March 28, 2008 / 2:48 AM / in 10 years

Canadian regulator sets conditions for BCE deal

TORONTO (Reuters) - Canada’s telecom and broadcasting regulator has approved the C$34.8 billion ($34.1 billion) buyout of BCE Inc by a group of private-equity investors led by the Ontario Teachers’ Pension Plan, but subject to a number of conditions.

<p>A Bell retail store is seen in downtown Montreal, June 21, 2007. REUTERS/Shaun Best</p>

The Canadian Radio-television and Telecommunications Commission said on Thursday that it approved the deal, but added that BCE’s board must have 13 directors, Canadian investors must at all times nominate six directors and that the company’s chairman must be Canadian.

The approval comes after the CRTC expressed concerns about the board makeup at BCE after it is taken private and about whether the company will ultimately be controlled by Canadians.

BCE is Canada’s biggest telecom company and offers wireless services, Internet, satellite television and wireline calling. It also has a minority stake in TV network and newspaper owner CTVglobemedia Inc.

The regulator’s approval is one of the final hurdles the deal -- the world’s largest leveraged buyout -- must clear before it can close, which is expected to happen by the end of the second quarter.

However, aside from a full slate of regulatory approvals, both BCE and Teachers’ have had to convince jittery investors that the banks funding the debt portion of the deal would honor their commitments despite tight credit markets and the possibility that leveraged deals could fail.

Market watchers have dueled over whether the BCE buyout will close and virtually no analyst has been able or willing to come down with absolute certainty on either side of the issue.

Teachers’ said earlier this week it expects its banks to honor their commitments and that it continues to work on closing the transaction.

Teachers’ partners in the consortium buying Montreal-based BCE are U.S.-based Providence Equity Partners, Madison Dearborn Partners and Merrill Lynch Global Private Equity.

Non-Canadian investors will be able to designate five directors, the CRTC said in a statement. It also stipulated the company’s chairman cannot be its chief executive or a director nominated by a non-Canadian investor.

The regulator also said that Teachers’ and Providence will have veto rights on certain transactions exceeding C$110 million, up from a threshold of C$100 million previously proposed by BCE.

“We’re reviewing the conditions and we don’t have any comment on them at this time,” a Teachers’ spokeswoman said.

At CRTC hearings that led to Thursday’s decision, Teachers’ CEO Jim Leech argued the board would remain under Canadian control and that the majority of BCE’s equity would be held by Canadians.

The buyout consortium has offered C$42.75 a share for BCE, but its shares have remained well below that price in recent months as investors fret that the deal could be repriced, delayed further or scrapped altogether.

The investor concerns also come as several other leveraged buyouts, such as that of U.S. broadcaster Clear Channel Communications, appear in trouble.

Several of the banks involved in financing the Clear Channel deal -- Citigroup Inc, Deutsche Bank AG and Royal Bank of Scotland Group Plc -- are also providing funding for the purchase of BCE.

This worries some analysts, who say the financing risk in the BCE deal will rise if the Clear Channel buyout collapses.

BCE’s shares closed ahead C$1.22, or 3.4 percent, at C$36.94, on the Toronto Stock Exchange.

($1=$1.02 Canadian)

Reporting by Wojtek Dabrowski; editing by Rob Wilson

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