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 U.S. partners didn’t adequately consider bondholders’ interests.
The court’s rationale for its unanimous decision is 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 remains the banks, which are slated to provide US$33 billion in financing to complete what is a US$51 billion cash and debt takeover.
But Citigroup, Deutsche Bank, Royal Bank of Scotland and Toronto-Dominion 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.”
A leveraged buyout is an acquisition of a company using a significant amount of borrowed money to meet the cost of acquisition. Many takeovers do not involve significant debt.
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.
Shareholders overwhelmingly approved the buyout group’s offer of C$42.75 ($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 2007, just before credit markets began to unravel in North America.
After June 30, 2008, 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 (US$106 billion) in 2007 — invests and administers the retirement funds for Ontario’s 353,000 active, inactive, and retired teachers. U.S.-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 (US$17.5 billion) in 2007. 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.
Bell Canada and its proposed new CEO George Cope are expected to refocus the Montreal telecom operator as it faces more intense competition in its wireless and Internet data businesses.
Industry analysts also expect Bell to intensify efforts to compete more aggressively with Canadian cable TV operators such as Rogers Communications, Videotron and Shaw, which have been taking data, landline and other telecom business away from Bell in recent years.
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