Quebec court OK's BCE takeover, dismisses bondholders' complaints

Last Updated: Friday, March 7, 2008 | 7:53 PM ET

A Quebec Superior Court judge has cleared the way for the takeover of BCE to proceed, ruling against a group of bondholders who said the deal treated them unfairly.

In a decision released Friday evening, Quebec Superior Court Justice Joel Silcoff rejected the arguments of a group of Bell Canada bondholders and endorsed the largest takeover in Canadian corporate history.

BCE 3-month tradingBCE 3-month trading

"The fact that the BCE shareholders will receive a substantial premium on the previous value of their shares and that, at the present time, the economic interests of the contesting debentures may be adversely affected does not in and of itself give them the right to vote as a separate class on the plan of arrangement," Silcoff wrote.

"On every point of contention, the Court ruled in favour of BCE," said Martine Turcotte, chief legal officer of BCE and Bell Canada. "The Court's decisions affirm our longstanding position that the claims of these debenture holders are without merit and that BCE acted in accordance with its rights and obligations with respect to the debenture holders."

It's expected the bondholders will appeal.

The bondholders had argued in court that the $51.7-billion takeover of BCE really amounted to a reorganization — which would require their approval — rather than a simple takeover, which wouldn't.

They said they face "significant losses" in the market value of their bond holdings because the deal will result in billions in additional debt.

They'd wanted the court to award them a payout or give them the right to block the deal.

BCE lawyers countered that the bondholders are all sophisticated institutional investors who bought the debt knowing all the risks.

They should have known that BCE was a likely acquisition target, the telecom said.

BCE shares trading below takeover price

A consortium led by the private investment arm of the Ontario Teachers' Pension Plan made a formal offer to buy BCE last June and take it private. Other members of the consortium include U.S. private equity firms Providence Equity Partners, Madison Partners and Merrill Lynch. The all-cash offer is worth $42.75 per BCE share.

But BCE stock has been trading substantially below that takeover price — a sign that the markets have believed that the deal may not go through as originally structured. Before this latest ruling came out, BCE shares lost 27 cents to close at $35.80 Friday — almost $7 below the takeover offer.

That share price is likely to jump higher when trading resumes on Monday.

Some investors have also been rattled by the ongoing turmoil in the credit market. They've been worried that the deal may unravel, even though the parties involved have said the financing has already been lined up.

The takeover of the telecom giant still requires CRTC approval. At a hearing in February, the regulator asked for more assurances that the telecom would remain under the control of Canadians. Further hearings are scheduled for April.

The deal must also get the approval of Industry Canada.

It's already been approved by BCE shareholders, as well as the federal Competition Bureau.

With files from the Canadian Press

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