Teachers’ may drop C$52bn BCE buyout(2)

Should courts rule that BCE’s purchasing consortium must buy out the telecom’s disgruntled bondholders, Ontario Teachers’ has said the largest LBO agreed to date may fail.

An ongoing legal battle between BCE bondholders and the Canadian telecom giant could threaten its agreed C$51.7 billion ($50 billion, €34 billion) buyout, lead investor Ontario Teachers’ Pension Plan has reportedly indicated. Providence Equity Partners, Madison Dearborn and other Canadian investors are Teachers’ partners in the club deal.

BCE is being sued by bondholders upset by devaluation of the company’s bonds, which they attribute to the pending LBO, while the company has argued many of the plaintiffs purchased the debt after the buyout was publicly disclosed, Canada’s Financial Post has reported. The lawsuit was filed in September and the case is currently being heard in Montreal.

The group of bondholders contends the take-private should be considered a reorganisation and thus gives them voting rights. If the bondholders win the suit, the investor consortium could be forced to buy them out, which Teachers’ says would be financially impossible, the Financial Post reported.

“Such an order would not only be patently unfair and unjust in the substantial financial hardship it would cause the purchaser, but given the leveraged buy-out nature of the privatisation transaction, the current conditions of the credit markets, and the size of the amounts involved, the availability of funds to comply with such an order is non-existent,” Teachers' reportedly said in a court filing.

Rumours that the buyout’s C$34 billion in debt financing could be pulled have also plagued BCE recently, as other mega-buyouts, such as Blackstone’s PHH deal, have encountered similar trouble with increasingly hawkish lenders.

The BCE deal was agreed in June 2007 and was projected to close in the first quarter of 2008. The agreement includes a break-up fee of C$800 million and a reverse break-up fee of C$1 billion