TORONTO – Shortly after midnight this morning the companies which had been looking to buy BCE issued a press release saying that the agreement to acquire the big telco by a group of investors, led by the Ontario teachers Pension Plan, “has been terminated in accordance with its terms,” it reads.
“Receipt of a solvency opinion from a nationally recognized valuation firm was included in the June 30, 2007 definitive agreement between the purchaser and BCE as a mutual closing condition,” says the release. “The agreement of the purchaser and BCE to both the selection of KPMG to serve as the valuation firm and the form of the solvency opinion was reflected in the July 4, 2008 amendment to the definitive agreement.
“Because KPMG has concluded that a required test for the solvency opinion was not met, this mutual condition to completion of the acquisition could not be, and was not, satisfied. Accordingly, the Purchaser terminated the agreement in accordance with its terms.
“Under these circumstances neither party owes a termination fee to the other,” concludes the release.
BCE has another opinion on that last bit. The company agrees the privatization deal is dead, but that it believes the $1.2 billion break-fee the original agreement calls for still must be paid. Most big deals like this have such fees that must be paid if the agreements are not completed.
However, since the solvency test was a mutual condition, the investor group led by the Ontario Teachers’ Pension Plan, and affiliates of Providence Equity Partners, Madison Dearborn Partners, and Merrill Lynch Global Private Equity, believes the fee does not have to be paid.
Later this morning, BCE put out its own release, saying it received, yesterday evening, “a notice purporting to terminate the Definitive Agreement… BCE disputes that the Purchaser was entitled to terminate the Definitive Agreement, as such notice was delivered prematurely, prior to the outside date for closing of the transaction, and therefore invalid. Given the Purchaser’s position, the BCE privatization transaction will not proceed.”
Basically, since the deal’s deadline was this morning, and not yesterday evening, the notice from the prospective buyers was too early.
“As previously announced, the closing of the privatization transaction is contingent upon the fulfillment of several closing conditions, including, pursuant to Section 8.1(f) of the Definitive Agreement, the receipt at the effective time of a positive solvency opinion from KPMG,” adds the BCE release.
“Earlier this morning, KPMG confirmed that it would not be able to deliver an opinion that BCE would meet, post transaction, the solvency tests set out in the Definitive Agreement.
So, BCE will be terminating the purchase agreement, and will be demanding payment of the $1.2-billion break-up fee from the Purchaser. All other closing conditions have been satisfied by BCE, other than the solvency opinion, “a condition to closing that was to be satisfied by its nature at the effective time,” reads the release.
“Under such circumstances, the agreement provides that the break up fee will be owed to BCE by the Purchaser. The Purchaser has taken the position that it is not obligated to pay the break-up fee.”
But it’s not all bad news for shareholders as the company also said: “The BCE Board intends that immediately following termination of the Definitive Agreement in accordance with its terms, it will address a reinstatement of its common share dividend beginning with its fourth quarter common share dividend payable on January 15, 2009, and that it will return capital to its shareholders through a Normal Course Issuer Bid.
