Thursday, December 11, 2008

RIP BCE Buyout

I must admit, I'm somewhat sad to see the BCE buyout officially fall apart.  Witnessing the litigation circus that this deal morphed into has been extraordinarily amusing.  Why the private equity group, led by the Ontario Teachers' Pension Plan of all people, was so dead-set on completing a monster deal struck at the peak of the private equity boom remains a bit of a mystery.  Perhaps the Ontario Teachers have no business investing in private equity if they are so lousy at assessing such a stark change in the investment environment?  Or perhaps, they're smarter than we think?   
In a surprising twist, the deal was killed by a solvency, or rather lack-of-solvency opinion issued by the firm's auditor KPMG.  What do you do when your auditor tells you the firm will be insolvent if the deal goes through?  You try to find another auditor to express an alternate opinion!  BCE engaged Pricewaterhouse Coopers, which delivered a positive solvency opinion.  Because it is really reassuring to know that at least one out of two auditors think the firm will be solvent.  You definitely want to base a multi-billion deal on that.  In any event, the true irony is that BCE originally inserted the solvency-certificate condition in the merger agreement as a condition of closing to protect itself from  lawsuits by existing BCE bondholders, who were pissed about the company's proposed new debt-laden capital structure.  The negative opinion killed the deal, and all involved are certainly rejoicing, with the exception of BCE and its shareholders, who would love a $34-a share take-out, with the stock currently languishing at $18.
With the auditing industry famous for putting its stamp of approval on stellar outfits such as Enron, Worldcom, Bear Stearns, Lehman Brothers and a host of other companies that were basically insolvent and went bankrupt with nary an auditor raising a flag, I've got to ask the following controversial question:  Who bribed the auditors into killing the deal?  I'm not going to point any fingers because my conspiracy theories are purely a figment of my overactive imagination, but I have a few ideas... 

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