BCE ruling could hit other Canada takeovers

By Randall Palmer - Analysis

OTTAWA (Reuters) - A Canadian court ruling that could block the world's largest leveraged buyout, the C$34.8 billion ($35.2 billion) acquisition of BCE Inc.(BCE.TO: Quote, Profile, Research, Stock Buzz)(BCE.N: Quote, Profile, Research, Stock Buzz), could deter other takeovers if it is allowed to stand.

The surprise ruling by the Quebec Court of Appeal would require that companies consider the interests of all stakeholders, including bondholders, rather than simply trying to obtain the highest value for shareholders.

"Certainly the decision was an unexpected result," said Aaron Dhir, who teaches corporate law at Osgoode Hall Law School in Toronto.

The Quebec court ruled in favor of BCE debtholders who had complained that the takeover by a group of investors led by Ontario Teachers' Pension Plan was unfair to them.

It said BCE had failed to prove that a buyout could not have been structured to provide a satisfactory share price while avoiding an adverse effect on debenture holders.

The decision chopped more than 10 percent off BCE shares on Thursday as speculation mounted that the deal could fail.

"This ruling could have profound effects on future merger and acquisition activity in Canada. Boards no longer have a duty to just maximize shareholder value," RBC Capital Markets analyst Jonathan Allen said in a note to clients, noting it gave bondholders extra protection in takeover scenarios.

He said the ruling could require suitors to offer debtholders better terms to win their approval, making deals more costly. And it could add uncertainty to any proposal.