MONTREAL – BCE released a statement Wednesday morning that due to the current market conditions, accounting firm KPMG has told the big telco that it can’t deliver a positive opinion that BCE would meet the solvency tests as defined in the privatization agreement by the December 11th closure deadline.
“The receipt at the effective time of a positive solvency opinion is a condition to the closing of the transaction,” says this morning’s release.
The transaction, of course, is the world’s largest-ever leveraged buyout of Bell Canada Enterprises, one valued at $51-billion, and put together last year (prior to the world credit market’s implosion) by Teachers’ Private Capital, the private investment arm of the Ontario Teachers’ Pension Plan, Providence Equity Partners Inc., Madison Dearborn Partners, LLC, and Merrill Lynch Global Private Equity.
While KPMG said it could not deliver a positive report on BCE’s potential for solvency post-sale, “(a)t the same time, KPMG indicated that BCE would meet all solvency tests under its current capital structure,” reads the press release.
"BCE today enjoys solid investment grade credit ratings, has $2.8 billion of cash on hand, a low level of mid-term debt maturities, and continues to deliver solid operating results," said George Cope, president and CEO of BCE and Bell, in the statement.
"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. The company disagrees that the addition of the LBO debt would result in BCE not meeting the technical solvency definition," added Siim Vanaselja, BCE’s chief financial officer.
“The company continues to work with KPMG and the purchaser to seek to satisfy all closing conditions. Should KPMG be unable to deliver a favourable opinion on December 11, 2008, however, the transaction is unlikely to proceed,” concluded the release.
In response to the announcement, BCE shares plummeted about 34% to $25.25 as the company lost $10 billion in value during the course of the day where over 47 million of its shares changed hands. The value the acquisition places on the shares is $42.75.
As for the purchasers, BCE Acquisition Inc., a company organized by Teachers’, had this to say: "The delivery of the solvency opinion is a condition to the completion of the acquisition of BCE. The purchaser has been working closely with BCE to take the actions required by the definitive agreement in connection with the transaction and will continue to fulfill its obligations under the terms of the agreement."
With the world’s financial crisis continuing, few expect KPMG’s mind to change and after 20 months of fighting myriad legal battles and regulatory skirmishes to push it through, BCE will remain what it was at the beginning of all this, a big publicly traded telco.
