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BCE, Canada’s biggest telecommunications group, has confirmed that it is in buy-out talks with a group of Canadian public-sector pension funds and Kohlberg Kravis Roberts, the New York-based private equity group.
The deal would represent the biggest co-investment by far between pension funds and private-equity groups.
Shares in BCE, owner of Bell Canada, the dominant telecoms group in Ontario and Quebec, gained 5.2 per cent to $38.15 just before Tuesday’s close, giving the Montreal-based company a market value of almost C$31bn ($27.4bn).
The telecoms group has spoken to other potential bidders, and rival offers cannot be ruled out.
The Ontario Teachers’ Pension Plan, BCE’s biggest single shareholder with a 5.3 per cent stake, is in talks with Providence Equity Partners, the US buy-out group, about a bid. The teachers’ fund said on Tuesday: “We will continue to review our options, including leading an alternative Canadian consortium”.
BCE’s announcement on Tuesday comes after growing restiveness over its stock market performance. Buy-out rumours have boosted the share price by more than a quarter over the past two months.
The three Canadian funds involved in the talks are the Canada Pension Plan Investment Board, Caisse de dépôt et placement du Québec, and the Public Sector Pension Investment Board. The CPPIB and the Caisse are Canada’s two biggest pension investors, with combined assets under management of C$254bn. The funds represent “the most politically palatable group that you could ask for”, one Toronto analyst said.
KKR would be limited to a minority stake in line with Canadian restrictions on foreign ownership in the telecoms sector. The CPPIB is a large investor in KKR’s private-equity fund, and approached the group last summer about a joint bid for BCE.
The Ontario Teachers’ Pension Plan, BCE’s biggest single shareholder with a 5.3 per cent stake, is in talks with Providence Equity Partners, the US buy-out group, about a bid. The teachers’ fund was due to clarify its intentions late on Tuesday.
Vancouver-based Telus, BCE’s main domestic rival, is considered unlikely to enter the fray. A combination of the two groups would raise competition concerns, especially in wireless services.
BCE has extensive interests in fixed-line and wireless telephony through wholly owned Bell Canada. It is also Canada’s biggest satellite TV operator and has minority stakes in CTV, the main privately owned TV network, and The Globe and Mail newspaper.
Bell Canada has faced growing competition from cable-TV operators and internet telephony services. It lost close to 10 per cent of its residential phone subscribers last year.
The pension funds and KKR said on Tuesday that talks were “at an early stage”. Insiders said they were attracted by BCE’s strong and stable cash flow. Taking BCE private would enable it to make long-term investments without the pressure of quarterly earnings expectations.