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April 19, 2007 10:08 pm

TPP moves closer to BCE offer

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A group led by the Ontario Teachers’ Pension Plan has taken a step closer to launching a competing bid for BCE, the Montreal-based telecoms company, after lining up financing from a consortium led by Citigroup.

BCE disclosed this week that it was in buy-out talks with three Canadian pension funds and Kohlberg Kravis Roberts, the New York-based private equity group. BCE, parent of Bell Canada, the country’s biggest phone operator, has a market value of C$31bn (US$27.5bn).

Teachers, which is BCE’s biggest shareholder with a 5.3 per cent stake, has already lined up Providence Equity Partners, the US buy-out group, and is talking to other potential participants.

The Teachers fund has been working on a possible bid for some time and was taken by surprise at BCE’s announcement this week that the company was in talks with a rival bidder.

According to one source familiar with the matter, Teachers is likely to seek a non-disclosure and standstill agreement with BCE similar to that signed with the rival group.

BCE has said that it is negotiating on a “non-exclusive basis”.

The three pension funds that have teamed up with KKR are the Canada Pension Plan Investment Board, the Caisse de dépôt et placement du Québec and the Public Sector Pension Investment Board.

The Caisse, Quebec’s powerful public pension fund, has defended its participation, even though it is the biggest shareholder of Quebecor Media, one of Bell Canada’s main rivals in internet and television services.

A Caisse spokeswoman said yesterday that “it’s not unusual to invest in different companies working in the same sector”.

She said that Normand Provost, head of the Caisse’s private equity group and a Quebecor director, was not part of the team talking to BCE. “We put in a totally different team,” she added.

The Caisse, with assets of C$144bn, appears to have been a latecomer to the talks with BCE.

Just last week, it denied any involvement.

The looming competition for BCE comes in the wake of growing unrest among investors at the company’s lacklustre stock market performance in recent years.

Buy-out rumours have boosted the share price by more than a quarter over the past two months.

US private equity groups would be limited to a minority stake, in line with Canadian restrictions on foreign ownership in the telecoms sector.

Canadian law restricts foreign shareholders to a minority stake in telecoms companies. However, the Conservative government has recently moved to relax these curbs.

Vancouver-based Telus, BCE’s main domestic rival, is considered unlikely to enter the fray.

A combination of the two companies would raise competition concerns, especially in wireless services.

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