Pension Fund Participates in World's Largest LBO

July 4, 2008 ( - A group lead by the Ontario Teachers' Pension Plan has struck a deal to complete the world's largest leveraged buyout.

BCE Inc., Canada’s biggest phone company, signed a final agreement with the group after scrapping its quarterly dividend. The stock had its biggest gain in more than six years, according to Bloomberg.

The C$52 billion ($51 billion) purchase of BCE, first announced a year ago, will be completed by December 11 at the original price of C$42.75 a share, the Montreal-based company said in a  statement . BCE won’t pay dividends on its common shares, preserving as much as C$900 million to satisfy the banks financing the purchase.

BCE stock rose C$4.49, or 13%, to C$39.64 on the Toronto Stock Exchange, its biggest gain since April 2002.   On the other hand, BCE shares last month traded as much as 25% below the offer price on concern that banks funding the purchase might back out, or reduce the price as financing costs rise.

The buyout group and BCE made several changes to the agreement to win the backing of the bankers, who will provide C$34 billion in financing. The closing was pushed back almost three months from September 30, giving the bankers more time to sell debt to pay for the purchase, according to Bloomberg.

Supreme Court OK

Toronto-based Ontario Teachers’, Canada’s third-largest pension manager, and Providence, Rhode Island-based Providence Equity agreed a year ago to pay C$42.75 a share, or C$34.2 billion, to take BCE private. Madison Dearborn Partners LLC in Chicago and New York-based Merrill Lynch & Co. joined the deal.   The Supreme Court of Canada on June 20 approved the takeover, reversing a lower court ruling that said the deal didn’t treat bondholders fairly (see  Canadian Appellate Court Blocks Bell of Canada Sale ).

George Cope, 46, chief operating officer of BCE’s Bell Canada phone business, will succeed Michael Sabia as chief executive officer on July 11. Sabia had said he would step down when the sale closes.