22 May 2008
The ruling came in a lawsuit brought by a group of BCE bondholders
claiming the deal is unfair to them.
The decision came on the same day the private-equity buyers and banks
met in New York to negotiate a $34bn loan package. Last week, the banks
delivered a new set of terms that the buyers viewed as onerous.
The ruling, combined with the tense negotiations on the deal's financing
terms, could derail the transaction, which is scheduled to close by June
30. BCE said it will ask the Supreme Court of Canada to hear the case.
If it declines and BCE cannot reach a settlement with the bondholders,
the deal is likely to die.
In reversing a lower court's decision, the Quebec court cited
bondholders rights that are not granted in the US. In the US, when a
company is for sale, the board must maximize shareholder value; its
duties to the bondholders are contractual.
"The Board should have considered the interests (including reasonable
expectations) of the [bondholders]," the court wrote in a 5-0 decision.
"In Canada, the directors of a corporation have a more extensive duty .
. . giving consideration to the interests of all stakeholders, which, in
this case, includes the [bondholders]."
The judgment "rewrites Canadian law," BCE lawyer Martine Turcotte wrote
in a release. "We believe the Supreme Court of Canada should reverse
this decision" and let the deal proceed.
Last June, a group that included
Providence Equity Partners,
Madison Dearborn Partners and
Ontario Teachers' Pension Plan agreed to buy BCE, the parent of
Bell Canada, for $51.8bn.
The deal, which would saddle the company with more debt, caused the
price of the existing BCE bonds to tumble. The bondholders, including
Manulife Financial Corp. and
CIBC Global Asset Management, sued to block the deal, or at least
get more money from the company.
Montreal-based BCE is the dominant telecom company in Eastern Canada.
BCE's growth has slowed in recent years amid troubles with its Bell
Wireless unit and competition from smaller rivals
Telus and
Rogers Communications.
A busted deal would be particularly awkward for Providence, the lead US
investor. A photograph of Providence chief executive
Jonathan Nelson appears on the cover of the current issue of
Fortune magazine next to the headline, "The Biggest Deal Ever: An
inside look at how Jonathan Nelson put together a $51bn telco buyout."
"We are reviewing the ruling and evaluating our options with respect to
the bondholder claims," said a spokesman for Providence and the other
buyers. "We remain committed to this transaction."
LBO Wire is a US-based trade paper owned by Dow Jones, the parent
of Private Equity News.
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