BCE deal on brink; King seeks other financing to buy Alpharma; Constellation buyout gains opposition

By Cristal Cody

New York, Nov. 26 - Canadian telecom giant BCE Inc. said Wednesday that its $35 billion privatization buyout may not go through because of solvency questions, and one analyst said Telus Corp. could be back in the picture.

It wasn't much better news for other deals ahead of the Thanksgiving Day break.

King Pharmaceuticals Inc. said Wednesday in a regulatory filing that it is exploring alternative financing for its acquisition of Alpharma Inc.

Constellation Energy Group Inc. faces more opposition on its $4.7 billion deal with MidAmerican Energy Holdings Co.

Meanwhile on Wednesday, investors pushed the Dow Jones Industrials Average up 2.91% to 8,726.61. The S&P 500 gained 3.53% to 887.68, while the Nasdaq Composite Index rose 4.6% to 1,532.10.

The U.S. stock markets are closed Thursday for the holiday and will close early on Friday.

BCE deal on shaky ground

BCE received a negative preliminary view from KPMG based in part on the amount of debt from the transaction and current market conditions. The preliminary review found the proposed acquisition may not meet solvency requirements by the Dec. 11 closing date.

U.S.-listed shares of BCE plunged 34.05% to close at $20.63 Wednesday.

BCE, which owns Bell Canada, is being sold for C$42.75 a share to an investment group led by the Ontario Teachers Pension Plan Board and affiliates of Providence Equity Partners Inc., Madison Dearborn Partners LLC and Merrill Lynch Global Private Equity.

The solvency approval is a condition for the deal to close.

If KPMG does not provide a positive review by Dec. 11, the "transaction is unlikely to proceed," BCE said in a statement.

The company is reviewing the methodologies KPMG used in its decision.

BCE Acquisition Inc., a company organized by the buyout group, said in a statement that it is working closing with BCE and will continue to fulfill its obligations under the terms.

John Henderson, managing director of telecom research at Scotia Capital, said it's likely that if the deal falls through, BCE will begin talks with its previous suitor.

"We think [BCE] will enter into merger negotiations with Telus," he said.

Telus, a leading Canadian telecommunications company, initially discussed merging with BCE but pulled out as the credit markets started to dry up.

"It's our understanding, they are still very much interested in the potentials," Henderson said.

Shareholders might not like the terms, though.

"This is a completely different arrangement," Henderson said. "We're not going back to the days of C$42.75. Telus is not coming in with that kind of price."

A Telus spokesman had no comment on the speculation.

BCE spokesman Mark Langton said a Telus arrangement is not on the table.

"Right now, we're focused on closing this deal," Langton said.

The deal is being financed by Citigroup Inc., Deutsche Bank AG, Royal Bank of Scotland and Toronto-Dominion Bank.

If the buyout falls through, the banks get to skip away from billions of dollars in losses on potentially non-sellable debt.

Citigroup shares rose 15.95% to close at $7.05 Wednesday.

Deutsche Bank shares closed up 3.65% to $32.67.

Royal Bank of Scotland shares rose 2.2% to close at $16.73.

Toronto-Dominion Bank's stock advanced 2.07% to close at $34.07.

U.S.-listed Telus shares fell 1.84% to close at $28.85.

King looks for better deal terms

King Pharmaceuticals said Wednesday in a regulatory filing that the company is looking for more favorable terms in the $1.6 billion acquisition of Alpharma than its current $775 million arrangement with Credit Suisse and Wachovia Bank.

Bristol, Tenn.-based King said it will go through with the original financing if it does not find better terms.

Bridgewater, N.J.-based Alpharma and King said Monday the companies had reached a merger agreement, ending a heated takeover battle.

The deal still has to clear regulatory approval from the Federal Trade Commission and King must get the debt syndicated and raised, said Corey Davis, an analyst with Natixis Bleichroeder.

"The biggest hurdle [with] Alpharma management has already been crossed," he said. "It's as close to a done deal as you could hope for at this point, but it's never over until the fat lady at Alpharma sings."

King shares fell 0.21% to $9.43 in closing Wednesday.

Alpharma shares closed up 0.81% to $36.16.

Constellation deal losing steam

Confidence in MidAmerican's acquisition of Constellation Energy is on the wane.

Angie Storozynski, an analyst with Macquarie Research Equities, said Wednesday the deal is a gamble.

"From an equity perspective, we don't think it's a good transaction because it heavily undervalues the company," she said. "We don't believe this is the right offer."

Baltimore, Md.-based Constellation Energy shareholders are expected to vote on the $26.50 a share offer from MidAmerican on Dec. 23.

Maryland State Sen. Jim Rosapepe said in comments to media that the acquisition is "far from a done deal. We have no idea if shareholders will approve it."

Rosapepe did not return messages for additional comment on whether he will lead efforts against the merger with the Warren Buffett-owned company.

Constellation agreed to the deal with the Des Moines, Iowa-based MidAmerican on Sept. 19 because of a liquidity crisis and the crumbing financial markets.

"They have no choice. The other option was to file for bankruptcy," Storozynski said. "What we're hearing from shareholders is mixed. Some have already moved on and some are still planning to oppose this transaction. It's difficult at this point to say if the transaction will be approved."

Shareholders have filed several lawsuits against the company for accepting the bid.

Constellation's board of directors had received a higher offer of $35 a share from Electricite de France, its largest shareholder, and two private equity firms.

The merger also must clear reviews from federal and state regulators if shareholders approve the takeover.

The deal is expected to close in the second quarter of 2009.

"From our perspective, it would be a better solution if the transaction did not go through," Storozynski said. "The future of this transaction depends on what happens with the credit markets."

Constellation shares rose 1.58% to close at $24.46 Wednesday, marginally up from the $24.20 closing price on the last day of trading before the deal was announced. Shares have traded from $13 to $107.97 over the past year.

Mentioned in this article:

Alpharma Inc. NYSE: ALO

BCE Inc. NYSE: BCE

Citigroup Inc. NYSE: C

Constellation Energy NYSE: CEG

Deutsche Bank Ag NYSE: DB

King Pharmaceuticals Inc. NYSE: KG

Royal Bank of Scotland NYSE: RBS

Telus Corp. NYSE: TU

Toronto-Dominion Bank NYSE: TD

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