Canada court grills BCE, bondholders over buyout
OTTAWA (Reuters) - Canada's top court delayed a ruling on Tuesday on whether to approve or reject the buyout of the country's largest telecom company, BCE Inc (BCE.TO)(BCE.N), a decision that could elevate the rights of bondholders and make takeovers more difficult.
The Supreme Court could add billions of dollars to BCE's market value if it approves the C$34.8 billion ($34.1 billion) transaction to take BCE private in what would be the world's largest leveraged buyout.
But shares could plunge if the court sides with bondholders who want the deal blocked on the grounds that it would saddle BCE with too much debt. Such a ruling would have far-reaching implications, forcing companies to consider more than the interests of shareholders when weighing buyout proposals.
Seven of the nine judges heard the arguments in Tuesday's hearing, where the Supreme Court is weighing BCE's appeal of a decision by a Quebec court that supported the bondholders.
Justice Ian Binnie set the tone of the questioning when he said to BCE lawyer Guy Du Pont: "You seem to be saying that the outgoing directors can load up the company with as much debt as banks are prepared to finance.
"And quite apart from the duties to the debenture holders , is that discharging the duties to the corporation if you cripple it with that much debt?"
Du Pont said the buyout made sense for BCE, its Bell Canada subsidiary and its shareholders -- whose interests companies traditionally give first priority in their decision-making.
"This transaction was indeed in the best interest of Bell Canada and BCE," he told the court.
The court heard three hours of testimony, but declined to render a decision on Tuesday. It did not name a day -- it will alert the media ahead of time -- but it was keenly aware of the June 30 deadline for court approval of the deal.
But investors seemed to be betting that BCE would win, as the stock rose during the hearing and afterwards to close on the Toronto Stock Exchange at C$35.05, up C$1.52 from Monday.
That is still well below the C$42.75 a share offered by the buyout group led by Ontario Teachers' Pension Plan, and below May 21's C$37.12 close, just before the Quebec Court of Appeal ruled against the deal.
"I think investors should be pretty cautious at this point making bets based on comments that were made during the case," said Troy Crandall, an analyst at MacDougall, MacDougall & MacTier. "These are senior judges and they're not going to show their hand prior to their final decision."
"TREATED AS THE ENEMY"
Several of the judges, including Chief Justice Beverley McLachlin, asked about overall debt loads and whether bondholders' interests shouldn't be looked after.
"Aren't there situations in which you need to consider the overall debt load?" McLachlin asked. Continued...
