Today your editor discovered for the first time in his life he lacksthe muscle flexibility necessary to kick himself in the head. That’swhat he tried to do when he discovered a plethora of news storiesraising doubts about the privatization of BCE Inc.
Earlier thisweek, on two separate occasions, youreditor predicted the BCE privatization plan was not introuble, despite the recent economic problems. His maineffort today consisted of wiping the egg off his face.
OnWednesday, BCEannounced its auditor, KPMG, gave the company a “preliminary view”that it will not be able to say by Dec. 11 that BCE will meet “solvencytests.”In English, that means KPMG, the auditor hired byBCE to independently pore through its financial statements, is notgoing to stake its reputation (or anything else) on an opinion thatit’s safe for the consortium wanting to buy BCE to borrow about US$30billion to take the company private.
Your editor does not ownBCE shares nor has he ever held a short position. Now he wishes he hadtaken a short position in about 500 BCE shares. Ah, the clarity ofhindsight.
The news this week indicates that despite BCE’smarket power in Canada – delivering a services that most businessesconsider essential – is not necessarily going to guarantee itsviability if it borrows $30 billion, on top of the $10 billion isalready owes.
Right now, the privatization of BCE, which hasbeen approved by the board of directors and regulators, should be afait accompli.
But four firms – Ontario Teachers’ Pension Plan,Providence Equity Partners Inc., Madison Dearborn Partners, LLC andMerrill Lynch Global Private Equity — have agreed to buy BCE and theycannot buy all shares without borrowing money. Four banks –Toronto-Dominion, Deutsche Bank, Citigroup and Royal Bank of Scotland — have agreed to lend the money.
All it takes is one of these eight organizations to pull out and the deal unravels.
Andeven if they are still in on Dec. 11, it appears as if the deal wouldstill require a vote of confidence from the auditor, which would haveto say it believes BCE would be solvent after taking on an additional$30 billion in debt.
Telecommunications services may beessential for most, but if consumers and businesses decide they need tomake fewer calls, less Internet bandwidth and fewer mobility services,then Bell Canada could see a drop in sales.
Then again, ifcompanies cut back on staff and travel, maybe the workers who didn’tget fired will need their phones and Internet connections even more todo their jobs.
