Supreme Court to decide fate of Bell deal

The fate of the billion-dollar privatization of Bell Canada will be decided by the nation’s highest court, which on June 17 will hear arguments on whether it should step into the fight between the telco and its bondholders.

Should the Supreme Court of Canada decide to let stand last month’s ruling by the Quebec Court of Appeal that the $35 billion private equity buyout of Bell Canada Enterprises Inc. is unfair to bondholders, the deal could collapse.

It is premised on a consortium lead by the Ontario Teachers’ Pension Fund paying $42.75 a share for BCE, and if the Supreme Court agrees the terms of the deal were unfair to bondholders it’s unlikely the telco could get that amount today. The value of Bell’s shares has dropped since the deal was signed, in part why the banks funding the deal are pressuring the consortium to alter its terms of such a huge deal. The bondholders object to the deal, which loads BCE with debt and therefore drops the value of their paper.

On the other hand, should the court decide in favour of BCE, the target date of June 30 for concluding the takeover could be achieved. That assumes the Supreme Court will feel rushed to make its decision.

In one sense it signaled it does feel the matter is of unusual importance, for it rarely agrees to hear appeals so fast. BCE has argued the Quebec decision overturns established Canadian law on a corporation’s duty to bondholders in a takeover.

Still, just because the court has agreed to hear the case swiftly doesn’t mean it will rule quickly. The June 30 deadline is one set by BCE and Teachers, not by the court.

If the court decides to let the Quebec decision stand, the ruling could be made quickly because it doesn’t have to issues reasons. If it decides to overturn the decision, that could mean a lengthy delay in announcing its ruling. While the court could decide under the circumstances to overturn and then issue its reasons later, it’s unlikely to do so because that would leave a period of uncertainty in corporate law.

It is still possible that a deal could still be struck to mollify the bondholders before the Supreme Court actually begins to hear the case.

BCE has until Friday to file its written arguments to the court. The bondholders and any intervenors in the case have until June 10 to file their replies.

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