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BCE buyout closer to consummation

Optimism that a deal will be done grows as sources say talks are progressing on financing

NEW YORK and TORONTO -- A private equity consortium and syndicate of banks are moving closer to consummating the $35-billion takeover of BCE Inc., although sources said the banks are still pushing for more favourable terms.

There has been considerable speculation that some of the major banks would seek to back out of the record-sized deal because they had grown fearful of lending so much money at a time when credit markets had deteriorated dramatically. Much of the talk had focused on Citigroup, the biggest single lender to BCE's buying group, which has been forced to absorb billions of dollars in writedowns on soured loans.

In recent weeks, however, credit conditions have improved and investors have become more optimistic about the deal, nudging BCE's stock up yesterday to its highest level since the beginning of the year.

Sources close to the discussions said lenders to a buying group led by Ontario Teachers' Pension Plan are still quibbling over financing terms, but there has been progress in recent weeks, as the deal moves closer to a June 30 drop-dead deadline.

"Its the usual pushing, but nothing that would indicate the banks are not in," said one person involved in the BCE discussions. "At this stage nobody is telling anybody that, 'We're not going to be doing this deal.' "

Yesterday, BCE's stock closed at $39.10 a share on the Toronto Stock Exchange, up $1.00 from the previous day's close and up 15 per cent from a low of $34 in January.

The stock is still trading at a significant discount to the $42.75 offering price, indicating that investors are still betting that the buying group may have to lower its price.

Two developments yesterday boosted hopes that any price change would not be significant. The Caisse de dépôt et placement du Québec announced it doubled its stake in BCE to 5.3 per cent, an apparent bet the takeover would close on favourable terms.

BCE and Teachers also appeared to win some bargaining leverage yesterday after a group of international banks, including Citigroup, reached a compromise in another embattled multibillion-dollar takeover. Private equity buyers of Clear Channel Communications Inc. reportedly struck a deal yesterday with a group of international banks, including Citigroup, that lowered the takeover price to $36 a share from a $39.20-a-share offer struck at the peak of the takeover boom last year.

The relatively minor adjustment to the takeover price was seen as a victory for Clear Channels buyers, who had won a number of legal battles after they sued the banks for allegedly "poisoning" and delaying financing negotiations.

"Clear Channel has demonstrated to banks that it is not worth their while to take the reputational and legal damage by taking a deal to the brink," said one person close to the BCE talks.

One of the biggest remaining hurdles to the BCE takeover is timing. Banks are free to walk away from their takeover financing commitments if the Montreal communications company is unable to close some of its outstanding legal issues. Quebec's court of appeal is expected to rule shortly on an appeal from BCE bondholders seeking to overturn a lower court decision that blocked them from stopping the deal.

If the ruling confirms the lower court decision, bondholders could further delay the closing by appealing to the Supreme Court of Canada.

© The Globe and Mail

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