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Court approves record buyout of BCE

Canada's Supreme Court is seen in Ottawa on Friday. The court approved a pension funds' acquisition of telecom giant BCE on Friday, allowing the largest leveraged takeover in the world to proceed. PHOTO: AFP

BCE Inc on Friday won the right to go ahead with the largest leveraged buyout in history, a US$35 billion deal that the telecommunications company's bondholders fought, saying it would reduce their holdings to junk.

Canada’s Supreme Court overturned a lower court ruling that the sale of BCE, the parent of telecommunications holding company Bell Canada, to the Ontario Teachers’ Pension Plan and its minority US partners didn’t adequately consider bondholders’ interests.

The court’s rationale for its unanimous decision was to be released later.

“We’re pleased with the Supreme Court’s decision and we’re continuing to work to complete an acquisition of BCE,” Ontario Teachers’ Pension Plan spokeswoman Deborah Allan said.

The last hurdle to the deal also looks to be gone as the banks said they would proceed with the deal. The banks are slated to provide US$33 billion in financing to complete what is a US$51 billion cash and debt takeover.

Citigroup, Royal Bank of Scotland, Toronto-Dominion Bank and Deutsche Bank, the four banks that have committed to financing the debt portion of deal, issued a statement saying they expect the transaction will close “in accordance with the Definitive Agreement between BCE and the sponsors. We continue to negotiate the financing documents in good faith with the sponsors and stand behind our original commitment to the transaction.”

BCE said it has received final approval from Canada’s telecommunications regulator and expects final government backing next week. The telecom company said it hopes the sale will close in the third quarter, which ends on Sept. 30. Shares of BCE traded up more than 9 percent to US$37.29 in after hours trading.

BCE lawyer Guy Du Pont argued that BCE’s board had a duty only to do what is best for the company and its shareholders and their obligation to bondholders was to meet contractual obligations to pay interest and repay principal.

The bondholders claimed that saddling BCE with an additional US$33 billion in debt reduced their holdings to junk bond status and would cost them more than US$1 billion.

The Supreme Court was asked to decide what interests a board should consider when a takeover takes place. The lower court, a Quebec appeals court, found that BCE did not fairly consider the interests of bondholders.

The ruling came as a surprise because directors usually only consider the rights of shareholders when making a deal.

Elliott Soifer, vice president of Desjardins Securities International, said the Supreme Court’s decision was very positive for the Canadian market.

“We’re very relieved because this is the way that we always understood the capital markets work and the Supreme Court has clarified that. This is one of the most important decisions that’s ever come out of the Supreme Court with regard to corporate law,” Soifer said.

Shareholders overwhelmingly approved the buyout group’s offer of C$42.75 (US$42.67) per share in September.

The deal, which is also the biggest takeover of any kind in Canadian history, was agreed to in June last year, just before credit markets began to unravel in North America.

At the end of this month, the buyers would be entitled to walk away from the deal. BCE is also known as Bell Canada.

BCE shares have been trading well below C$42.75 for months, on fears that the deal would not be completed.

The Toronto-based Ontario Teachers’ Pension Plan — with assets of C$108 billion last year — invests and administers the retirement funds for Ontario’s 353,000 active, inactive, and retired teachers. US-based Providence Equity Partners and Madison Dearborn Partners LLC are also involved in the proposed buyout.

BCE, which has more than 54,000 employees, had annual revenue of C$17.8 billion last year. It had 5.8 million wireless subscribers, 8.64 million phone lines, 1.94 million Internet subscribers and 1.82 million satellite television subscribers in 2006.
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