Bell Canada gets new auditor involved in leveraged buyout

BCE Inc. announced this week it has hired PricewaterhouseCoopers LLP toperform “valuation work” related to the telecom holding company’sacquisition by the Ontario Teachers’ Pension Plan and three partners.

The acquisition, which would take the company private, is scheduled to close this Thursday.

Butlast month, BCE announced its auditor, KPMG, had given BCE a“preliminary view” that it “does not expect to be in a position todeliver (by Dec. 11) an opinion that BCE would meet the solvency tests”required as a condition of the deal.

InJune, 2007, Teachers – along with Providence Equity Partners Inc.,Madison Dearborn Partners, LLC and Merrill Lynch Global Private Equity– announced their intent to purchase all outstanding shares of BCE forabout $50 billion.

The deal has been fraught with stumblingblocks, including the requirement to borrow money and a class actionsuit filed by bond holders.

The consortium was able to secureUS$30 billion in loans from a group of four banks, Toronto-Dominion,Deutsche Bank, Citigroup and Royal Bank of Scotland.

The SupremeCourt of Canada last June dismissed a suit launched by an ad hoccommittee representing investors holding BCE debenturesissued as far back as 1976. The bond holders argued the deal was unfairto them because the value of their investments were plummeting (in somecases up to 23 per cent). After the deal was announced, bond ratingagencies lowered their ratings on existing bonds because BCE’s debtwould more than triple if the leveraged buyout went through.

TheQuebec Superior Court ruled in against the bond holders, whosuccessfully appealed. But BCE then appealed to the Supreme Court ofCanada, which ruled in the company’s favour.

As it turns out, BCE’s debt may scuttle the deal after all, but not due to concern from existing bond holders.

Analystssaid KPMG’s preliminary report was due to uncertainty over how muchBCE would have to pony up to cover shortfalls in its defined benefitpension plans, which relied on the stock markets for growth.

BCE said Monday night the acquisition is “unlikely to proceed” should KPMG fail to deliver a “favourable” solvency report.

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