A Quebec judge has approved the proposed leveraged buyout of Canada's largest telecom company by the Ontario Teachers' Pension Plan and its partners and rejected a lawsuit by bondholders who had tried to stop the deal.
Quebec Superior Court Justice Joel Silcoff issued the ruling late Friday, clearing the way for BCE's privatization in what would be the biggest takeover in Canadian history.
BCE chief legal officer Martine Turcotte said on every point of contention, the court ruled in favour of the company.
"The judgments are quite clear and categorical and really support out longstanding position that the bondholder lawsuits were without merit," Turcotte said.
A group led by Teachers'and including U.S. private equity firms Providence Equity Partners, Madison Partners and Merrill Lynch has offered to buy BCE for $52 billion in cash.
Bondholders had sought to block the deal which they say treats them unfairly because it loads the telecom giant up with debt and makes their bonds a much riskier investment.
However in his written decision, Silcoff said the takeover doesn't change the rights of the bondholders.
"They have the same right to be paid principal and interest by Bell Canada after the plan of arrangement is implemented as they did before," Silcoff wrote.
"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."
A ruling in favour of the bondholders could have added costs and possibly threatened the deal. The decision is expected to be appealed, with the bondholders facing a March 17 deadline for such a move.
Bondholder lawyer Mark Meland said if his clients decide to take the case to the court of the appeal their case would be quite strong.
"There are a number, in our view, of very substantial issues that have to be addressed," he said in an interview with The Canadian Press.
"If we chose to go that route, we believe that we can make a very coherent case as to why we believe the people we represent were unfairly treated."
The takeover still requires the approval of the CRTC, which began hearings into the deal last month.
BCE shares closed down 37 cents at $35.70 on the TSX on Friday - 16 per cent below the $42.75 takeout price, as investor continued to worry that the takeover won't be completed in its present form.
U.S. credit markets have taken a battering in recent months because of the U.S. subprime mortgage crisis and many private equity firms have found it difficult to raise capital to finance their acquisitions.
Some have been forced to renegotiate deals or kill them altogether after getting a cold shoulder from the markets.
The BCE deal has already received the blessings of U.S. authorities and Canada's Competition Bureau. BCE shareholders overwhelmingly voted to accept the consortium's $42.75 per share offer in September.
Approval is also required by the CRTC, which began hearings into the matter last month. The hearings are set to resume on Tuesday.
CRTC chairman Konrad von Finkenstein has raised concerns during the hearings that the deal could lead to a "paper compliance" of Canadian foreign ownership restrictions.
Silcoff waded through thousands of pages of evidence and testimony that were created during the two-month process that filled a Montreal courtroom.
Lawyers for the bondholders argued BCE directors were kept in the dark by managers and advisers who manipulated the bidding process to freeze out bondholders in the sale of the company.
They claimed BCE advisers, notably investment banker Goldman Sachs, urged the Ontario Teachers' Pension Plan to change the structure of its bid just days after it was submitted on June 26 in order to win the favour of the board.
BCE lawyers said the company acted appropriately to urge the Teachers' group to update their bid to make it more competitive from a structural standpoint to one by Canada Pension Plan and U.S. private equity firm KKR.
