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The Canadian Supreme Court will decide by next week if it will hear the legality of the $52.6 billion buyout of BCE Inc. by Teachers' Private Capital, Providence Equity Partners Inc., Madison Dearborn Partners LLC and Merrill Lynch Global Private Equity. At issue is whether that court will overturn an appellate court ruling that the BCE board failed to fully consider bondholders' interests when it entered the largest buyout in corporate history.
BCE Inc. | BCE A clarification of how all Canadian companies should weigh takeover proposals in the immediate future is also under review by the court. In a May 21 ruling, the Quebec Court of Appeal blocked the plan of arrangement for BCE's buyout at C$42.75. The appellate court overturned a superior court ruling on March 7 that approved the arrangement over the objections of Bell Canada debtholders, who argued that they would suffer in the reorganization for the LBO and that it should not proceed as structured. In its filing before the Supreme Court, BCE stressed that the litigation involves the largest transaction in Canadian corporate history and issues that the court has never decided. The key issues, the brief argues, are the duties of directors when a company is in play and how they conduct themselves regarding different classes of security holders. The lower court allowed that the LBO affects the bondholders but ruled that protections in the indentures did not bar the company from incurring more debt. The appellate court agreed on those points but reversed the order approving the plan of arrangement. It did not find the deal unfair to the bondholders but faulted the board process that led to it. The appellate court reversal relied, in part, on a 2004 Canadian Supreme Court decision in Peoples Department Stores Inc. v. Wise. In that case, which involved a bankrupt company, the Supreme Court emphasized that under Canadian law a director's duty is to the company, not to any one stakeholder group. BCE argues that the Quebec panel misapplied the Peoples ruling because that case did not involve a change of control. The Quebec ruling places public company directors in an untenable position when considering a change of control, BCE argues. Citing Peoples' precedent in the bankruptcy context in ruling on an LBO is a novel use of the Peoples ruling, one Canadian attorney not involved in the case asserts. But the decision is consistent with Peoples, he says. While the appellate decision relied on Peoples and frames the issue as directors' duties of care, the Canadian statutory oppression remedy clearly invites courts to review mergers under a broad fairness standard that applies to all stakeholders, a second lawyer adds. So the case is not really about director duties but rather the statutory rights that a security holder has outside of a trust indenture, he says. The deal has a June 30 termination date. It also has a 20-calendar-day marketing period for the debt after court approval. The termination date is extended to the end of the marketing period if the marketing has begun but is not complete by June 30. The lenders, Citigroup Inc., Deutsche Bank AG, Royal Bank of Scotland Group plc and Toronto-Dominion Bank, are thought to want out or a revision of their debt commitment, so timing of court approval is a real factor. If the Supreme Court hears the case, it proposes to do so June 17. The schedule for the hearing process will require that BCE, the buyout sponsors and any interveners file papers by June 6 and the debtholders respond by June 10. -- Scott Stuart See Dealwatch: BCE CategoriesPrivate capital video
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