BCE poised for after-sale shake up

BCE, Canada’s biggest telecoms group, faces a shake-up in the wake of a C$34.8bn ($32.6bn) cash buy-out by a group that includes the Ontario Teachers Pension Plan and two US private equity groups, Providence Equity and Madison Dearborn. “For this investment to succeed, we have to grow the value of the company,” said Jonathan Nelson, chief executive of Providence, which has wide interests in the global telecoms and media sector.

If successful, BCE would be the biggest leveraged buy-out in history, exceeding the US$32bn takeover of TXU, the Texas utility. The buyers would also assume C$16.9bn in debt.

One unanswered question is whether Telus, BCE’s Vancouver-based rival, will come forward with a hostile offer.

Telus said it intended to bid for BCE, but withdrew last week citing “inadequacies” in the bidding process. It has so far made no comment on the Teachers deal.

Telus and other potential bidders may be discouraged by an C$800m break-up fee BCE has agreed to pay if the deal with the Teachers group is not consummated.

In line with Canadian ownership rules in the telecoms sector, Teachers will have majority control of BCE. However, Providenceis expected to play a crucial role in revitalising the company. “There are certainly cost-saving opportunities,” said Shahid Khan, partner at Interactive Broadband Consulting of New Jersey.

But Mr Khan said the first order of business “is to make it more progressive, as opposed to the stagnant, bureaucratic company that it is today”.

BCE’s Bell Canada unit has lost market share in recent years to Telus and to Rogers Communications, Canada’s biggest cable TV operator.

BCE has a near-monopoly on fixed-line phone services in Ontario and Quebec, and has extensive wireless, internet and satellite TV services. It holds a minority stake in CTV, Canada’s biggest privately owned TV network, and in The Globe and Mail newspaper.

A person with knowledge of the deal indicated that new owners would spur BCE to become more aggressive in services such as the delivery of video across phone lines and broadband internet.

Teachers and Providence have co-operated on nine acquisitions in other parts of the world, including Kabel Deutschland, Europe’s biggest cable TV operator, and TDC, Denmark’s biggest phone company.

Teachers and its partners have offered C$42.75 in cash per BCE share, or a 40 per cent premium over what they described as the “undisturbed” price in the first quarter, prior to news that the company was putting itself up for sale.

BCE shares closed at C$40.34 on Friday.

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web.