Canadian court blocks BCE deal

The $35 billion buyout of BCE Inc. (NYSE: BCE) hit a wall last week when a Quebec court ruled in favor of the debtholders who complained that the proposed acquisition by a consortium led by Ontario Teachers’ Pension Plan is unfair.

The Quebec Court of Appeal’s said that Montreal-based BCE, Canada’s largest telecommunications group, failed to prove that a buyout could have been structured to provide a satisfactory price for the company’s shares while avoiding an adverse effect on the debenture holders.

Bondholders had complained that the Ontario Teachers’ offer is a reorganization of BCE rather than simply a buyout, and that while the big telecom’s shareholders were offered a premium, the value of BCE bonds had dropped. The offer is slated to be the largest LBO transaction in Canadian history.

The appeal court sent the case back to the lower court in which the bondholders’ complaint was rejected in March, but BCE said that it and the purchasing group would seek to appeal the decision to the Supreme Court of Canada as quickly as possible.

In its bid to take BCE private, Ontario Teachers’ is leading the consortium that includes U.S.-based Providence Equity Partners, Madison Dearborn Partners and a private equity arm of Merrill Lynch & Co. BCE shareholders approved the sale in September.

“We remain committed to the transaction. We are reviewing the ruling and evaluating our options with respect to the bondholders’ claim,” said Deborah Allan, spokeswoman for Ontario Teachers’.

Lawyers representing a committee of 97 bondholders said their clients were delighted with the Quebec Court of Appeal decision. The committee was one of two bondholder groups that had challenged the buyout plan. It includes life insurance companies and money managers such as Addenda Capital Inc., CIBC Global Asset Management Inc. and Manulife Financial Corp. —Thomson Reuters news wire report.