The Montreal-based conglomerate confirmed recent market rumours Tuesday and announced it's in talks with a consortium of three Canadian pension funds and a U.S. private-equity firm.

Bell Canada offices are seen in downtown Montreal. (CPimages/ Ryan Remiorz)

The group vying for BCE includes the Canada Pension Plan Investment Board, the Caisse de depot et placement du Quebec and the Public Sector Pension Investment Board, as well as U.S.-based buyout firm Kohlberg Kravis Roberts & Co.

BCE said in a statement the company is reviewing its strategic alternatives and "has entered into discussions with a group of leading Canadian pension funds to explore the possibility of taking the publicly traded company private."

All the parties say talks are in the early stages, but an industry watcher said the signs are clear.

"What we have here is BCE basically putting a For Sale sign up on their property," said Steve Foerster, a professor of finance at the Ivey Business School at the University of Western Ontario, in London.

Whether or not a deal is eventually signed with the consortium, "there could be others in the works as well," he said

Earlier in the week, speculation held that another massive pension fund - the Ontario Teachers' Pension Plan - was preparing its own group to take a run at BCE.

Reports said Teachers, BCE's current largest shareholder with more than five per cent, had approached U.S.-based Providence Equity Partners Inc. about teaming up on a bid that could run as high as $40 a share, or about $32 billion in total.

On Tuesday, Teachers said the fund is "encouraged" that BCE is up for sale and added it is mulling a rival bid.

"We are pleased that this process is not exclusive and we will continue to review our options, including leading an alternative Canadian consortium," said Jim Leech, senior vice-president of Teachers' Private Capital, an arm of the $106-billion pension plan.

Either way, a sale would take BCE off the stock market, eliminating a company held by millions of Canadians individually or in their mutual funds or pension plans.

It also reflects the growing economic power of institutional investors and private equity, brass-knuckles capitalists who pour borrowed money into companies, restructure them and later cash out for a profit.

KKR is one of the best-known private equity firms, with investments in many industries around the world.

Canada's largest communications company and for years one of its most widely traded stocks, BCE said any deal will maximize shareholder value and meet all legislative and regulatory requirements, including ensuring the company remains Canadian and meets foreign ownership restrictions.

"We're looking forward to working with the company to better understanding of the business and opportunities to unlock value," said Ian Dale, a senior vice-president of CPP.

"This is still at an early stage. There's more work to be done here to see whether or not a transaction will result from this process."

BCE was the most heavily traded stock on the Toronto Stock Exchange Tuesday, gaining $2.34 to close at $38.60, a rise of more than 6.4 per cent, in trading of nearly 33 million shares.

Telus Corp. (TSX:T), Canada's second-biggest phone company, was also lifted on the stock market as investors speculated it could also be bought out in the future. Telus shares rose $1.92 to close at $64.57, a gain of nearly two per cent, in trading of nearly 2.6 million shares.

With more than 807 million shares issued and outstanding, BCE has a stock value of about $31.3 billion.

Should the deal go through, BCE shares would join a number of blue-chip Canadian stocks that have left the TSX recently - last year saw former stock-market favourites such as nickel miners Inco Ltd. and Falconbridge Inc. and steelmaker Dofasco acquired by foreign companies.

Dale said BCE would fit in with CPP's long-term investment plans.

If it comes to fruition, the deal would be the largest single transaction to date for CPP and the biggest buyout ever of a Canadian company.

"We're looking at this purely as an investment transaction," he said.

He said the consortium will be exploring "opportunities for creating value" within BCE, but would not disclose details of the ownership structure or future for the company if the deal goes through.

Some industry analysts speculate that under new ownership Bell Canada would pursue major job cuts to lower operating costs and more effectively compete with cable TV companies such as Rogers and Shaw, which have been taking away customers in Bell's phone and Internet markets.

KKR could only be a minority partner in any deal, as current rules prohibit non-Canadians from owning more than 46 per cent of a telecommunications company in Canada.

"We are pleased to be working with BCE and its board towards a potential transaction that would enable long-term value creation for the company," said CPP Investment Board CEO David Denison.

"We look forward to working with BCE and our consortium partners as we proceed with the due diligence process."

Henri-Paul Rousseau, CEO of the Caisse, said it joined the consortium "with the objective of submitting a proposal that will be acceptable to all stakeholders, including shareholders and regulatory authorities."

"Obviously, the size of the Caisse's investment in a potential transaction involving BCE will take into account its investment in Quebecor Media," the media subsidiary of Quebecor Inc. (TSX:QBR.B).

The Caisse owns about 45 per cent of Quebecor Media and might have to dispose of that stake because Bell and Quebecor subsidiary Videotron compete in the same telecom sector.

Quebecor Inc. shares (TSX:QBR.B) rose $2.92 to close at $42.59, a gain of nearly 7.4 per cent, on speculation of a possible buyback of Quebecor Media stock by the parent company.

BCE has in the past strongly resisted the notion that it put itself up for sale but Foerster said the telecom giant's stock has underperformed for some time.

Several large pension funds have sizable stakes in BCE , he said. "This looks like an opportunity to get a bit more of a return on their investment," Foerster said.

All sides reiterated that discussions were preliminary and there was no guarantee of a deal. But Foerster said it seems BCE will almost certainly end up in the hands of a private-equity consortium.

Whoever ends up with the company will likely have to take on a lot of debt to do it, he said, and that means changes for the future.

"One has to make sure that you can reduce costs to make sure you can make your interest payments," Foerster said. "Either you look for ways to cut costs or perhaps you even sell off pieces of the business."

One of Canada's largest private-sector employers, BCE has cut about 9,000 jobs in the last five years and sold off some of the company's holdings to focus on its core telecom business.

BCE had lost ground to competitor Rogers Communications in residential service and lags behind both Rogers and Telus in the wireless sector.

Talk of taking BCE private prompted the Dominion Bond Rating Service to put the company's ratings under review with negative implications.

"DBRS believes the outcome of this process, which may include a privatization of the company, has the potential to negatively impact the company's financial risk profile should additional leverage be used to accomplish any such transaction," DBRS said in a statement.

"Depending on the structure of any such transaction, DBRS notes that there is a potential all or some of the company's bonds could remain in place and subject to a significantly higher financial risk profile."

Meanwhile, a corporate ethics think tank called on regulators Tuesday to investigate BCE and its board over earlier denials of a possible sale.

The Centre for Corporate and Public Governance pointed out that the company's stock spiked considerably after it first denied the rumours March 30.

"A review of trading activities during this time should also be conducted to determine whether any inappropriate gains were made as a result of information that was not shared in a timely manner with all investors," the Toronto-based centre said in a statement.

Under the Bell Canada brand, BCE's services include phone services, high-speed and wireless Internet access, IP-broadband services, information and communications technology services and direct-to-home satellite and VDSL television services.

Other BCE holdings include Telesat Canada, a pioneer and world leader in satellite operations and systems management, and an interest in CTVglobemedia, a major broadcaster and newspaper publisher.

© The Canadian Press, 2007