Bell Canada Bondholders May Sue Over Buyout

Bondholders of Bell Canada Inc. are preparing a lawsuit against the company's parent BCE Inc. in connection with last month's agreement for Canada's largest telecommunications company to be acquired by a consortium led by the Ontario Teachers' Pension Plan in a leveraged buyout, press reports said. "While equity shareholders appear pleased with the $42.75-a-share price tag, the bondholders have suffered since rumors of a potential takeover first surfaced in late March, with the benchmark 6.1%-coupon 2035 bond down about 23%," Canada's National Post newspaper reported. The deal was valued at C$51.7 billion, including debt. Bondholders of leveraged-buyout targets have seen investment-grade bonds descend to junk grade amid market fears of the huge debt private-equity firms use to finance their buyouts; shareholders usually receive large premiums. The lawsuit, some speculate, could be the first of many to come: "This sort of thing may become more common," said BMO Nesbitt Burns analyst Michael Gregory. Toronto-Dominion Bank said Tuesday it would put up C$3.8 billion, including C$500 million of equity, to finance the deal in exchange for a 7% stake in BCE.

Sources: Dow Jones, MarketWatch, Reuters
Commentary: The BCE Deal Blows the Curve • Bell Canada: Private Equity Provides Less For Investors • BCE Agrees to $48.8 Billion Buyout
Stocks/ETFs to watch: BCE Inc. (BCE), Toronto Dominion Bank (TD). Competitors: Rogers Communications Inc. (RCI), Telus Corp. (TU). ETFs: iShares Dow Jones U.S. Telecom Sector Index ETF (IYZ), Telecom HOLDRS ETF (TTH), Vanguard Telecom Services ETF (VOX)

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