BCE appeal request fast-tracked: Perhaps the deal isn't dead after all?

If it grants leave, Supreme Court will set June 17 hearing to revisit ruling that put telco sale in limbo

BCE Inc. has won a bid to have the Supreme Court of Canada fast-track its application to appeal a lower court decision that put the $52 billion buyout of the phone company in jeopardy.

The country's top court has agreed to hurry the application process, but is not promising to actually hear the case.

The court set May 28 as a deadline for BCE to file its application and May 30 for a response from the company's bondholders, which recently won a surprise victory after an appeal court ruled they weren't given proper consideration when BCE's board accepted a buyout offer last year from the Ontario Teachers' Pension Plan and U.S. private equity firms.

If a leave to appeal is granted, the Supreme Court said it plans to schedule a hearing on June 17, which is less than two weeks before the deal's June 30 deadline.

Several observers believe the BCE purchase is in danger of falling apart if there's a need to extend the deadline.

That's because several of the banks financing the transaction are reportedly looking for a way out in a bid to limit damage to their balance sheets.

BCE's bondholders had tried to convince the Supreme Court that there was no need to expedite the process because the deal's best-before date was arbitrarily decided.

Teachers' and its partners, Providence Equity Partners Inc., Madison Dearborn Partners, LLC, and Merrill Lynch Global Private Equity, won the auction to purchase BCE last June with a bid of $42.75 per share.

If completed, it would be the biggest-ever private-equity takeover.

But the signing of the deal was almost immediately followed by the credit crunch, which effectively raised the cost of borrowing money to pay for such deals.

Greg MacDonald, an analyst at National Bank Financial, said in a recent research note that once the Supreme Court has made a decision on BCE's application for an expedited hearing, the purchasers will likely decide whether to try to reach a deal with bondholders or simply wait for the June 30 deadline to expire and walk away from the deal without paying a $1 billion break fee.

There has also been speculation that Telus Corp., which withdrew from last year's bidding process, could re-enter the picture.

However, any proposed tie-up between the two phone companies is expected to be a tough sell with regulators.

The bondholders' legal challenge was initially viewed as a minor obstacle to the deal's closing.

They had essentially argued that the BCE transaction treated them unfairly because a leveraged buyout would load up BCE's balance sheet with debt, making their investments less attractive.

While a lower court initially dismissed the complaint, the Quebec Court of Appeal said in a unanimous ruling that BCE's board failed to exercise its duty to consider the interests of all BCE stakeholders when it agreed to the Teachers' bid.

Several observers have said the ruling goes against the current emphasis on maximizing shareholder value and could impact the way future takeovers of Canadian companies are structured.

James Morton
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