The Quebec Court of Appeal ruled Wednesday that the $52 billion buyout plan -- the largest buyout plan ever -- isn't fair to bondholders. The ruling immediately put the entire deal in jeopardy because higher courts aren't likely to have enough time to hear the case before the deadline imposed for finalizing the buyout.
The Quebec court ruling was the second blow in days for buyout participants after banks, already under pressure from tightening credit, began wavering on the terms under which they had agreed to raise funding for the teachers pension fund and its U.S. participants: Providence Equity Partners, Madison Dearborn Partners, and Merrill Lynch Global Private Equity.
In its opinion, the court said: "BCE never attempted to justify the fairness and reasonableness of an arrangement that results in a significant adverse economic impact on the debenture holders while at the same time it accords substantial premium to the shareholders."
BCE stock plunged more than 13% in early trading Thursday, even as the various parties involved in the buyout plan struggled to patch the deal.
BCE said it believes the Quebec court decision "rewrites Canadian law" and vowed to appeal the decision to the Supreme Court of Canada. Martine Turcotte, chief legal officer of BCE, was quoted in Canadian press reports as saying: "We believe the Supreme Court of Canada should reverse this decision, and allow the transaction to proceed."
Buyout participants were reported to be involved in last-ditch negotiations to restructure the deal to satisfy bondholders and banks, but most analysts cited the looming June 30 date for completion of the buyout as an impossible deadline.