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May 20, 2008 10:04 AM

Bell Canada Buyout Could Be Clear Channel Reincarnated

Posted by Brian Baxter

Bell_canada_building_montreal

Update: Shares in Bell Canada fell amidst fears that the buyout deal announced last summer would unravel.

According to a report in The New York Times's DealBook, the planned $51.8 billion buyout of Canadian telecommunications giant BCE Inc., the parent company of Bell Canada, could be headed for a Clear Channel Communications-style holdup.

Represented by Weil, Gotshal & Manges and Toronto firm Goodmans, the Toronto-based Ontario Teachers' Pension Plan announced in June 2007 that it was leading a group that would acquire the Montreal-based telecom in the biggest Canadian M&A deal in history.

But The Times reports that four of the banks backing the deal--Citigroup, Deutsche Bank, The Royal Bank of Scotland, and Toronto-Dominion Bank--are now seeking to renegotiate some of their financing commitments because of a tighter credit market.

"It's patently obvious that the banks have no intention of closing the deal," said one executive familiar with the proposed transaction's terms to The Times. (Ottawa firm Gowling Lafleur Henderson is advising the four primary lenders.)

That leaves the Ontario Teachers and their U.S. private equity partners at Chicago-based Madison Dearborn Partners and Providence-based Providence Equity Partners contemplating litigation to resolve a situation The Times calls "Clear Channel, the sequel." (After agreeing to a lower share price to finalize its acquisition by two Boston-based private equity firms, Clear Channel settled litigation with six banks over financing issues last week.)

Sullivan & Cromwell and three Toronto firms--Davies Ward Phillips & Vineberg, Stikeman Elliott, and Blake, Cassels & Graydon--are representing Bell Canada. A call to James Morphy, the former head of S&C's M&A group and a lead deal lawyer for Bell Canada, was not returned by the time of this posting. (Morphy's been busy lately, representing Microsoft in connection with its on-again off-again bid for Yahoo.)

The Times reports the proposed Bell Canada deal does have two factors working in its favor--it's already received regulatory approval from the Canadian Radio-television and Telecommunications Commission and in March the Quebec Superior Court dismissed claims by some bondholders seeking to scuttle the buyout.

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