kravis Roberts and pension giants Caisse de dépôt et placement du Québec and Canada Pension Plan Investment Board.

The participation of domestic pensions may offset anxiety in Canada that a domestic asset – and in some eyes, an icon – will become foreign-owned; a telling headline regarding KKR in Canada’s Globe and Mail read: “US equity firm stalks BCE, plots takeover”.

Henry Kravis, KKR co-founder, recently tried to allay such fears.

“If we’re fortunate enough to be selected when it’s all over, we’ll be a minority investor behind two or three very important Canadian pension funds,” Kravis said at the Canadian Venture Capital and Private Equity Association’s annual conference. “They will control the company; this is a Canadian asset. You have rules up here [regarding foreign investment]; we understand those rules and are certainly happy to abide that.”

BCE’s “strategic review” process is expected to close in the third quarter, it said in a statement.

Should a deal with any of the three groups come to fruition, it would be the largest-ever Canadian buyout. It would also surpass TPG’s and Goldman Sachs recent $27.5 billion buyout of US regional wireless carrier Alltel as well as the largest-ever private equity deal in the telecom sector.