BCE says high court must clarify rules in buyouts

OTTAWA Wed May 28, 2008 6:19pm EDT

OTTAWA (Reuters) - BCE Inc. (BCE.TO)(BCE.N) asked the Supreme Court of Canada on Wednesday to hear an appeal of a lower court decision that could kill its planned buyout, saying it was imperative to clarify rules governing corporate boards.

The telecom company said that last week's surprise ruling in favor of BCE bondholders -- who argued the C$34.8 billion ($35.2 billion) privatization of the company was unfair to them -- imposed on directors an obligation to creditors never before recognized in Canada.

BCE also said the earlier judgment jeopardized the transaction, which would be the world's largest leveraged buyout, meaning the potential destruction of billions of dollars of value for BCE and its many shareholders.

The Supreme Court agreed on Monday to BCE's request to accelerate court proceedings on the issue, setting a deadline of Wednesday for the company to formally make its argument for why an appeal should be heard and suggesting June 17 as the date for a hearing if it agreed to hear the appeal.

"This is one of the most important commercial law cases to come before this court in a generation. This case goes to the very root of corporate law in Canada," BCE said in its application.

"It also concerns the fate of the largest and most significant transaction of its kind in Canadian history."

The BCE buyout is being led by the Ontario Teachers' Pension Plan, with the aim of taking the telecoms company, the parent of Bell Canada, private.

The partners in the bid are U.S.-based private equity firms Providence Equity Partners, Madison Dearborn Partners and Merrill Lynch Global Private Equity.

The Quebec court decision said corporate boards must not just look after the interests of shareholders but also those of other stakeholders, including debtholders, who complained that the transaction devalued their bonds.

"This decision imposes on directors obligations to creditors that have never before been recognized by a court in Canada, and places directors faced with a change-of-control transaction in a position of irreconcilable conflict," BCE argued.

The prospective buyers said in a separate submission that Canadian and British courts had until now limited themselves to looking at the contractual rights of the bondholders in determining whether they were treated fairly. And the buyers said those rights were being fully respected.

The bondholders have until Friday to respond to BCE's arguments. The top court has indicated it would give its decision on whether to hear the appeal within days, as it has suggested June 6 as a deadline for BCE to file its written arguments if there is to be an appeal.

BCE closed down 20 Canadian cents at C$34.65 on the Toronto Stock Exchange on Wednesday.

BCE stock has long languished below the consortium's offer price of C$42.75 a share as investors worried that the deal could be repriced, delayed or scrapped altogether. The Quebec Court of Appeal's ruling only added to the uncertainty.

($1=$0.99 Canadian)

(Editing by Rob Wilson)