Bell Canada debenture holders win fight to block BCE acquisition; BCE seeks to appeal

New York, May 21 - BCE Inc.'s proposed plan of arrangement was suspended by the Quebec Court of Appeal after investors holding Bell Canada debentures complained it was unfair.

The court found that the BCE board had failed to consider the interests of the debenture holders as they were bound to do under Canadian law, according to McMillan Binch Mendelsohn LLP, which represented a committee of 97 bondholders. Instead, the BCE board acted on the assumption that they had an overriding duty to shareholders which was wrong in law.

The committee, made up of life insurance groups and money managers, was one of two bondholder groups opposing the plan of arrangement.

Committee members objected to the proposed plan of arrangement because they believed it was unfair to debenture holders.

The proposed plan would have forced Bell Canada, the BCE subsidiary in which committee members hold bonds, to guarantee $34 billion in loans that the purchaser would have incurred to purchase the shares of BCE. Committee members believed that Bell would receive nothing in return for guaranteeing that debt.

"The proposed plan had already led to a dramatic decrease in the market value of the bonds and had led some credit agencies to downgrade the bonds' status from investment grade to junk bond status," McMillan Binch said in a news release.

Committee members also believed that it would have been unfair for the directors of Bell to have allowed Bell to guarantee the debt without considering the issue from the perspective of Bell and its bondholders.

In response, BCE and the funds planning to buy the company said they will seek leave to appeal to the Supreme Court of Canada.

"The judgment overturning the Quebec Superior Court decision rewrites Canadian law relating to the duty of Canadian boards of directors to maximize value for shareholders in the context of a change of control transaction, as well as to the entitlements of bondholders in those circumstances," said Martine Turcotte, chief legal officer of BCE and Bell Canada.

"Both the transaction and the issues of law involved are of public importance in Canada. We believe the Supreme Court of Canada should reverse this decision, and allow the transaction to proceed."

An appeal will require the Supreme Court of Canada to grant leave to appeal.

The investor group includes Teachers' Private Capital, the private investment arm of the Ontario Teachers' Pension Plan, Providence Equity Partners Inc., Madison Dearborn Partners LLC and Merrill Lynch Global Private Equity.

Among the members of the committee were Addenda Capital Inc., CIBC Global Asset Management Inc., Franklin Templeton Investments Corp., Her Majesty the Queen in Right of Alberta, as Represented by the Minister of Finance, Manulife Financial Corp., Phillips, Hager & North Investment Management Ltd., Sun Life Assurance Co. of Canada, TD Asset Management Inc. and Wawanesa Life Insurance Co.

BCE is a Montreal-based communications company that provides telephone, internet, television and information services.

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