Bell Canada $50 Billion Buyout Fizzles

The $50 billion buyout of Bell Canada (BCE) was as dead as the proverbial doornail Thursday, but a $1.2 billion breakup fee is taking on a vigorous life of its own as the various parties to the failed private equity deal squabble over who owes what and how much if anything to whom.

The first shot in the breakup fee battle was fired early Thursday in the failed purchase by the Ontario Teachers' Pension Fund and its three U.S. partners, collectively called "The Purchaser." In a release they said: "... the Purchaser terminated the agreement in accordance with (the terms of the agreement)."

BCE, however, challenged their position stating it disputed that "the Purchaser was entitled to terminate the Definite Agreement."

Originally begun last year when Canada agreed to deregulate its telephone system, the buyout -- said to be the largest buyout ever -- initially gathered momentum, but as the global economic downturn picked up steam, it threatened the deal because the players were encountering difficulty in raising the financial wherewithal to fund the deal. During tortuous negotiations and court proceedings, various breakup provisions were written into agreements, which are now coming into play.

Lined up against BCE are the Ontario Teachers Pension Fund and its partners, Providence Equity Partners, Madison Dearborn Partners LLC, and Merrill Lynch Global Private Equity. A group of banks including Citigroup, Deutsche Bank, Royal Bank of Scotland Group, and Toronto Dominion Bank initially planned to support the takeover, but grew apprehensive when financial markets began to sink. They were happy to see the deal ended, because they didn't have to eat billions of dollars required to consummate the buyout.

The buyout pivoted on a solvency test conducted by auditing firm KPMG, which ended up being the deal breaker because KPMG said a required solvency condition couldn't be satisfied. BCE countered with its own audit, by PricewaterhouseCoopers, which ended up challenging the KPMG report, but which wasn't a part of the actual agreement.

"All closing conditions have been satisfied by BCE, other than the solvency opinion, a condition to closing that was to be satisfied by its nature at the effective time. Under such circumstances, the agreement provides that the breakup fee will be owed to BCE by the purchaser," BCE stated.

" Neither party owes a termination fee to the other," was the counterstatement by the Ontario Teachers' Pension Plan.