OTTAWA (Reuters) - The fate of the world’s largest leverage buyout hangs in the balance ahead of Friday afternoon’s decision by the Supreme Court of Canada on whether BCE Inc treated its bondholders unfairly in agreeing to a $34.8 billion ($34.5 billion) takeover.
The country’s top court will make its decision with unusual speed, only three days after an oral hearing on whether to let a consortium of Canadian and U.S. investors proceed with the buyout of Canada’s largest telecom company.
Legal experts said the quick turnaround, and the fact that the media won’t get an advance look at the ruling before the public announcement, suggests a straight up-or-down decision, with written reasons provided only at a later date.
“I highly doubt they’ll give reasons. It’s such a complicated case,” said Anita Anand, a law professor at the University of Toronto.
Billions of dollars of shareholder value is at stake in the decision. The value of BCE’s existing bonds is also at risk, the debtholders say, having challenged the deal on the grounds that it would entail the assumption of too much new debt, devaluing their securities.
Ontario Teachers’ Pension Plan, with U.S.-based private equity firms Providence Equity Partners, Madison Dearborn Partners and Merrill Lynch Global Private Equity, are offering C$42.75 a share to take BCE, parent of Bell Canada, private.
BCE shares rose slightly after Tuesday’s hearing, with investors judging that the bondholders got the toughest questions from the Supreme Court, but were still only C$34.68 on Thursday afternoon, down 37 Canadian cents from Wednesday.
That is partly because of uncertainty about which way the court will rule and partly because investors are aware of the challenges of concluding the deal even if the court rules in favor of BCE and the investors who want to take it private.
The banks that agreed to finance the buyout are asking for better terms. The market is also aware of the trouble that proposed buyout of U.S. chemical maker Huntsman Corp ran into on Thursday, highlighting potential pitfalls for BCE.
The BCE deal has a June 30 deadline for completion.
Central to the case is whether the Bell Canada bondholders could have expected that BCE would never get a buyout offer that would entail large amounts of new debt.
“The key question really is can the bondholders reasonably expect to be entitled to rights that they did not negotiate for contractually. That’s really what it boils down to,” said Mohamed Khimji, who teaches law at Dalhousie University in Nova Scotia.
The University of Toronto’s Anand said it depends on how broadly the Supreme Court wants to interpret its decision in a 2004 case, Peoples Department Stores Inc. v Wise, that defined some responsibilities that corporate boards have beyond those to shareholders.
“If the decision is based on the strict law alone, in my mind, the law as it stands is in BCE’s favor,” she said.
During Tuesday’s hearing, however, some judges asked BCE if boards could agree to load up their companies with as much debt as the banks were willing to finance.
The Supreme Court said on Thursday it would announce its decision at 4:30 p.m. on Friday. That is after the market close though BCE’s shares listed on the New York Stock Exchange can still be traded after hours at that time.
Editing by Frank McGurty