BCE TAKEOVER FACES REGULATORY DELAY CRTC hearings would stall Teachers' $35-billion deal Sinclair Stewart and Grant Robertson – Globe and Mail Canada's federal broadcast regulator is preparing to hold public hearings early next year into the proposed $35-billion takeover of BCE Inc., a move that could extend the closing of the deal until April, according to people familiar with the matter.
Sources said that a buyout consortium led by Ontario Teachers' Pension Plan and two U.S. partners recently attempted to persuade the Canadian Radio-television and Telecommunications Commission that there was no need for a hearing, given that the bid was all cash, and that majority ownership would reside in Canada.
BCE shareholders are assembling in Montreal tomorrow to vote on the leveraged buyout, which, if approved, will be the largest takeover in the country's history.
Although BCE has publicly said it is aiming to complete the deal by the first quarter of 2008, people close to the transaction said the buyers were originally hoping to close by the end of this year.
That timetable looks untenable now, given that the CRTC is expected to schedule hearings in mid-January. Sources close to the regulatory process said it was highly unlikely that the CRTC would have forgone hearings, given the size and importance of the transaction.
There is speculation that a decision could be handed back in February - a fast turnaround, compared with other deals - but that would still leave BCE awaiting approval from other bodies, including Industry Canada and competition authorities.
Within the BCE camp, there is now a growing sense that the formal closing will not happen until late March, or possibly April.
The CRTC, whose jurisdiction covers BCE's broadcast asset - both its Bell ExpressVu satellite operations and its Internet protocol television, or IPTV, licence - will focus its attention on issues of control: Namely, what measure of influence could be wielded by foreign-owned backers of the deal. An example might be whether BCE would need approval from one of its non-Canadian owners, like New Jersey-based Providence Equity Partners, before it was able to exceed a certain spending threshold.
The regulator will look at similar tests of "effective control" next month when it examines the sale of Alliance Atlantis to CanWest Global Communications Corp. and U.S. investment bank Goldman Sachs & Co. The Alliance hearings are the centrepiece of a busy fall for the CRTC, and a primary reason the regulator will not likely get around to the BCE takeover until the new year.
A spokesman for the CRTC declined to comment on its plans, and officials at BCE and the buyout group did not want to speculate on the regulator's intentions.
The buyers did stress, however, the Canadian content of the deal, although they have yet to file their formal shareholder agreement with the CRTC. Teachers will own 52 per cent of the equity, followed by Providence with 32 per cent, Madison Dearborn with 9 per cent, and TD Securities Inc., which is extending a bridge loan for the remaining 7 per cent.
"Certainly, it would be better if it was earlier than that," one person involved in the takeover said of the timing. "There would be more flexibility."
One group that may not complain too loudly about the extended timeline is the syndicate of bankers funding the deal. Given the turbulent credit markets, which fell into trouble just days after the BCE deal was announced in late June, the leveraged buyout environment has suddenly dried up.
Many in the industry are optimistic that these markets will have stabilized somewhat by next year, when BCE closes, and that conditions will be more favourable then for the underwriting banks.
Providence chief executive officer Jonathan Nelson said during a private equity conference in New York yesterday that "all systems are go" for the BCE deal, and that people are largely unconcerned about the financing because the deal doesn't have to close right now.
Mr. Nelson also suggested that one of the foremost concerns for the buyers of BCE is ensuring that customer service levels are high - a persistent complaint at BCE, and in the telecommunications sector in general.
"We are entering a new environment where hopefully we can rekindle the path the company was on in competing successfully with good service and quality offerings," he said in an interview following the conference. "That's important - that it's about the customer experience, the quality of service, as opposed to other dimensions of competition."
Jim Leech, who heads the private equity business for Teachers and was recently named as the successor to chief executive officer Claude Lamoureux, was also a featured speaker at yesterday's industry gathering in New York, and stressed the service component.
"We've said in the past that our emphasis will be on the customer," he said. "We know there have been customer complaints. We get them now." |