The largest telecommunications company in Canada, Bell Canada (BCE) claims the group, headed by the Ontario Teachers’ Pension Plan, responsible for organizing an official buyout of the company now owes a cancellation fee of over $1 billion Canadian dollars.

Bell demands a payout to the tune of $1.2 billion Canadian (roughly $950 million U.S), claiming that as the investor group initiated the withdrawal from the takeover contract, they owe, as the provisions of termination in their contract would stipulate. The Pension Plan claims that after formal analysis of the contract, the accounting group they contracted (KPMG), concluded that Bell Canada, and the macroeconomic environment surrounding it, did not meet solvency requirements stipulated as a condition of the deal.

Accountants at PricewaterhouseCoopers responded to the claim of insufficient solvency, claiming that after the deal was completed, the solvency stipulation would quite clearly be met.

“Because KPMG has concluded that the required test for the solvency opinion was not met, this mutual condition to completion of the acquisition could not be, and was not, satisfied. Accordingly, the purchaser terminated the agreement in accordance with its terms. Under these circumstances neither party owes a termination fee to the other,” said the Teachers’ group. In a second release, they added, “should BCE commence such baseless litigation, we are confident that it would not succeed.”

The termination fee, clearly, exists to shift incentives away from cancellation of the contract.

As a result of the 40% premium priced on the speculated buyout, a bubble rose BCE’s stock price over $40 for the period of takeover negotiations; the market correction occurred almost overnight dramatically hurting thousands of stockholders.

Analysts suggest credit availability and conditions for the Ontario group may have been the primary incentive for the group to back out of the deal. The plea of insufficient solvency may simply support the contract dissolution, rather than an actual incentive.

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