BCE takeover deal is officially dead

Updated Thu. Dec. 11 2008 7:41 AM ET

After a year-and-a-half of negotiations, the $52-billion BCE takeover deal is officially dead, the group of potential buyers announced Thursday.

The deal fell through after a key condition made by the group, which was led by the Ontario Teachers Pension Plan, was not met.

After an analysis of the deal, accounting firm KPMG found BCE could not meet solvency tests defined in the agreement. A second opinion from PricewaterhouseCoopers found the transaction would be solvent after the deal closed.

However, the second opinion was not enough to save the deal.

"Because KPMG has concluded that a required test for the solvency opinion was not met, this mutual condition to completion of the acquisition could not be, and was not, satisfied," said Thursday's statement from the buyout group.

"Accordingly, the purchaser terminated the agreement in accordance with its terms."

The group said no break-up fee will be paid but BNN's Michael Kane said BCE could push for a fee of up to $1.2 billion.

"Typically, a break-up fee must be paid when one of the parties in a deal violates certain conditions that result in the failure of the transaction," Kane told CTV's Canada AM on Thursday.

"The buyers in the BCE deal... say there was no such violation so no break-up fee should have to be paid by them."

Kane said BCE lawyers are reportedly gearing up for a legal battle.

Although the deal fell through, industry observers say BCE is now much leaner than it was before.

At the request of Teachers, BCE had made several changes to its company structure to make it more efficient and a stronger competitor in the market.

"They have succeeded in driving the positive changes that they had been asking for all along," Carmi Levy, a telecom analyst at AR Communications, told The Canadian Press.

In total, about 2,500 jobs were cut and management layers were reduced.

Levy said shareholders will likely earn long-term gains because the company is in a good position to start bringing in cash.

However, if the deal had passed, shareholders would have received $42.75 a share, about $20 more than its current value.

The deal for BCE, the parent company of Bell Canada, was the largest-ever transaction of its kind.

With files from The Canadian Press