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A consortium of buyers led by telecom giant BCE Inc. (BCE-T) are buying Internet company Q9 Networks Inc. for $1.1 billion.
BCE is partnering with the Ontario Teachers' Pension Plan and two U.S. private equity firms, Madison Dearborn Partners LLC and Providence Equity Partners LLC, on the purchase.
The move to buy Toronto-based Q9 represents a reunion of sorts for the firms. Teachers teamed with Madison, Providence and Merrill Lynch Global Private Equity to launch a blockbuster $35-billion privatization bid for BCE in June, 2007.
Teachers, Providence and Madison Dearborn will contribute 70 percent, or $420 million, of the equity funding and Bell will provide the remaining 30 percent, or $180 million. The transaction is expected to close before the end of 2012, subject to regulatory approval and customary closing conditions.
That leveraged buyout, the biggest in Canadian history, failed after the partners walked away in 2008, in the wake of a contentious decision over accounting. BCE had sued Teachers and its partners, except for Merrill Lynch, for a mammoth $1.2-billion break-up fee. (Merrill Lynch was not named in that lawsuit because it was not a guarantor of the break penalty.) Sources tell The Globe and Mail that as part of the Q9 deal, the parties have patched over their rift about the break-up fee.
Q9, one of Canada's largest providers of outsourced data centre services, is attractive to BCE because is moving more aggressively into cloud-computing services - a fast-growing and highly competitive area of business information technology.
BCE already operates six data centres: two in Quebec, two in Ontario, and one each in Alberta and British Columbia. It plans to open a seventh in Gatineau, Que., later this year. In addition to data centres, BCE is focusing on providing data hosting services to business clients.
Q9 has 11 data centres, many located in Western Canada, which would allow BCE to sharpen its competitive edge against Vancouver-based Telus Corp. in its home market.
BCE's chief executive officer George Cope has said that data centres - along with the roll-out of Bell's fourth-generation, long-term evolution wireless network; its new Internet protocol TV and Internet product called Fibe; and the launch of a new satellite for its legacy TV business - are a key focus for its $3-billion capital investment in 2012.
"We're making a significant investment in an area called cloud services, which really talks about investments that companies are making in trying to manage their data," Cope told shareholders at the company's annual meeting.
"We acquired the largest business of that kind in the Province of Quebec last year … and we plan to be a leader in this space and we think this is a very important growth area for us going forward."
BCE's Q9 deal would build on its 2010 acquisition of Hypertec Availability Services' hosting division, a major data hosting provider in Québec.
Q9 also offers other services including dedicated servers and virtual private networking. Bidding on the company closed last week.
Rivals such as Rogers Communications Inc. and Telus were also considered potential buyers for Q9. One source said Rogers looked seriously at the assets earlier this year when the process was in its early stages. Other pension funds also took a look.
Q9, at one time a publicly traded company, is owned by Abry Partners LLC, a private equity firm that focuses on media, communications and information services companies.
Boston-based Abry announced a deal to buy Q9 for $361 million in August, 2008. Q9's chief executive officer, Osama Arafat, founded the company in 2000 along with partner Paul Sharpe.BNN is a division of Bell Media, which is wholly owned by BCE.