An unexpected court ruling threw a wrench into a pension fund's acquisition of telecom giant BCE on Thursday, in what would be the biggest takeover in Canadian history, and sent its shares plummeting.
The Quebec Court of Appeal said in its decision late Wednesday that BCE’s US$51.7 billion sale to an investor group led by the Ontario Teachers’ Pension Plan was unfair to its bondholders.
BCE must now think of a way either to appease its bondholders or have the Quebec ruling overturned by the Supreme Court of Canada — but no later than June 30, the deadline to complete the transaction.
The court ruling rattled investors, pushing BCE shares down 12 percent to US$33.10 in late Toronto trade, well below the US$43.36 sale price offered by the Ontario Teachers Pension Plan and its US partners Providence Equity, Madison Dearborn, and Merrill Lynch.
Bondholders welcomed the court decision, saying that BCE had unfairly overlooked their interests and hurt them in a bid to get the best possible price for shareholders.
The appellants, including Manulife Financial and Sun Life Assurance, as well as Canadian banks CIBC and Toronto Dominion, hold US$1.4 billion worth of BCE debentures, out of a total of US$5.2 billion worth of outstanding bonds maturing after 2010.
In a statement, BCE said it would seek an expedited hearing at Canada’s high court to try to overturn the ruling.
Martine Turcotte, BCE’s chief legal officer, said the judgment “rewrites Canadian law relating to the duty of Canadian boards of directors to maximize value for shareholders in the context of a change of control transaction, as well as to the entitlements of bondholders in those circumstances.”
“We believe the Supreme Court of Canada should reverse this decision,” she said.
Analysts expressed doubt that the agreement could be salvaged, pointing to BCE’s legal woes and to reports that banks funding the purchase of BCE were looking to make changes to the financing terms.
Three of the banks backing the deal — Citibank, Deutsche Bank and the Royal Bank of Scotland — were also part of a group that forced US broadcaster Clear Channel last week to accept a lower purchase bid from two US investment funds.
The New York Times reported on Monday the banks were also pressuring BCE to drop its sale price.