Legal News

Quebec Court Rejects Largest Buyout Ever, Sides With Bondholders

By Dan Slater

In what’s being reported as a surprise ruling by a Quebec appeals court, the private equity buyout of Canadian telecom BCE — a planned $51.8 billion deal with a $34 billion loan package — was rejected in a suit brought by BCE’s bondholders. They complained that a take-private would burden the company with too much debt, making BCE a riskier investment and depressing the price of their bonds. Here are reports from the WSJ’s Peter Lattman and the NYT’s Ian Austen. Here’s a link to the orders issued in the case. (Yesterday’s opinion is the one on top.)

“The judgment overturning the Quebec 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,” Martine Turcotte, the company’s chief legal officer, said in a statement.

In the U.S., explain the reports, when a company is for sale, the board must maximize shareholder value, while its duties to the bondholders are merely contractual. But in reversing the lower court’s decision, the Quebec court cited bondholders rights that are not granted in the U.S.

“The Board should have considered the interests (including reasonable expectations) of the [bondholders],” the court wrote in its 5-0 decision. “In Canada, the directors of a corporation have a more extensive duty…giving consideration to the interests of all stakeholders, which, in this case, includes the [bondholders].”

Last June, a consortium that included Providence Equity Partners, Madison Dearborn Partners and Ontario Teachers’ Pension Plan agreed to buy BCE, the parent of Bell Canada, for $33 billion. Including debt and accounting for currency fluctuations, the deal is now worth $51.8 billion, which would make it the largest leveraged buyout ever.

Full post as published by Law Blog - WSJ.com on May 22, 2008 (boomark / email).