Canada court grills BCE, bondholders over buyout

Tue Jun 17, 2008 5:31pm EDT
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By Randall Palmer

OTTAWA (Reuters) - Canada's top court delayed a ruling on Tuesday on whether to approve or reject the buyout of the country's largest telecom company, BCE Inc, a decision that could elevate the rights of bondholders and make takeovers more difficult.

The Supreme Court could add billions of dollars to BCE's market value if it approves the C$34.8 billion ($34.1 billion) transaction to take BCE private in what would be the world's largest leveraged buyout.

But shares could plunge if the court sides with bondholders who want the deal blocked on the grounds that it would saddle BCE with too much debt. Such a ruling would have far-reaching implications, forcing companies to consider more than the interests of shareholders when weighing buyout proposals.

Seven of the nine judges heard the arguments in Tuesday's hearing, where the Supreme Court is weighing BCE's appeal of a decision by a Quebec court that supported the bondholders.

Justice Ian Binnie set the tone of the questioning when he said to BCE lawyer Guy Du Pont: "You seem to be saying that the outgoing directors can load up the company with as much debt as banks are prepared to finance.

"And quite apart from the duties to the debenture holders , is that discharging the duties to the corporation if you cripple it with that much debt?"

Du Pont said the buyout made sense for BCE, its Bell Canada subsidiary and its shareholders -- whose interests companies traditionally give first priority in their decision-making.

"This transaction was indeed in the best interest of Bell Canada and BCE," he told the court.   Continued...

<p>A telephone booth and company sign are seen outside the offices of BCE Inc., Canada's largest telecoms group, in Montreal, May 21, 2008. REUTERS/Shaun Best</p>