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Buyout of BCE can proceed, judge rules
Jacquie McNish and Boyd Erman
Friday, March 07, 2008
A Quebec judge has ruled BCE Inc. can proceed with a $34.8-billion buyout by a group of institutional investors led by Ontario Teachers Pension Fund.
The decision by Quebec Superior Court Justice Joel Silcoff all but ends a high-stakes legal showdown by BCE's bondholders that has kept investors, executives and regulators guessing for months about whether or not the Montreal telecommunications giant can complete what will rank as the world's largest leveraged takeover. BCE still has to win approval from Canadian Radio-television and Telecommunications Commission, but it is widely expected that any objections raised by the regulator can ultimately be resolved.
Analysts expect the bondholders to appeal the decision, which will leave the fate of the buyout up in the air for at least another few weeks, but it is difficult to win such appeals. In the meantime, analysts expect BCE's stock to rise on optimism about the outlook for the deal.
Bondholders launched a court challenge of the deal last year on the grounds that the deal will unfairly damage the value of their investments. Under the terms of the agreement to acquire BCE, the Teachers'-led buying group intend to help finance the transaction by shouldering the Montreal telecommunications company with an estimated $32-billion in new debt. BCE bonds slumped in price after the buyout was announced, sliding from investment-grade to junk territory.
In a lengthy decision, Judge Silcoff said that that BCE bondholders were sophisticated investors who should have anticipated the risks that BCE might be a target for a leveraged takeover.
“The should have foreseen the risk involved in purchasing these debentures … they should have taken appropriate steps to protect themselves. They chose not to and must accept the consequences of their decisions,” he wrote.