By Wojtek Dabrowski
TORONTO (Reuters) - Possible problems with a big U.S.
leveraged buyout have brought new questions about the C$34.8
billion ($34.1 billion) plan to take over Canadian
telecommunications giant BCE Inc
The funding risk of the BCE buyout "significantly
increases" if the $20 billion buyout of Clear Channel
Communications Inc
And one trader, who declined to be named, said there were concerns in the market about the BCE deal, both because of its size and because some of the same underwriters were also underwriting the Clear Channel deal.
"Any LBO that still hasn't closed is being closely watched. And the size of BCE was ambitious at the peak of the LBO market -- and now may be foolish in this market given the risk- aversion of the banks," said a second trader who declined to be identified by name.
But the buyers, speaking out after reports the Clear Channel transaction was in jeopardy, insisted the BCE purchase will go ahead.
"We're still working to close the BCE transaction," said Deborah Allan, a spokeswoman for the Ontario Teachers' Pension Plan, which leads the consortium that is taking BCE private in the world's largest leveraged buyout. "We expect our banks are going to honor their financial obligations."
BCE stock has long languished below the consortium's offer price of C$42.75 a share as investors fret that the deal could be repriced, delayed or scrapped altogether. The shares slid below C$33.50 in late January before recovering somewhat.
On Wednesday, the stock fell 97 Canadian cents to close at C$35.72 as the markets pondered the implications of the Clear Channel troubles.
Several of the banks involved in financing the Clear
Channel transaction -- Citigroup Inc
The banks appear unwilling to account for any losses on the loans they agreed to make for the Clear Channel deal, a source familiar with the situation told Reuters on Tuesday.
BCE, Canada's biggest telecom company, has insisted that the deal is on track to close by the end of the second quarter.
CHANCE FOR TELUS
The buyout includes a C$800 million break fee that BCE would have to pay under certain circumstances if the deal falls through, and a reverse break fee of C$1 billion that the buyers would pay if they pull the plug on the deal.
If the BCE deal falls through, MacDonald wrote there would
be a greater than 50 percent chance of Telus Corp
A Telus spokesman declined comment.
Telus was in talks to acquire BCE before the Teachers' group emerged as the winner. Telus walked away citing "inadequacies" in the bidding process.
Those inadequacies are widely believed to center on Telus being granted only limited access to certain BCE data during the due diligence process.
BMO Capital Markets analyst Peter Rhamey wrote in a note on Wednesday that a BCE-Telus merger could result in "significant value creation ... depending on the terms and conditions."
However, he added that such a deal would likely meet with considerable resistance from regulators until a new wireless entrant is established in the Canadian market.
A wireless spectrum auction is slated for late May, but any new wireless company is unlikely to deploy services until at least a year to 18 months later, analysts have said.
"Hence, it is our expectation that 2010 would be the earliest time at which a merger could be contemplated in the event that the privatization of BCE fails to materialize," Rhamey wrote.
($1=$1.02 Canadian)
(Editing by Janet Guttsman/Andre Grenon)
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