An auditor’s report has cast further doubt on the solvency of BCE Inc. following what is believed to be the world’s largest ever leveraged buyout.
And according to unconfirmed media reports, BCE is working feverishly to convince the auditor the company will remain in good standing following the deal set to close Dec. 11. If that doesn’t work, additional reports suggest BCE will go after the purchaser for $1.2 billion in what would be one of the world’s largest ever termination penalties.
“We are disappointed with KPMG’s preliminary view of post-transaction solvency, which is based on numerous assumptions and methodologies that we are currently reviewing,” said BCE chief financial officer Siim Vanaselja in a statement. “The company disagrees that the addition of the [leveraged buyout] debt would result in BCE not meeting the technical solvency definitions.”
The auditing firm KPMG advised Canada’s largest communications company its $52-billion buyout would render it insolvent. News of the position was reported by BCE Inc. in a press release on last Wednesday, two weeks ahead of the deal’s closing date. The deal would add $32 billion in debt to the company, and is being funded through four different banks.
Following the announcements reports in the Globel, say Vanaselja will be working to convince the auditor of solvency ahead of the deal closing date. Mark Langston, of Bell’s media relations, would not comment directly on the Globe and Mail report, and directed media to its Nov. 26 release.
For its part, KPMG is not commenting on the report either, referring media to BCE and Bell. “Because of our professional obligation to maintain confidentiality concerning the affairs of our clients, KPMG cannot make any public comment on this situation,” wrote KPMG media spokesperson Julie Bannerjea.
On Nov. 28, the Globe reported that BCE would seek the world’s largest ever termination fee, $1.2 billion from the Ontario Teachers’ Pension Plan if the deal does not go through. According to the article, citing unidentified sources, BCE directors requested lawyers demand the fee if the deal does not go through.
Pension plan communications director Deborah Allen says Teachers’ would not comment on the Globe’s report, referring to another release on Nov. 26, which stated, “The delivery of the solvency opinion is a condition to the completion of the acquisition of BCE. The purchaser has been working closely with BCE to take the actions required by the definitive agreement in connection with the transaction and will continue to fulfill its obligations under the terms of the agreement.”
The Globe also reported that the agreement requires BCE to prove that the actions of the purchaser lead to the collapse of the deal in order for there to be penalties.
Mark Meland, who represented BCE bondholders in an unsuccessful legal challenge to the Supreme Court of Canada to block the sale, was unavailable for comment. Representatives from Ogilvy Renault LLP, the firm that represented BCE Inc. in Supreme Court, also preferred not to comment on the KPMG report.
The company’s ongoing solvency is a condition of the deal.