The world’s largest agreed buyout to date was blocked yesterday when the Québec Court of Appeal ruled in favour of a group of BCE bondholders.
Structured as a plan of arrangement, the $52 billion (€33 billion) buyout hinges on court approval – and the buyers have vowed to get it from Canada’s highest court, saying yesterday’s ruling “rewrites Canadian law”.
Five judges yesterday unanimously overturned the prior ruling of Québec’s Superior Court in a lawsuit brought by some of the telecom company’s debenture holders. The plaintiffs were upset by the devaluation of BCE bonds, which they attributed to the pending LBO, and felt the take-private should be structured as a reorganisation, thus giving them voting rights.
We believe the Supreme Court of Canada should reverse this decision, and allow the transaction to proceed.
Teachers’ Private Capital, the deal’s lead sponsor, had previously indicated it might abandon the deal if the Superior Court ruled in favour of the bondholder group, as it could mean the investor consortium would be forced to buy out debenture holders.
The Québec Court of Appeal, however, said BCE had not satisfied concerns that the deal was fair for all security holders.
“BCE never attempted to justify the fairness and reasonableness of an arrangement that results in a significant adverse economic impact on the debenture holders while at the same time it accords a substantial premium to the shareholders,” they said.
The lawsuit also alleged that in the auction’s final stages, Teachers’ was advised by a Goldman Sachs-led group of bankers to restructure the agreement so as to avoid “triggering of protection mechanisms for debentureholders,” according to Canadian newspaper The Globe and Mail.
BCE and its proposed buyers, including Teachers’, Providence Equity Partners, Madison Dearborn Partners and Merrill Lynch Global Private Equity, have said they will seek to appeal the decision in Canada’s Supreme Court.
“The judgment overturning the Québec Superior Court decision rewrites Canadian law relating to the duty of Canadian boards of directors to maximize value for shareholders in the context of a change of control transaction, as well as to the entitlements of bondholders in those circumstances,” Martine Turcotte, BCE’s chief legal officer, said in a statement. “Both the transaction and the issues of law involved are of public importance in Canada. We believe the Supreme Court of Canada should reverse this decision, and allow the transaction to proceed.”
The transaction’s closing will hinge upon the Supreme Court granting leave to appeal, and timing of the appeal, BCE said.
The deal’s previously anticipated June closing date was thrown into question earlier this week as reports surfaced that the deal’s lenders were seeking tighter terms than originally agreed.
Teachers' said in a statement it remains committed to the transaction and is “reviewing the ruling and evaluating our options with respect to the bondholder claims”.
This is the second time a Quebec court has halted a major private equity buyout, according to The Globe and Mail. In 1999 Onex’s $5.7 billion merger bid for Air Canada/Canadian Airlines was blocked, but the private equity firm did not appeal the decision.