Bell Canada Agrees to Purchase by Ontario Teachers

The Ontario Teachers Pension plan and a group of other investors, yesterday morning, according to Reuters, reached a deal to take over the largest Canadian telecom company, Bell Canada (BCE) with an all cash offer of $51.7 billion (Canadian) or just over 7.5 times operating profit. Teachers' Private Capital, the private investment company of the pension plan was the successful bidder with a bid 40% above trading in March when rumors of the company's availability began in March.

Teachers' Private Capital would hold a 52% stake in the company with two American private equity companies having a 41% stake between the two of them. Undisclosed Canadian investors would hold the remaining equity. The deal would make BCE a privately held company and would be the largest corporate takeover in Canadian history if it is successful in winning BCE shareholder and federal approval.

The Pension plan had reported assets of almost $100 billion in 2006, administers pension funds for over 165,000 Ontario teachers and already holds more than 6% of BCE.

There was a higher offer by Cerberus of $44 a share, compared with the Teachers' $42.75, but it was a cash and stock deal that the stock was in a highly leveraged firm. Bell ultimately focused on the cash offers. Cerberus has recently purchased the Chrysler group from Daimler Chrysler.

Another potential buyer, Telus, could be willing to up their offer to a $44 range, but it could be difficult to justify to their own shareholders. Telus is a Western Canadian telecom company which, should the Canadian government lift restrictions on foreign ownership of telecommunications companies, would likely be a target of acquisition itself. Telus reportedly pulled out of the running for BCE earlier in the week on complaints about the bidding rules.

Other than the natural complications in dealing with Telus, as direct competitor, BCE insisted the bidding rules had been fair.

The BCE directors have stated they have an obligation to be receptive to a superior offer should one come about, but there are several contingencies in the Teachers' deal that would penalize BCE if the deal falls through, specifically break fees of $800 Million (Canadian) and a reverse break fee of $1 Billion (Canadian) payable by the buyers group.

BCE has holdings in telecom, internet, wireless, and media companies and has approximately 54,000 employees. Share prices rose 1.89 at closing on Friday to 40.34. The deal is expected to reach completion in the first quarter of 2008. There is not expected to be an impact to consumers as the management team will remain and will continue the same strategies.

SOURCES:

Reuters Canada, "Teachers Group wins C$52 Bln Race for Canada's BCE", URL: http://ca.today.reuters.com/news/NewsArticle.aspx?type=businessNews&storyID=uri:2007-06-30T222740Z_01_N30265473_RTRIDST_0_BUSINESS-BCE-TEACHERS-COL.XML&pageNumber=0&summit=

Rob Gillies, Associated Press, "Pension Plan Buyout of Bell Canada Would Set Record." URL: http://www.washingtonpost.com/wp-dyn/content/article/2007/06/30/AR2007063000928.html

CBC News, " Ontario Teachers' Pension Plan wins battle for BCE." URL: http://www.cbc.ca/money/story/2007/06/30/bce-teachers.html?ref=rss

David Olive, "The fat lady ring has yet to sing on phone deal." URL: http://www.thestar.com/News/article/231357

BBC News, "Largest Canadian takeover agreed." URL: http://news.bbc.co.uk/2/hi/business/6258594.stm

Sean Silcoff, "Bid for BCE set to make Canadian Corporate History." URL: http://www.canada.com/nationalpost/financialpost/story.html?id=eb349f17-aa5c-402f-a5ab-7841f453904c&k=65491

CP, "Teachers fund heads BCE takeover." URL: http://www.edmontonsun.com/News/Canada/2007/07/01/4304473-sun.html