Bell Canada agrees to record $35-billion leveraged buyout

BCE Inc., Canada’s largest telecommunications company, said Friday that it had agreed on terms of a $35-billion sale to a group led by the Ontario Teachers’ Pension Plan in the biggest leveraged buyout ever. The deal is expected to be completed by mid-December.

The announcement ends suspense that the banks funding the biggest buyout to date in Canada would try to back out of the deal or that the price would have to be lowered.

The acquisition price remains at 42.75 Canadian dollars ($42.08) per share in cash.

Citigroup Inc., Deutsche Bank, Royal Bank of Scotland and Toronto-Dominion Bank are slated to provide billions in financing to complete the deal. Including assumed debt, the transaction is worth $51 billion.

The acquisition by Teachers Private Capital, joined by U.S. investment firms Providence Equity Partners, Madison Dearborn Partners and Merrill Lynch Global Private Equity, will close “on or before Dec. 11,” BCE said in a statement

Shares in Montreal-based BCE, also known as Bell Canada, moved more than 13% higher to 39.81 Canadian dollars after the announcement in trading in Toronto.

Shares traded well below the purchase price for several months as investors worried that the banks might back out or that the price might be reduced.

“The final agreement, with definitive financing now in place, preserves the 42.75 Canadian dollars per common share price announced last June, which the board believes is very much in the best interest of shareholders, the company and Bell Canada, particularly given current capital market conditions,” BCE Chairman Richard Currie said in a statement.

Shareholders overwhelmingly approved the buyout group’s offer in September. Agreeing to final terms with the banks means that shareholders won’t have to vote again.

The deal was struck in June 2007, just before credit markets began to unravel in North America. Banks have been forced to write down billions of dollars on loans since last summer.

The last hurdle to the deal was getting final agreements with the banks on financing terms.

The final agreement eliminates BCE common-share dividend payments until the deal closes. Eliminating the dividend increases BCE’s cash position by at least $500 million, a move that helps the banks.

Credit markets might also be improved by December.

Canada’s Supreme Court last month allowed the sale to proceed after overturning a lower court ruling that the sale to the Ontario Teachers’ Pension Plan and its minority U.S. partners didn’t adequately consider bondholders’ interests. The deal was in jeopardy when the lower Quebec court ruled against the transaction.