Teachers remain committed to BCE takeover despite ruling

TORONTO — The purchase of BCE Inc., the parent of telecommunications holding company Bell Canada by a group led by one of Canada's largest pension funds hit a snag Wednesday when an appeals court sided with BCE bondholders who want to stop the $35.1 billion takeover.

The Quebec Court of Appeal reversed Quebec Superior Court Justice Joel Silcoff's decision to allow BCE's takeover by the Ontario Teachers Pension Plan in what would be the largest leveraged buyout in Canadian history.

The bondholders had sought to block the proposed leveraged buyout, saying the deal would load Canada's largest telecom company with debt, making their bonds a much riskier investment.

Shareholders overwhelmingly approved the buyout group's offer of 42.75 Canadian dollars ($43.12) per share in September.

But the bondholders said Bell Canada's board of directors never met to consider whether Bell's assumption of responsibility to repay the 34 billion Canadian dollars ($34.3 billion) in acquisition debt was in the best interests of the company.

Despite the ruling, the pension fund remained committed to the deal Wednesday.

"We're reviewing the ruling and evaluating our options with respect to the bondholder claims," spokeswoman Deborah Allan said in an e-mail.

Mark Meland, one of the lead lawyers for the bondholders, said his clients were pleased by the court's decision.

"The chattering classes were virtually unanimous in stating incorrectly that we had no chance in being successful, but our group, the bondholders that I represent, we always believed we had a good case," Meland said.

"We consider this to be a very important judgment, in fact, a landmark commercial judgment in Canada. It confirms that a company and its board of directors have a duty not only to enhance shareholder value, but also have to consider the rights and interests of other stakeholders."

The ruling in favor of the bondholders could add costs and possibly threatens the deal. BCE said it will try to appeal the case to the Supreme Court.

"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," Martine Turcotte, chief legal officer of BCE and Bell Canada, said in a statement. "Both the transaction and the issues of law involved are of public importance in Canada. We believe the Supreme Court of Canada should reverse this decision and allow the transaction to proceed."

Earlier this week, shares of BCE traded lower over uncertainty over the future of the deal after a report in the New York Times that said banks funding the deal — including Citigroup Inc., Deutsche Bank AG and Royal Bank of Scotland Group PLC — were looking to amend the terms of the financing.

That fueled investor speculation that the value of the deal could drop, especially after the price to take U.S. radio industry giant Clear Channel Communications Inc. private was reduced last week by about 8 percent to $17.9 billion.

Putting additional pressure on BCE's stock was the fact that the Clear Channel settlement involved some lenders also linked the BCE deal.

The Toronto-based Ontario Teachers Pension Plan — with assets of 106 billion Canadian dollars ($99 billion) in 2006 — invests and administers the retirement funds for Ontario's 167,000 teachers and 104,000 retired teachers.

Bell Canada, which has more than 54,000 employees, had annual revenue of 17.7 billion Canadian dollars ($16.4 billion) in 2006. It has 5.8 million wireless subscribers, 8.64 million phone lines, 1.94 million internet subscribers and 1.82 million satellite television subscribers. Other BCE holdings include interests in CTVglobemedia, one of the biggest Canadian media companies that owns the Globe and Mail newspaper and CTV television.

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