The $51.7-billion BCE Inc. merger, the world's largest leveraged buyout, is still on - for now. But its actual fate before the deal is scheduled to close on Dec. 11 is largely in the hands of the U.S. Federal Reserve and how U.S. authorities handle the crisis shaking the pillars of the global financial system.
BCE shares did not escape the market tremors yesterday, losing 2.76 per cent after declining more 7 per cent the day before. BCE closed at $34.58. The takeover price for BCE shares is $42.75
But analysts said the drop was due more to "general concern in the market" than to specific doubts and worries about the huge deal.
"(The deal) still looks pretty solid right now," said Elliott Soifer, an arbitrage specialist at Desjardins Securities International.
Still, he added, "if you'd told me a couple of months ago that Lehman Brothers, a 150-year-old (investment) bank, was going to go under, I'd have said you were crazy.
"But barring something catastrophic, (the BCE takeover) should go through," Soifer said.
Greg MacDonald, an analyst at National Bank Financial, said "it is my belief that it would take an insolvency situation at Citigroup, Deutsche Bank or Royal Bank of Scotland or their inability to access capital" for the deal to collapse.
The three banks have agreed to provide much of the credit for the transaction to three U.S. private equity firms acquiring a large stake in BCE, Providence Equity Partners Inc., Madison Dearborn Partners and Merrill Lynch Global Private Equity. Merrill has already scrambled to find a saviour, selling itself to Bank of America at a discount.
One analyst, who did not want to be named, said that the fear is how far the rot has spread to Citigroup and the other banks.
"In the final analysis, all banks are related and deal with each other. We all know they have bad loans, but it's impossible to tell just how bad it is.
"In the end, it's about confidence in the market on the part of investors, and the Fed is key there. What moves the Fed makes might well determine whether or not the Bell deal goes through."
Soifer said at the best of times, "it's tough to know exactly what kind of bad loans banks have on their books."
Deborah Allan, spokesperson for Ontario Teachers' Pension Plan, which will own a controlling stake in BCE after it goes private, couldn't say whether there have been contacts between Teachers and the major banks providing the debt financing to the three equity firms.
But she added "everything is the same as it was one week ago or two weeks ago."
Source: http://www.canada.com
