Surely you remember the era when we jumped from one record breaking buyout to another. It wasn’t that long ago, after all. Or does it seem forever ago? The peak a year and a half ago had the Ontario Teachers’ Pension Plan, Providence Equity Partners, Madison Dearborn and Merrill Lynch’s private equity group teaming up to slurp down Canadian telecom giant BCE for a record $41 billion. The announcement by the firms that the deal is dead puts this one squarely into the next superlative era, i.e. waiting for the next litigation bout to mount over the biggest breakup fee ever. ($1.2 billion in this case, which the core four, unsurprisingly, claim they are not going to be paying- damn your eyes, man).
There was, you see, a little twist.
Somewhere, out there, there is a KPMG “valuation expert” who, by delivering the opinion that the resultant entity would be insolvent, may well have saved the core four not just having to own the thing, but the big bil-point-two in breakup.
KPMG’s analysis took Wall Street by surprise. Unlike the targets in many other failed buyouts, BCE has seen its operating performance remain solid. The company also has an investment-grade credit rating and almost $3 billion of cash on its balance sheet.
The conspiracy theorist in us can just picture the smoky back room meeting that preceded that report writing. And if it wasn’t the core four delivering a big fat carrot and a thinly veiled “Ontario can be a very dangerous place to raise a family, Mr. KPMG valuation expert” threat or two, just imagine what Citigroup, the Germans, the Scotts AND the Canadian bankers would have done to avoid putting $34 billion in debt on the street. So, if you meet a “former KPMG valuation expert” off the coast of Martinique some months hence, looking a bit young for the 70 foot Hinckley he commands, well, you know the scoop.*
*Of course, this is just our imagination running wild. Really wild.
BCE Leveraged Buyout Deal Collapses [The Wall Street Journal]
My buddies at RBS are so happy this deal fell apart. RBS stood to lose $1 bil in what they’d have to mark down the debt in order to sell it. So – Mr. Valuation Expert will be HIRING a captain for that Hinckley, and will have no need to do so himself.
Houdini isn’t the last escape artist out there. Wonder if they teach a course in B-school?
Yep, EP, you nailed this one.
Nice to see KPMG is still for sale.
… and if you’re looking for symbolism, look at the collapse of the United Airlines LBO in October 1989. That signalled the end of that era, and it did not come back for years.
hmmm.. whether to trust an auditor’s solvency opinion or management and the lbo shop’s rosy projections that his won’t blow up… hmm.. conundrum…
Actually it was Ms. Valuation Expert. Susan Glass. This is not over.
KPMG has been whoring itself to private equity so long that they probably did this one for free. Because if they didn’t, the PE firms told them they would never, ever, EVER work with them again. (After all, no deal, no “management fees” to the general partners to pay their consultants. Sorry.)
The valuation expert will probably get offed and sunk in a barrel of cement in Lake Ontario. Leave no loose ends: that’s OTPP’s motto.
LINK???
Where is the customary “in breaking news, Christopher Flowers is interested in a possible deal for BCE”, and then its predictable “Christopher Flowers steps away from the table” (because he has nowhere near the dry powder to do anything near the size of what he “looks at”).
whats a hinckley?
Might not work — look at the recent DE court decision in Huntsman where Apollo tried to get out on the basis of an insolvency opinion that the combination with Hexion would be insolvent. The court ordered specific performance.
Of course, that “valuation expert” was hired by Hexion’s (Apollo’s) law firm and they issued a press release to announce the opinion meant the deal could not close because the funding was contingent (while their purchase agreement called for them to make all reasonable efforts to close the deal).
My point is relying on an insolvency opinion only works if the combined entity was really going to be insolvent and the parties paying for that opinion didn’t have a hand in making sure it came out that way.
In other words — forget the yacht, it’s a litigation mess likely (inevitably?) to end in settlement payments somewhere south of the reverse break-up fee.
“Ontario can be a very dangerous place to raise a family, Mr. KPMG valuation expert”
“We might not get around to doing that shade audit of public parks. Whadya think of that?”
-Toronto, Anal-tario.
“Ontario can be a very dangerous place to raise a family, Mr. KPMG valuation expert”
“We might not get around to doing that shade audit of public parks. Whadya think of that?”
-Toronto, Anal-tario.