BCE in privatization talks with pension funds, KKR
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Tue, 17 Apr 2007 19:48:01 GMT |
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By Wojtek DabrowskiTORONTO (Reuters) - BCE Inc. , Canada's top telecommunications group, said on Tuesday it was in talks with Kohlberg Kravis Roberts & Co. and three big Canadian pension funds that could lead to taking the company private in Canada's biggest buyout.Shares of BCE jumped 5.7 percent, or C$2.09, to C$38.35 late on the Toronto Stock Exchange, after earlier rising to as high as C$39.06. The stock is up more than 20 percent since late March.BCE, which has a market value of about C$29.3 billion ($25.9 billion), has long been one of Canada most widely held companies. However, its share price has remained largely flat in recent years even as Chief Executive Michael Sabia slashed costs and sold assets to inject life into the stock.The pension fund managers leading the talks are Canada Pension Plan Investment Board, Caisse de depot et placement du Quebec and Public Sector Pension Investment Board.KKR, the well-known New York private equity group, is a minority partner in the consortium. By law, foreigners cannot own more than 46.7 percent of a Canadian telecom company.Montreal-based BCE owns Bell Canada, the country's largest telephone company. It competes with Telus Corp. and Rogers Communications .The news surrounding BCE -- which dismissed rumors last month about its privatization -- also raised speculation over the possibility of a merger involving rival Telus."BCE's announcement ... has to open the door for the potential of a BCE/Telus merger, given the material synergies that could be achieved which would create far greater shareholder value than a private equity transaction," Desjardins Securities analyst Joseph MacKay wrote to clients.However, MacKay wrote on Tuesday that such a merger would have to address the "complicated" issue of the companies' overlapping wireless networks. Other analysts have said Ottawa could oppose such a deal because of competition concerns.The three funds in talks with BCE are some of Canada's most powerful institutional investors.The Caisse had C$143.5 billion in net assets at the end of 2006. The PSP Investment Board, which looks after pensions of federal police, government and Canadian Forces employees, has about C$35 billion under management.The CPP Investment Board fund totaled C$110.8 billion at the end of last year, including about C$9 billion invested in private equity and infrastructure.CPP spokesman Ian Dale said the deal had been in the works "for some time, since last summer. We made the company aware that if and when they chose to consider this kind of option ... that we were ready to work with them."Caisse Chief Executive Henri-Paul Rousseau said the size of Caisse's involvement would take into account its investment in Quebecor Media, whose Videotron group also competes with Bell Canada. Quebecor Media is owned by Quebecor Inc. .BCE said it is reviewing its strategic alternatives and its board will explore other opportunities. The pension funds and KKR have signed a nondisclosure and standstill agreement with BCE, but it is not exclusive, which leaves open the possibility of rival bids.SILENCE ABOUT TEACHERS' FUNDBCE's statement on Tuesday didn't mention the Ontario Teachers' Pension Plan, BCE's top shareholder with 5.3 percent, which had been rumored to be working on a buyout offer.Last week, a source said Teachers' had approached U.S. private equity firm Providence Equity Partners, among others, about a possible buyout of BCE. Though it hasn't said so openly, many have speculated Teachers' is unhappy with the performance of BCE shares.A Teachers' spokeswoman said on Tuesday the fund could take part in BCE's strategic review process, adding "we are encouraged that the BCE board is starting the process, reviewing alternatives, including privatization."UBS analyst Jeffrey Fan said he was surprised that Teachers' and Providence weren't among the discussion partners BCE named on Tuesday."Given the number of firms involved already, another competing offer, especially given the current share price, is unlikely in our view," Fan wrote in a note to clients.(Additional reporting by Nicole Mordant in Vancouver and Robert Melnbardis in Montreal)($1=$1.13 Canadian)
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