Monday, July 7, 2008

BCE Buyout Back On! For Real.

In the on-again off-again world of stalled buyouts stuck in credit crisis purgatory, the BCE buyout has emerged relatively intact.  Somehow, despite litigation that threatened to derail the deal, the company has struck a compromise with its private equity buyers and lenders to reach a deal.  The purchase is due to close by December 11, essentially giving the lenders an extra three months to sell the debt used to finance the LBO.  BCE has agreed to suspend the $900 million dividend, effectively lowering the private equity buyers' costs.  This is much needed good news for the beleaguered buyout industry which is now littered with the corpses of busted deals and LBO debt trading at a significant discount to face value.  BCE stock is up smartly on the news, with investors assuming that this is a done deal.  But is it really?  Although the breakup fee was raised to C$1.2 billion, if equity markets continue to take a dive, the fee may start to look cheap relative to a completion of the deal.  Furthermore, the lenders still have to sell $34 billion in bonds and loans to finance the deal.  Although the banks have an extra three months to pull off this herculean feat, one has to wonder if any investors out there are clamoring for buyout debt in the current environment.  If the sale of the debt begins to look unlikely, the lenders may try to find another way out if legally possible.  Those sneaky lenders will do whatever it takes to avoid ending up saddled with even more assets they can't sell.  Somehow, I suspect this is not the last chapter in the BCE buyout saga.

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