Canada court clears $34bn BCE buy-out

Canada’s Supreme Court ruled unanimously Friday that a US$34bn leveraged buy-out of BCE can go ahead, reversing a lower court decision that threatened to abort the deal.

BCE, Canada’s largest phone company, had asked the Supreme Court for a ruling following a Quebec court’s ruling last month in favour of BCE bondholders who contested one of the largest ever leveraged buy-out attempts.

The ruling clears the largest hurdle facing the Ontario Teachers’ Pension Plan, and its US-based partners Providence Equity and Madison Dearborn as the two sides move to close the deal by a June 30 deadline.

The case stems from bondholder complaints that their interests were compromised by the amount of debt BCE would assume in financing the buy-out. The Supreme Court withheld a written ruling in the case, stating only the unanimous decision in favour of BCE.

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

Banks backing the deal, led by Citigroup, Deutsche Bank, Royal Bank of Scotland and Toronto-Dominion, said in a statement on Friday that they expect the deal to close in accordance with the original agreement.

It was earlier thought that the banks would insist on a revision of the terms, an offering of C$42.75 a share, to reflect BCE stock’s performance in the past year.

The Ontario Teachers’ Pension Plan has emerged in recent years as one of Canada’s largest investors, reporting more than C$100bn (US$98bn) in net assets, spread among some of Canada’s largest corporations.

The Supreme Court heard arguments from both sides earlier this week.

Lawyers for BCE argued the company’s directors were required only to maximise shareholder value. Bondholders’ lawyers argued the deal required their clients to bear an unreasonable amount of debt and had not been considered in negotiations.

The deal proposed adding billions in debt to BCE and decreased the value of BCE bonds by 18 per cent.

The case hinged on whether bondholders could expect considerations and rights beyond those they negotiated for initially.

The decision marks a rejection of that notion, though in the future it may lead bondholders to negotiate for more stringent rights in their agreements with corporations.

“I feel badly for BCE bondholders,” Ed Devlin, vice-president of bond fund manager PIMCO. “But I think for the overall health of the Canadian capital markets, this is the right decision.”

BCE shares closed at C$34.60 on Friday.

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