BCE’s $34.8-billion privatization will not go ahead if it does not secure a favorable audit report before Dec. 11, the phone giant warned on Wednesday.

Judging by BCE’s free-falling share price as it ended the day down 34% to $25.25 on the Toronto Stock Exchange, investors believe Canada’s largest-ever leveraged $42.75 per-share buyout is dead in the water.

BCE, which has a minority stake in CTVglobemedia and runs the Bell ExpressVu satellite TV service, warned it has to convince auditor KPMG that it can avoid going bust post-transaction with $30 billion in new debt if it hopes to complete the takeover.

‘Should KPMG be unable to deliver a favorable opinion on December 11, 2008… the transaction is unlikely to proceed,’ BCE said in a statement.

The fear from KPMG is a debt-laden BCE will be too focused on trying to make interest payments in a depressed market, rather than looking to grow its core businesses and fending off growing competition in the phone, TV and high-speed Internet arenas from Rogers Communications and other cable giants.

‘The delivery of the solvency opinion is a condition to the completion of the acquisition of BCE,’ said the Ontario Teachers’ Pension Plan and three U.S. private equity players behind the $34.8-billion takeover of BCE in their own statement.