Legal Research

False News from Parallel Universes: Truman Loses Election - And the BCE Bondholders Win[??]

By Simon Chester

One of the unfortunate things about the web is that glitches happen.

Remember the picture of Truman holding a paper announcing the election of President Dewey?

The National Post let out an alternative story which was still on its website an hour after the decision.

Since it will doubtless be taken down, here is the story of what would have happened in a parallel universe, where the SCC had sat nine judges on Tuesday.

Supreme Court rules in favour of BCE bondholders

Sean Silcoff, Financial Post Published: Friday, June 20, 2008

Reuters File

OTTAWA — The Supreme Court of Canada has killed the largest leveraged buyout in history, with a ruling on Friday that effectively stops the $52-billion takeover of Bell Canada parent BCE Inc. and enshrines a legal principle in Canada that shareholder interests should not rank above those of other stakeholders when corporate boards entertain mergers and acquisitions.

The surprise decision upholds a unanimous decision last month by five Quebec Court of Appeal judges, in which the court overturned a Quebec Superior Court ruling that had endorsed the BCE takeover and dismissed the objections of Bell bondholders concerned the deal would harm the value of their investment.

It is now shareholders who can expect a massive paper loss on Monday, when the value of BCE stock is expected to tumble into the mid-to-high $20s, a far cry from the $42.75 bid BCE agreed to accept almost one year ago from a group led by its largest shareholder, Ontario Teachers’ Pension Plan. The stock closed before this afternoon’s ruling at $34.60.

The impact of the ruling will have far-reaching effects however, establishing Canada as a decidedly less friendly jurisdiction for debt-fuelled takeover specialists. The ruling means that directors of public companies now have a duty to consider not only the highest offer for their stock in takeovers, but must also address how the deal could affect bondholders, employees and others.

That puts Canada at odds with legal precedent in the United States, where leveraged buyouts have been more prevalent over the past quarter-century and had grown increasingly large in value until the onset of the credit crisis last year put a chill on big deals.

The takeover landed in the Canada’s highest court after two groups of disgruntled bondholders challenged the deal in a Quebec court. They argued the deal was unfair to them, and that their rights, granted by the trust indentures, were ignored. Because about $32-billion in debt will be piled on to the company to finance the buyout, the bonds that were not taken out lost a significant amount of value. Despite pleas from these institutional investors, including TD Asset Management Inc., Canadian Imperial Bank of Commerce, and Manulife Financial Corp., in March Quebec Superior Court Justice Joel Silcoff approved the takeover, which was structured as a plan of arrangement.

The bondholders turned to the Quebec Court of Appeal, which overturned the lower court’s approval in a stunning 5-0 decision in May. BCE then rushed to the Supreme Court of Canada, which agreed to hear the case on an expedited basis. The two sides argued their case before the panel of nine judges on Tuesday, after filing legal documents this month.

More to come…

Full post as published by Slaw.ca on June 20, 2008 (boomark / email).