Sunday, July 1, 2007
On Saturday, BCE, the Canadian telecommunications company, announced that it had agreed 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 Inc. and Madison Dearborn Partners, LLC. The offer price is C$42.75 in cash per common share and the transaction is valued at C$51.7 billion (U.S.$48.5 billion), including the assumption of C$16.9 billion in debt. The equity ownership of BCE post-transaction will be as follows: Teachers Private Capital 52%, Providence 32%, Madison Dearborn 9% and other Canadian investors 7%. NB. Canadian investment rules require that BCE be majority owned by Canadian entities.
Showing signs that last weeks constant talk of a slow-down in private equity may have come too soon, the transaction if completed would be the largest leveraged buy-out in history beating out the pending U.S.$32 billion takeover of TXU, the Texas utility, by a private equity consortium comprising Kohlberg Kravis Roberts & Co. and TPG. And a syndicate of banks has committed financing for the transaction showing similar confidence in the debt markets.
Perhaps the most interesting aspect of the transaction is the involvement of Teachers Private Capital. TPC has more than C$16 billion in assets and is part of the C$106 billion Ontario Teachers' Pension Plan. According to this slick brochure they have put out, TPC actively makes sole and co-investments in companies throughout the globe and has co-invested with KKR in over $5 billion of acquisitions in prior years. Their activity and investment highlight the strength of pension plans in the current investment market. Although ERISA rules would likely forestall a similar majority acquisition by a U.S. pension plan, expect these funds to take a more active role in investing in the near future, working to drive investments rather than follow their historical practice of passively investing through funds themselves.
Addendum: According to the New York Times, "the auction featured several bizarre twists, including accusations that Bell’s board was manipulating the process, the withdrawal of big-name bidders and an atmosphere that many characterized as lacking any transparency. 'It was a black box,' said Brent D. Fullard, the executive managing director of Catalyst Asset Management who is urging Bell shareholders to push for recapitalization rather than a sale." And apparently, losing bidders Telus and Cerberus Capital Management are considering counter-offers.