Canada Court Rules Against BCE $52.9B Buyout, Shares Drop By 16%

May 22, 2008 2:07 p.m. EST

Toronto, Canada (AHN) - Shares in Bell Canada dropped by as much as 16 percent on Thursday, the most in at least 25 years in Toronto trading.

BCE Inc., parent of Bell Canada, tumbled after a court decision ruling that its billion dollar sale to the Ontario Teachers Pension fund and others was unfair to bondholders.

The drop followed a negative sentiment among the investors who have been speculating that the Canadian phone company's record C$52 billion ($52.9 billion) leveraged buyout might die or be re-negotiated at a lower price.

The Quebec Court of Appeal sided Wednesday evening with debt or bond holders of the firm, reversing a previous approval based on a lower-court decision, threatening the biggest leveraged buyout in history.

BCE has reportedly decided to appeal the Quebec ruling to the Supreme Court of Canada and seek an expedited decision as early as June 30, which is also a deadline to complete the transaction.

"[However], the probability of the deal closing at agreed per-share pricing on June 30 is almost zero," Craig MacAdam, who helps manage about $3 billion as a portfolio manager at Aurion Capital in Toronto, told Bloomberg.

"But there's still room to maneuver. The deal is not completely dead yet. All the stakeholders will have to get back to the table and renegotiate."

Under the deal, BCE had agreed to a C$42.75-per-share ($43.40) offer proposed by a group led by the Ontario Teachers' Pension Plan in June 2007.

The total deal was worth C$33 billion ($33.49 billion) at the time of agreement last year, but not the deal is worth C$52 billion ($52.9 billion) after including debt and accounting for currency fluctuations.

"We are reviewing the ruling and evaluating our options with respect to the bondholder claims," a spokesman for Providence and the other buyers told The Wall Street Journal. "We remain committed to this transaction."

BCE retreated down by C$4.71 ($4.78) to C$32.41 (32.89) at around noon time in Toronto Stock Exchange trading, after falling by as low as C$31.10 ($31.56), which is considered to be the largest drop recorded since 1983.