Last Legal Stand in the BCE Privatization Deal

| About: BCE Inc. (BCE)

It is being called the “last legal stand” in the privatization of BCE Inc. (NYSE:BCE). A class action lawsuit recently filed on behalf of common shareholders in a Saskatchewan court against the telecom giant seeks C$588-million in damages for the two dividends forfeited in the second and third quarter, and also aims to hold up the closing of the buyout until the claim is dealt with. The deal is set to close on or before Dec. 11.

According to the local registrar in Regina, BCE has demanded that the plaintiff’s lawyer make a formal request for injunction on Nov. 6, which a judge will hear on Nov. 13, National Bank Financial’s Greg MacDonald told clients.

While BCE has said it considers the suit without merit, the analyst noted that the reason companies are not sued for cancelling their common share dividends is because they are “subject to board approval.” This is the language used in BCE’s definitive agreement.

If the judge does not grant the injunction, Mr. MacDonald noted that the plaintiff must apply for certification of the class action suit, which will lead to a drawn-out process. “Obviously this is a positive for the stock and the deal since the deal can close,” he said.

However, if the injunction is granted, the judge is indicating that there is enough evidence to hear the case, and more injunction requests and hearings would follow.

The analyst said:

Obviously, an injunction would be a negative for the stock because it means a likely delay in deal close and would increase the risk of a deal collapse.

However, he thinks BCE’s action supports the company’s view of the merits of this suit and maintained an “outperform” rating and a C$42.75 price target on the stock, the same level as the buyout offer.