TORONTO (Reuters) – BCE Inc (BCE.TO) said on Wednesday that it was unlikely to close its C$34.8 billion ($28.2 billion) leveraged buyout next month, after its accountants ruled the company, which owns Bell Canada, wouldn’t meet a solvency test because of the huge debt load involved in the deal.
It was the latest twist in the saga of the world’s largest leveraged buyout. The deal has faced everything from regulatory scrutiny to angry equity and debt investors as it inched its way forward to the expected Dec. 11 close.
And on Wednesday, BCE said its accountants, KPMG, said the company would not meet the solvency test as defined by its buyout agreement under the current conditions and the amount of debt involved in the buyout financing.
BCE said in the release that it had received a preliminary view from KPMG that, based on current market conditions and the amount of debt involved in the buyout’s financing, it does not expect to be in a position to deliver on the scheduled effective date of BCE’s privatization.
The company said it disagreed with KPMG’s preliminary view of post-transaction solvency and that it continued to work with the accounting firm and the purchaser to seek to satisfy all closing conditions.
“The deal is unlikely to proceed if we do not get that positive opinion,” BCE spokesman Mark Langton told Reuters.
Montreal-based BCE, Canada’s biggest telecom company, is being bought out by a group of private equity investors led by the Ontario Teachers Pension Plan.
BCE shares have long languished below the offer price of C$42.75 a share as investors fretted that the deal could be repriced, delayed or abandoned altogether because of problems in the financial markets.
The shares closed at C$38.35 on the Toronto Stock Exchange on Tuesday. In trading before the markets opened on Wednesday, the stock dropped 40 percent to $18.90 from Tuesday’s New York Stock Exchange close of $31.28.
The deal is being financed by Citigroup (C.N), Deutsche Bank (DBKGn.DE), Royal Bank of Scotland (RBS.L and Toronto-Dominion Bank (TD.TO).
Citigroup, Toronto-Dominion and Royal Bank of Scotland were not immediately available. Deutsche Bank had no comment.
In mid-June, BCE won the backing of the Supreme Court of Canada, which overturned a Quebec Court of Appeal decision that had said the plan, to be funded partly by taking on new debt, did not take adequate account of the interests of existing bondholders.
(Reporting by Scott Anderson and Wojtek Dabrowski in Toronto and Jessica Hall in Philadelphia; Editing by Lisa Von Ahn)