Status Report: BCE - Teachers Private Capital

In a major surprise and blow to this transaction, the Québec Court of Appeal has ruled in favor of BCE (BCE) bondholders by a unanimous decision.

The following statement was included as part of the Court of Appeal decision:

BCE never attempted to justify the fairness and reasonableness of an arrangement that results in a significant adverse economic impact on the debentureholders while at the same time it accords a substantial premium to the shareholders. Once there is, as in this case, a significant adverse effect on a class of securityholder (debentureholders), while other securityholders (shareholders) derive substantial benefits by an arrangement, the corporation has the burden of demonstrating that the arrangement is, nonetheless, fair and reasonable.

The (special oversight committee) did not take into consideration the adverse financial impact of the potential transaction on the debenture holders. No detailed analysis was made of the costs and benefits of the (leveraged buyout) insofar as it affects the security-holders other than the shareholders.

From that point on, the process was fatally vitiated.

A BCE press release states the following:

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 in the context of a change of control transaction, as well as to the entitlements of bondholders in those circumstances. 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.

In light of today's Quebec Court of Appeal decision, the expected timing for the closing of the transaction will be contingent on the Supreme Court granting leave to appeal and the timing related to any such appeal.

This is yet another perplexing development in a transaction that has encountered more unusual barriers to completion than any deal in recent memory. Although this publication tends to agreee with BCE's assessment of the decision, it is now very difficult to anticipate a second reversal from Canada's Supreme Court.

It almost goes without saying that this deal is now in serious jeopardy of falling through, despite the company's and Teacher's claim that they remain committed to the transaction.

Disclosure: We have no positions of any kind, in any security. We are a completely neutral source of research and analysis.