TORONTO (Reuters) - Announcing what it said were “essential milestones” allowing the world’s largest leveraged buyout to go ahead, BCE Inc said on Friday that its buyers had finalized funding and were sticking to their C$34.8-billion ($34.1 billion) purchase price.
In an announcement that was in stark contract to news of buyouts that have crumbled in the United States, the Canadian telecom giant said it expected its going-private deal to close by December 11.
BCE shares jumped 13 percent to C$39.64 on the Toronto Stock Exchange, reflecting investor relief that the deal would close at the original price of C$42.75 per share. The closing will be some six months later than previously targeted.
“It’s been a tough market for financing in the credit markets,” said MacDougall, MacDougall & MacTier analyst Troy Crandall. “It was quite impressive that they did get the financing put together as quickly as they did.”
BCE, traditionally known for steady dividend payouts, said it will not pay dividends on its common shares before the deal closes, although it will continue to pay dividends on its preferred shares.
That follows on from an announcement on Monday that BCE was skipping its second-quarter dividend, worth about C$294 million, as it works to complete the deal.
The reverse break fee payable by the buyers has increased to C$1.2 billion from C$1 billion.
“Since the dividend has been effectively canceled, it is likely that the...dividend payments between now and close (worth between C$588-C$882 million) have been offered as a concession for the banks to complete the deal,” National Bank Financial analyst Greg MacDonald wrote in a note to clients.
A source briefed on the agreement said the private equity buyers and the banks had asked BCE to delay the close. In exchange, BCE got to preserve the original price.
The delayed closing means some $1.5 billion will go back into BCE coffers -- for the benefit of the buyers -- from cash flow generated during the period, and because BCE won’t pay the quarterly dividends.
This essentially reduces the cost to the buyers by that $1.5 billion, or about $2.00 per share, the source said.
The buyers of Montreal-based BCE are an investor consortium led by the Ontario Teachers’ Pension Plan and U.S.-based Providence Equity Partners Inc, Madison Dearborn Partners LLC, and Merrill Lynch Global Private Equity.
Friday’s leap in the BCE share price brought the stock to its highest level since early July, 2007, days after BCE first announced the deal. The shares slumped as low as C$31.80 in May amid legal challenges to the transaction.
The shares have also languished below the proposed price on fears that the agreement would be repriced or scrapped after last summer’s credit crunch choked off funding for new large buyouts and left question marks over deals still on the table.
Investors feared that buyers were paying too much for companies in a weakening economy, while banks financing deals faced losses as they tried to sell the debt on.
Failed deals involved audio equipment maker Harman International Industries Inc, equipment renter United Rentals Inc and student lender Sallie Mae, formally known as SLM Corp.
On Thursday, Penn National Gaming Inc said its $6.1 billion takeover had been terminated.
One troubled transaction was the buyout of Clear Channel Communications, where the banks appeared unwilling to account for any losses on the loans they agreed to make.
That unnerved BCE investors, since some of the banks underwriting Clear Channel are also underwriting the BCE purchase.
The BCE deal is being financed by Citigroup, Deutsche Bank, Royal Bank of Scotland and TD Securities, a unit of Toronto-Dominion Bank.
Crandall said the BCE deal could still face technical hold-ups, even though the financing now appears secured and the transaction has all the regulatory approvals it needs.
For example, the bondholders who mounted a court challenge that went all the way to Canada’s Supreme Court could return with another case, although the odds of this are likely low.
“It’s not necessarily over,” Crandall said. “There’s still a little bit of risk.”
BCE said George Cope, a former Telus Corp executive who has been primed for top job, would take over from existing CEO Michael Sabia next week.
Additional reporting by Megan Davies in New York and Lynne Olver in Toronto; editing by Janet Guttsman