UPDATE 2-BCE buyout hits snag as court backs debtholders
(Adds Ontario Teachers, bondholders' reaction, details on court decision, background on buyout offer)
MONTREAL, May 21 (Reuters) - The C$34.8 billion ($35.4 billion) buyout of BCE Inc. (BCE.TO) hit a wall on Wednesday when a Quebec court backed debtholders who complained the plan led by Ontario Teachers' Pension Plan and U.S. private equity partners is unfair.
In a ruling issued on Wednesday evening, the Quebec Court of Appeal said that BCE, Canada's largest telecommunications group, failed to prove that a buyout could have been structured to provide a satisfactory price for the company's shares while avoiding an adverse effect on the debenture holders.
The appeal court sent the case back to the lower court in which the bondholders' complaint was first rejected in March, but BCE said that it and the purchasing group would seek to appeal the decision to the Supreme Court of Canada as quickly as possible.
"The judgment overturning the Quebec Superior Court decision rewrites Canadian law relating to the duty of Canadian boards of directors to maximize value for shareholders in the context of a change of control transaction, as well as to the entitlements of bondholders in those circumstances," BCE said in a statement.
BCE is being taken private by a group led by Ontario Teachers' that includes U.S.-based Providence Equity Partners LLC, Madison Dearborn Partners and a private-equity arm of Merrill Lynch & Co.
"We remain committed to the transaction. We are reviewing the ruling and evaluating our options with respect to the bondholders' claim," said Deborah Allan, spokeswoman for Ontario Teachers', one of Canada's largest institutional investors.
She declined to elaborate.
Lawyers representing a committee of 97 bondholders said their clients were delighted with the Quebec Court of Appeal decision.
"They are gratified that the Court of Appeal recognized the unfairness that the proposed plan of arrangement would have imposed on the unit holders, pension fund beneficiaries, insurers and others on behalf of whom our clients were contesting the plan of arrangement," said McMillan Binch Mendelsohn LLP.
The committee was one of two bondholder groups that had challenged the buyout plan. It includes life insurance companies and money managers such as Addenda Capital Inc, CIBC Global Asset Management Inc. (CM.TO) and Manulife Financial Corp (MFC.TO).
COURT NOT ONLY HURDLE
Bondholders had complained that the Ontario Teachers' offer made June 30, 2007 is a reorganization of BCE rather than simply a buyout, and that while the big telecom's shareholders were offered a premium, the value of BCE bonds had dropped.
Although the equity portion of the buyout amounts to about C$35 billion, the all-cash transaction including C$16.9 billion of debt, reaches C$51.7 billion.
BCE said the timing of any appeal before the Supreme Court of Canada could have an effect on the closing of the buyout transaction, which had been expected by June 30. Continued...
