The private equity storm that surrounds telecommunications and cable operators continued this week with a record breaking deal to take Bell Canada Enterprises (BCE), the largest telco in Canada, away from being public.
BCE has entered a definitive agreement to be acquired by an investor group led by Teachers Private Capital, the private investment arm of the Ontario Teachers Pension Plan, Providence Equity Partners and Madison Dearborn Partners in an all cash transaction valued at C$51.7 billion (US$48.5 billion), including C$16.9 billion (US$15.9 billion) of existing debt, preferred equity and minority interests.
The BCE Board has recommended the deal to shareholders and every news source following the deal is keen to point out that the share value of C$42.75 a share compares pretty wonderfully with the 52 week low of C$25, almost a doubling of price for recent shareholders. The purchase price represents a 40% premium over the undisturbed average trading price of BCE common shares in the first quarter of 2007 and values BCE at 7.8 times EBITDA.
“The transaction delivers to our shareholders the economic benefit of the
work done to focus on our core business and to strengthen Bell with a new cost structure and new competitive capabilities,” said Michael Sabia, President and CEO of BCE. “All members of the investor group have outstanding track records in building strong and resilient enterprises and they share our commitment to customers, our employees and the communities we serve.”
BCE will be 52% owned by Teachers Private Capital, 32% by Providence and 9% by Madison Dearborn, with others Canadian investors holding 7% and the deal has been saddled with a C$800 million (US$751 million) break up fee if the deal does not go ahead for any reason. This break up fee will be an anchor stopping smaller rival Telus, trying to make a counter bid, as it probably adds C$800 million to the deal price, but regardless CEO Darren Entwistle has been telling local press that the deal’s not done yet and implying that Telus may somehow intervene.
Telus fell out of the bidding at a late stage, rather than make an unsuccessful bid, saying ‘The inadequacies of BCE’s bid process did not make it possible for Telus to submit an offer.’
Bell is said to have received three offers for the business one driven by the Canada Pension Plan Investment Board and Kohlberg Kravis Roberts; another from Cerberus Capital, and the successful bid.
No-one has said in detail exactly how the privatized BCE will drive value, but closing down some divisions, cutting jobs and refocusing on wireless customer acquisition have all be mentioned. The buyers said that they are sticking with the current business plan for now until they have a chance to discuss it with the existing management, who will remain in power.
BCE has 54,000 employees, revenues of C$17.7 billion. It has 5.8 million wireless subscribers, 8.64 million phone lines, 1.94 million internet subscribers and 1.82 million satellite TV subs, and can either push on towards a consolidated quadruple play offering or drop out of one or other of these markets. For instance it also holds media assets, TV and newspapers and these might fall to the axe.
Just how to get the best from BCE may indeed include a rolling up of interests with Telus, such as merging their wireless networks, which is perhaps what Entwistle was referring to.