BCE Inc, Canada’s largest telecom company, won the backing of the country’s Supreme Court on Friday to proceed with the world’s biggest leveraged buyout, but financing could still trip up the $35 billion deal.
Here are some key facts about the case and the issues at hand:
- BCE is Canada’s largest communications company, parent of Bell Canada, with 54,000 employees and 800 million shares.
- Its Toronto-listed shares closed at C$37.12 just before the May 21 Quebec court decision, and fell to a 52-week low of C$31.80 during the next day. Their 52-week high was C$41.80 last July 3, and they closed at C$34.10 on Friday. After the decision, BCE’s New York-listed shares rose 8.8 percent to $37.10 in extended trade.
- Total debt is C$11.36 billion. Subtracting C$2.48 billion in cash/cash equivalents leaves net debt of C$8.88 billion.
- It has an operating margin of 21.13 percent.
- Ontario Teachers’ Pension Plan, with U.S.-based private equity firms Providence Equity Partners, Madison Dearborn Partners and Merrill Lynch Global Private Equity, are offering C$42.75 a share to take BCE private.
- It would be the world’s largest leveraged buyout.
- The offer must receive court approval by June 30.
- The case turned on whether corporate boards in takeover situations have a duty to their shareholders only, or also to bondholders and other stakeholders.
- The Quebec Court of Appeal had blocked the buyout on the grounds that the BCE board failed to take into account the interests of bondholders in backing a deal with substantially increased debt.
- BCE argued that the Quebec decision put directors “in a position of irreconcilable conflict” in having to weigh interests of shareholders and debtholders beyond contractual obligations.
- The bondholders said the proposed buyout has cut the value of their bonds by 18 percent, partly because two rating agencies had downgraded Bell Canada debentures from investment grade to junk status.
- The Quebec court relied heavily on the Supreme Court of Canada’s 6-0 judgment in 2004 in the Peoples Department Stores v Wise case, which dealt with a corporate acquisition in which the buyer and the company purchased went bankrupt.
- BCE bondholders pointed to language in that case that said “the best interests of the corporation” should be read not simply as “the best interests of the shareholders.”
- BCE pointed to Peoples language that said there is no need to read the interest of creditors into directors’ duty to act in the best interests of the corporation. BCE also noted that Peoples dealt with insolvency and BCE is not insolvent.
Reporting by Randall Palmer; Editing by Frank McGurty