PHILADELPHIA The $34.8 billion (C$34.8 billion) buyout of BCE Inc (BCE.TO)(BCE.N) has become more questionable as the banks funding the deal have sought to renegotiate the financing terms, a source familiar with the situation said on Monday.
The banks behind the buyout of BCE, Canada's largest telecommunications company and operator of Bell Canada, submitted new financing terms to the buyout group on Friday, the source said.
The new set of terms contained higher interest rates and other "onerous" conditions, the source said. Additional details were not immediately available.
The New York Times said the new terms submitted by the banks included higher interest rates, tighter loan restrictions and protections that far exceeded the original terms. Negotiations between the buyout group and the banks lasted all weekend, according to the report.
The newspaper quoted one executive who read the revised terms as saying: "It's patently obvious that the banks have no intention of closing the deal."
The efforts to revise the deal echo the recent battle and lawsuits surrounding the buyout of radio operator Clear Channel Communications Inc (CCU.N).
Clear Channel agreed last week to lower its takeover price to $17.9 billion from roughly $20 billion as part of a legal settlement between its buyers and several bank lenders. The banks involved in the BCE deal were part of the lending group for Clear Channel.
STOCK FALLS ON REPRICING CONCERNS
Shares of BCE dropped $2.11, or 5.4 percent, to $36.70 in afternoon New York Stock Exchange trade as investors feared the takeover price would be cut, traders said.
S&P Equity Research cut its price target on BCE to $40, from $43.
BCE said on Monday that it expected the deal to close by the end of the second quarter.
"We have been working on all aspects of the transaction, based on the terms set out in the agreement," said company spokesman Bill Fox.
The buyout group for BCE includes the Ontario Teachers Pension Plan; private equity firms Madison Dearborn Partners, Merrill Lynch Global Private Equity and Providence Equity Partners; and Toronto-Dominion Bank (TD.TO).
"We can't comment on discussions with the banks or the company, but we expect everyone will honor their commitments and we look forward to closing the transaction," the buyout group said.
The lead lenders include Citigroup Inc (C.N), Deutsche Bank AG (DBKGn.DE) and Royal Bank of Scotland Plc (RBS.L).
Citigroup and RBS declined to comment on the efforts to revive the financing pact, while Deutsche Bank was not immediately available.
Many lenders have sought to back away from financing commitments since credit markets tightened last summer, as banks have been stuck holding tens of billions of dollars of loans they could not sell.
Investors have long worried that the BCE takeover might be repriced, delayed or abandoned. Canada's industry minister endorsed the buyout last month.
Several buyout deals, such as those of student lender SLM Corp SLM.N or Sallie Mae and equipment rental company United Rentals Inc (URI.N), collapsed amid the credit crunch when funding became more difficult and costly to secure.
(C$1 = US$1)
(Additional reporting by Jonathan Stempel in Bangalore and Robert Melnbardis in Montreal; Editing by Gerald E. McCormick and John Wallace)