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    BCE, buyers agree to terms  
    Toronto Star  

Chris Sorensen

    July 05, 2008  

Deal ends suspense over whether banks funding highly leveraged sale would try and back out


After a year of operational paralysis, buyout target BCE Inc. is set to once again square off against its competitors now that an agreement has been reached to secure the $52-billion deal's financing amid the ongoing credit crunch.

Montreal-based BCE said yesterday it has entered a final agreement to preserve the original $42.75 per share offer by the Ontario Teachers' Pension plan and U.S. private equity firms that BCE's board agreed to last June.

But, in an apparent concession to the beleaguered banks financing the transaction, BCE said dividend payments on the company's common shares will be withheld until the deal is completed on or before Dec. 11.

Analysts said the move gave the buyers up to $900 million of breathing room in its negotiations with reluctant lenders, while the extended closing date provides the banks with more time to market the debt packages.

Shares of BCE soared 12 per cent to $39.64, up $4.49, on the Toronto Stock Exchange, the highest they've traded since November.

The new agreement promises to finally put an end to the rocky BCE takeover saga that has served as a year-long distraction for the phone giant.

In a signal that BCE is now prepared to move forward, chief executive Michael Sabia said he will make good on a previous pledge to hand over the reigns to George Cope, Bell Canada's chief operating officer. The transition is scheduled to take place next Friday.

Observers said Cope will have his work cut out for him as he attempts to right BCE.

"Teachers' did not buy the company to continue business as usual," said Iain Grant, the managing director of consulting firm The Seaboard Group.

Bell is bleeding traditional land-line customers to cable companies such as Rogers Communications Inc., which now offers its own cable-based home phone service.

It is also facing more wireless competition in the wake of a federal government auction of airwaves designed to encourage new industry entrants.

Grant said a number of options are likely on the table.

Those include everything from overhauling Bell's wireless network to make it compatible with the global system for mobile communications standard, or GSM, to the replacement of Bell's legacy telephone network with a costly fibre-to-the-home strategy similar to one pursued in the United States by Verizon Communications Inc.

A GSM-compatible wireless network would allow Bell to offer GSM-only devices such as Apple Inc.'s much-ballyhooed iPhone, which Rogers is set to begin selling in Canada on the same day Cope takes control.

Overhauling the legacy telephone network would be far more expensive, but could potentially yield much higher returns.

"Bell is caught in the middle of a major technological change," said Grant. "It is both a traditional telephone land-line company and a new-age IP company.

"That is really the worst of both worlds.

"You cannot take full advantage of the efficiencies of IP if you are hamstrung by the demands of the legacy network."

However, sources have said Bell's previous plans to bury more fibre in more neighbourhoods was scrapped when the BCE takeover was first announced and that it's doubtful the phone giant will now have the necessary cash to resurrect the effort, never mind expand on it.

Valued at $52 billion including debt, the BCE takeover is the biggest-ever leveraged buyout and will saddle the telecom's balance sheet with liabilities for years.


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