BCE's Buyout Back on Track After Supreme Court Approves Deal http://www.bloomberg.com/apps/news?pid=20601087&sid=ahrQLGeUq99Y&refer=home
By Joe Schneider and Chris Fournier
June 21 (Bloomberg) -- BCE Inc.'s plan to go private in the world's largest buyout got back on track yesterday after the Supreme Court of Canada approved the deal, sending the stock up as much as 8.2 percent in late trading.
Canada's highest court unanimously overturned an appeals- court decision blocking the C$52 billion ($51.3 billion) deal. The lower court had ruled that the transaction ignored the interests of BCE's bondholders. The Supreme Court said yesterday it would provide reasons for its decision, without saying when.
The ruling moves BCE a step closer to completing the deal, which the Montreal-based company now expects to close by the end of the third quarter. Still, the buyout of Canada's biggest phone company, by the Ontario Teachers' Pension Plan and U.S. private- equity firms, isn't assured. Banks have sought to renegotiate terms of debt in other LBOs amid a contraction in credit markets, derailing more than 60 buyout plans since last year.
``There's still uncertainty,'' said Neeraj Monga, an analyst at Veritas Investment Research in Toronto, who advises selling the shares. ``It's not a done deal yet.''
The buyers, which include 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 before the bid. The stock has since slumped on concern that bondholders would block the deal or that financing would collapse.
BCE jumped as much as C$2.85 to C$37.45 in extended trading after closing at C$34.60 yesterday on the Toronto Stock Exchange. If the gain holds in the next regular trading session on June 23, it would be the biggest increase since September 2006.
``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 next week around the level they were trading at before the appeals-court decision last month, at about C$37 to C$38, he said.
The buyout 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. Leveraged buyouts are funded mainly through new debt, which 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.
The final price of the deal may be 10 percent lower than the current offer price, Veritas's Monga said.
Bondholders may launch another legal challenge, this time over the proposed new ownership structure of the company, the Toronto-based National Post newspaper reported this week.
Lawyers representing the bondholders canceled a conference call scheduled for yesterday, saying in an e-mail to Bloomberg News that ``since there are no reasons yet, there is nothing we can explain about the decision.''
The bondholders said in a separate statement that while they were disappointed by the decision, they ``believe they had a duty to protect the interests of their clients.''
In May, the 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.
The bondholders may lose about C$1 billion, a fifth of their total holdings, from a cut in their notes' credit rating, John Finnigan, a lawyer for the group, told the high court judges at a June 17 hearing.
BCE had its biggest drop in 25 years on May 22, after the Quebec Court of Appeal blocked the buyout transaction.
The Quebec appeals court said in its ruling that the bondholders' interests, ``including reasonable expectations,'' should have been taken into account, and weren't.
Marilyn Sonnie, a partner at the law firm Jones Day in New York who worked on the merger of Sprint Corp. and Nextel Communications Inc., said she wasn't surprised by the Supreme Court decision.
``This is the way it would have come out under U.S. law,'' Sonnie said in a telephone interview. ``Bondholders' rights are governed by their contracts.''
The Canadian Supreme Court had ruled in the 2004 bankruptcy of Peoples department store that boards of directors have a duty to do what's in the best interest of a corporation, which shouldn't be read simply as the ``best interest of shareholders.''
The offer by the buyout group includes C$16.9 billion in debt, preferred shares and minority interests. Before the appeals-court ruling, the deal was slated to close this quarter.
The case is Between BCE Inc. and a group of 1976 Debentureholders, 32647, Supreme Court of Canada (Ottawa).