BCE Gets Canada Court Approval for $51 Billion Buyout

BCE Gets Canada Court Approval for $51 Billion Buyout

June 20 (Bloomberg) -- BCE Inc. won approval from Canada's top judges for its plan to go private in a C$52 billion ($51.3 billion) transaction, reviving the world's biggest leveraged buyout after it was scuttled by a lower court and sending the stock 6.9 percent higher.

The Supreme Court of Canada, in a unanimous ruling in Ottawa today, overturned a decision of an appeals court that had derailed the plan for having ignored the interests of BCE's bondholders. The Supreme Court said in a statement it will provide reasons for the ruling later, without specifying when.

The decision removes one hurdle to closing the purchase of Montreal-based BCE, Canada's biggest phone company, by Ontario Teachers' Pension Plan and U.S. private-equity firms. Completion isn't certain, as banks have sought to renegotiate terms of debt in LBOs amid a contraction in credit markets, derailing more than 60 buyout plans since last year.

``The financing issue continues to be an overhang,'' said Neeraj Monga, an analyst at Veritas Investment Research in Toronto who advises selling the shares. ``There's still uncertainty. It's not a done deal yet.''

The buyers, including Providence Equity Partners Inc., agreed a year ago to pay C$42.75 for each BCE share, 36 percent more than the average price of C$31.42 in the 12 months preceding the bid. The stock has since slumped, on concerns bondholders may block the deal or financing for the LBO will collapse.

Stock Rises

BCE jumped C$2.40, or 6.9 percent, to C$37 in after-hours trading after gaining 13 cents to C$34.60 at 4:10 p.m. in Toronto Stock Exchange trading.

``We're back to where we were before the appeal decision came down,'' said Greg MacDonald, an analyst at National Bank Financial in Toronto. The shares will open close to where they were trading before the appeals decision last month, at about C$37 to C$38, he said.

The Teachers'-led group plans to raise C$34 billion in debt from Toronto-Dominion Bank, Citigroup Inc., Deutsche Bank AG and Royal Bank of Scotland Group Plc to pay for BCE and aims to close the deal by June 30. Leveraged buyouts are funded primarily through new debt that increases the risk of a default.

The banks said in an e-mailed statement that they expect the buyout to close in accordance with the agreement. ``We continue to negotiate the financing documents in good faith with the sponsors and stand behind our original commitment to the transaction,'' the banks said.

Biggest Drop

``I suspect the deal won't fly at C$42.75 anyway,'' David Cockfield, who helps manage about $2 billion including BCE shares at Leon Frazer & Associates in Toronto, said before the ruling. ``The banks will seek new terms.''

The banks may cut the price by about 10 percent, Veritas' Monga said.

In May, bondholders including Manulife Financial Corp., Canada's biggest insurer, appealed a trial judge's decision to approve the transaction, claiming the additional debt would cut the value of their holdings because the bonds would lose their investment-grade rating.

BCE had its biggest drop in 25 years on May 22, after the Quebec Court of Appeal blocked the transaction.

The Quebec appeals court said in its May 21 ruling that the bondholders' interests, ``including reasonable expectations,'' should have been taken into account, and weren't.

Bondholders

Bondholders will have to be more careful in crafting their contracts in the future, Richard Powers, a lawyer and executive director of MBA programs at the University of Toronto's Joseph L. Rotman School of Management, said before the Supreme Court's ruling. ``There are ways that they could protect themselves,'' such as including a change of control provision in the agreements.

The Supreme Court had ruled in the 2004 bankruptcy of Peoples department store that boards of directors have a duty to do what is in the best interest of a corporation, which ``should be read not simply as the ``best interest of shareholders.''

The offer by the buyout group, among them Madison Dearborn Partners LLC in Chicago, includes C$16.9 billion in debt, preferred shares and minority interests.

The case is Between BCE Inc. and a group of 1976 Debentureholders, 32647, Supreme Court of Canada (Ottawa).

BLOOMBERG