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Bell takeover clears penultimate hurdle

10 Mar 2008

A senior judge has cleared the proposed takeover of BCE, the parent of Bell Canada and Bell Aliant, after rejecting all legal challenges by two groups of the company’s bondholders, reports Canadian newspaper the National Post. On Friday, Quebec Superior Court Justice Joel Silcoff approved the CAD51.7 billion (USD51.3 billion) cash and debt leveraged buy-out proposed by a consortium of funds led by the Ontario Teachers’ Pension Plan in June 2007 and gave his blessing to a ‘plan of arrangement’ under which the deal is structured. Bell bondholders had protested that the ‘unfair’ takeover would harm their interests and was not done in good faith, and pointed to the facts that the transaction will saddle BCE with CAD32 billion in new debt and drag down its credit ratings, having already reduced the value of their bonds. The plaintiffs had demanded the judge reject the deal or give them the right to veto it; they also claimed hundreds of millions of dollars in compensation. Justice Silcoff rejected all of the bondholders’ claims, stating that granting a veto ‘would set a dangerous precedent and could result in uncertainty and instability in the equity and debt markets for years to come.’ Martine Turcotte, BCE’s chief legal officer, said: ‘The judgments were quite clear and categorical and supported our longstanding position that the bondholders’ lawsuits were without merit. We’re extremely happy with the results and are proceeding to the next steps of closing.’ The bondholders are expected to appeal the decision by a deadline of 17 March.

BCE’s shareholders voted overwhelmingly in favour of the consortium takeover in late September 2007, and the Competition Bureau subsequently added its approval. As a final obstacle, the deal is under scrutiny by telecoms and broadcasting regulator the CRTC in a public hearing which began on 25 February but is currently adjourned. The watchdog has voiced concerns that Canadians appointed to BCE’s board would answer to Americans, resulting in only a ‘paper compliance’ of foreign ownership rules. Under Canadian law, foreigners cannot control more than 46.7% of a broadcaster or facilities-based telecommunications company. Teachers’ Private Capital (the private investment arm of the Ontario Teachers’ Pension Plan, currently BCE’s largest single shareholder) is joined in the buyout group by US investment funds Providence Equity Partners, Madison Dearborn Partners and Merrill Lynch Global Private Equity. Under the deal, Teachers’ would hold 51.6% of non-voting shares, while its US-based equity partners would have a minority stake.

Canada, Bell Aliant, Bell Canada Enterprises (BCE)

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