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Cerberus Bids for BCE as Telus Drops Out

A spokesman for U.S.-based Cerberus Capital Management said it will make a bid for BCE, Canada's biggest telecom company.

Telus said earlier Tuesday it will not make an offer for BCE and media reports said another bidding consortium had lost two key members, surprising investors and sending BCE's shares lower.

Telus , which just last week announced it was in talks to explore buying Canada's largest telecom company to create a "national champion" and trumpeted the benefits of such a union, said in a statement there were problems with BCE's bid review process.

"The inadequacies of BCE's bid process did not make it possible for Telus to submit an offer," Vancouver-based Telus, Canada's No. 2 phone company, said.

A spokesman declined further comment.

The Canada Pension Plan (CPP) Investment Board, the lead member of another bidding consortium for BCE, has also seen the exit of buyout firm Onex and Caisse de depot et placement de Quebec, a Quebec pension and insurance fund manager, according to Canadian newspaper reports which cited unnamed sources.

The loss of the two bidding partners could cripple the ambitions of CPP and its U.S. partner, private equity firm Kohlberg Kravis & Roberts, Officials of CPP, Onex and the Caisse de depot weren't immediately available for comment.

BCE , which owns phone company Bell Canada, is reviewing alternatives in a bid to inject life into its shares and boost value for investors. Since the takeover talk began in April, the stock has risen about 30 percent.

A bid of C$45 per share for BCE would value its common equity at about C$36 billion.

"The bidders don't appreciate the rush Bell and its advisors are forcing on the process," National Bank Financial analyst Greg MacDonald wrote in a research note.

"In our view, the bidders are attempting to buy more time to do due diligence as this is a major deal with multiple possible scenarios."

A BCE spokesman had no comment, but reiterated the company expects to wrap up its review process in the third quarter.

MacDonald also wrote investors shouldn't assume that Telus is no longer interested in Montreal-based BCE and that the company would now be sold to the Teachers consortium or the CPP group.

"We believe the Bell Canada board will feel obligated to extend the bidding deadline to accommodate the bidders and maximize the effectiveness of the auction process," he said.

Genuity Capital Markets analyst Dvai Ghose wrote in a research note that Telus, by entering the BCE fray, may have just wanted push up the price of possible private-equity bids.

He said this "could be in Telus's interest" as it may leave BCE with a heftier debtload after it is bought out, hurting its flexibility.

As well, "it could force the future private equity owners of BCE to pursue more aggressive asset sales, which in turn could give Telus the opportunity to buy wireless and satellite TV assets from BCE."

The CPP group is one of three private equity groups that has been combing through the books of BCE, one of Canada's biggest companies with a market value of C$31.5 billion ($29.4 billion).

Another buyout group made up of the Ontario Teachers' Pension Plan and U.S. private equity firm Providence Equity Partners said Monday it plans to submit a bid for BCE.

The third private equity consortium comprises Cerberus and Canadian partners, including the Hospitals of Ontario Pension Plan.

All three consortiums include a U.S. partner, although ownership restrictions prohibit foreign investors from owning more than 47% of a Canadian telecom firm.

Catalyst Asset Management, a Toronto-based boutique investment bank, has also entered the bidding fray by proposing an offer to exchange each BCE share for a new "stapled" security, made up of debt and equity.