World's largest leveraged buyout gets Canadian Supreme Court nod

21 June 2008

The largest-ever leveraged buyout is all set to go ahead with Canada's highest court clearing a blocked  C$34.8 billion ($34.1 billion) sale of Bell Canada Enterprises (BCE) to a Canadian-US private equity consortium led by Ontario Teachers' Pension Plan.

Canada's Supreme Court on Thursday 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 take into consideration the interests of the company's bondholders.

''The decision of the Court of Appeal is set aside,'' the Canadian Supreme Court said in its judgment, three days after hearing the arguments of both sides in Ottawa. It declined to comment further. If the Supreme Court had backed last month's ruling, it would almost certainly have stopped the deal in its tracks because it would have been extremely difficult for the private equity consortium and the bondholders to reach an alternative arrangement acceptable to both parties.

The decision is a blow for Bell Canada bondholders, who had said the value of their securities had fallen by 18 per cent because of ratings downgrades. They had said directors for Bell and BCE had inappropriately tried only to maximize shareholder value. As a possible remedy they had suggested to the Supreme Court that BCE could be asked to redeem their bonds.

A ruling in their favor would have raised serious questions over the fate of future takeover bids, as it would have put boards in what BCE had argued would be irreconcilable conflict as they balance shareholder and bondholder interests.

Analysts opine that this ruling will take BCE's share price closer to the C$42.75 being offered in the buyout, from the low thirties it is languishing in currently. However, not all obstacles to the takeover have been removed, and a successful acquisition by the 30 June deadline is considerably difficult.