* BCE, buyers say C$34.8 billion deal is dead
* BCE says will demand C$1.2 billion breakup fee
* Company plans to resume dividends, buy back stock
* Shares down 2.6 percent in Toronto
(Adds fund manager comment, updates shares)
By Megan Davies and Wojtek Dabrowski
NEW YORK/TORONTO, Dec 11 The C$34.8 billion
($28.3 billion) leveraged buyout of BCE Inc (BCE.TO)(BCE.N),
Canada's biggest telecommunications company, ended in collapse
on Thursday, setting the stage for a fight between the company
and its buyers over the deal's C$1.2 billion breakup fee.
The derailment was widely expected after BCE said late last
month that its accountants, KPMG, had concluded that the
company that would emerge from the buyout would fail a solvency
test because of its huge debt load.
The purchase required a positive solvency ruling from KPMG
as a condition for closing, which was slated for Thursday. KPMG
did not deliver a positive opinion, leading the deal to fail.
The crumbling of the takeover, which would have been the
world's largest leveraged buyout, is the latest in a string of
buyouts that have fallen amid the deep freeze in credit markets
and the global economic slowdown.
BCE confirmed the buyout would not proceed and said it
would demand a C$1.2 billion breakup fee from the buyers, a
group of private-equity firms led by the Ontario Teachers'
Pension Plan. The buyers prematurely delivered their notice to
terminate, Montreal-based BCE said.
The buyers, meanwhile, said it was "very clear" that
neither party owes a termination fee to the other.
"It is most unfortunate that BCE is threatening litigation
over the failure of a mutual closing condition that the company
insisted be included in the original acquisition agreement,"
the buyers said in a statement.
"Should BCE commence such baseless litigation, we are
confident that it would not succeed."
The conflicting views on the break fee set the stage for a
fight that could either end up in court or result in a
settlement, said Troy Crandall, an analyst at MacDougall,
MacDougall & MacTier.
C$42.75 A SHARE IN CASH
About 18 months ago, BCE struck an agreement to be bought
by Teachers, along with U.S.-based private equity firms
Providence Equity Partners, Madison Dearborn Partners and
Merrill Lynch Global Private Equity, at C$42.75 a share in
cash, and be taken private.
However, the stock has traded around C$23 on the Toronto
Stock Exchange of late, a sign of investor doubt about the
buyout. KPMG's opinion on solvency added to investor concerns
that the deal would be delayed, repriced or ultimately
abandoned because of tight capital markets.
The market widely expected the deal's collapse, but BCE
shares still fell on the Toronto Stock Exchange, shedding
nearly 6 percent before rebounding to C$22.43 by early
afternoon, for a loss of 59 Canadian cents or 2.6 percent.
BCE said Thursday that with the buyout dead, it will
reinstate its suspended common share dividend and buy back an
unspecified amount of stock. Both moves were expected by
analysts. Before suspending dividends, BCE paid out an
annualized C$1.46 a share.
"It was reassuring that management's coming from the same
point of view as analysts had expected, where it looks like
they are committed to reinstating the dividend and they are
committed to doing share buybacks," Crandall said.
"I see that as promising."
Barry Allan, founding partner of Marret Asset Management,
said that, at minimum, he expects the dividend to come back to
the pre-suspension level. This could also be accompanied by a
special payout to investors, he added.
As for the share buyback, it is likely to be "somewhat more
symbolic than meaningful," said Allan, whose firm holds both
BCE stock and bonds. "They certainly do have needs for a lot of
the cash that they have."
BANKS FREE OF FUNDING OBLIGATION
Wall Street banks have suffered billions of dollars in
losses on financing leveraged buyouts deals reached during the
private equity boom of 2006-07.
The banks that were underwriting the buyout were Citigroup
(C.N), Deutsche Bank (DBKGn.DE), Royal Bank of Scotland (RBS.L)
and Toronto-Dominion Bank (TD.TO), which collectively agreed to
provide financing of $34.35 billion.
In a statement on Thursday, they said that with the deal
dead, their financing obligations were also terminated.
"The banks are not in a position to comment on any dispute
between BCE and the purchaser," they added.
Analysts had already speculated the end of the deal could
be a relief for the buyers, who had agreed to the buyout in far
better economic times.
However, the bankers who advised the company and the
purchasers could lose out on some of their fees, which are
typically paid on completion of a deal.
Advisers to BCE were to earn an estimated $68.27 million in
target fees. Advisers to the consortium buying BCE were to earn
$61.18 million in estimated fees.
(Editing by Rob Wilson)