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The biggest corporate takeover in Canadian history hits a roadblock
Toronto (23 May 2008) – The biggest corporate takeover in Canadian history – the purchase of BCE Inc. by a group led by the Ontario Teachers' Pension Plan – hit a roadblock yesterday. The Quebec Court of Appeal overturned a lower court's decision to allow the $52 billion deal to go ahead, ruling that BCE unfairly overlooked the interest of bondholders, who were hurt by the plan.
The bondholders had sought to block the leveraged buyout of Canada's largest telecom company because they said it treated them unfairly by loading the telecom giant up with debt and thereby making their bonds a much riskier investment.
"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 that same time it accords a substantial premium to the shareholders,'' the five-judge panel ruled.
The ruling is a giant setback for the Ontario Teachers Pension Plan and the three U.S. buyout firms and may cause their plan to purchase the country's biggest telephone company to fail.
BCE and Ontario Teachers could also try to change the deal in a way that will satisfy bondholders or hope that the Supreme Court of Canada will agree to hear an appeal and rule on the matter before the June 30 deadline.
Renegotiating the deal will be difficult because the banks that agreed to lend more than $30-billion to fund the takeover no longer see the loans as money-makers as a result of the massive changes in the credit market since the buyout was agreed to last summer.
On June 29, 2007, BCE entered into an agreement to be acquired by an investor group led by Teachers' Private Capital, the private investment arm of the Ontario Teachers' Pension Plan and the three U.S. buy-out firms – Providence Equity Partners Inc., Madison Dearborn Partners, LLC, and Merrill Lynch Global Private Equity. The deal, which dominated the business world last summer, was signed mere days before markets crumbled and banks stopped agreeing to finance large takeover deals.