Risk & Governance Weekly

Global Roundup

Canada’s Supreme Court Allows BCE Buyout to Proceed

Canada’s Supreme Court on June 20 reversed a lower court ruling barring a takeover of BCE, the holding company for Canada’s largest phone company.

The justices unanimously agreed that a group of buyers, including the Ontario Teachers’ Pension Plan and a coalition of U.S. private equity firms Providence Equity Partners and Madison Dearborn Partners, could go ahead with a proposed C$52 billion ($51.3 billion) going-private transaction, according to Bloomberg News.

The buyout--the largest takeover of any kind in Canadian history--is not assured until the banks that are slated to finance the $33 billion debt portion of the deal commit to the transaction. “The financing issue continues to be an overhang,” Neeraj Monga, an analyst with Toronto-based Veritas Investment Research, told Bloomberg. “It’s not a done deal yet.”

However, the banks--Citigroup, Deutsche Bank, Royal Bank of Scotland, and Toronto-Dominion Bank--did tell Bloomberg News in a joint e-mail that they expect the buyout to close according to the original agreement brokered in June 2007. If the financing does not come through, the bid will expire on June 30.

Bondholders in Montréal-based BCE, the holding company for Bell Canada, won a Québec appeals court ruling on May 22 that blocked the deal. The bondholders, including insurer Manulife Financial, argued that their interests were being ignored and that saddling BCE with the $33 billion in debt would reduce their holdings to junk-bond status, Law.com reported. That ruling surprised many Canadian governance observers because the appeals court concluded that BCE’s board had a duty to consider the interests of parties other than shareholders.

The company’s shares dropped to their lowest price in 25 years in May after the Quebec appeals court blocked the buyout, Condé Nast Portfolio reported. But BCE’s shares rebounded to about C$37 ($36.60) on June 20 when the Supreme Court ruling was handed down. BCE shareholders approved the proposed takeover at a special meeting in September.

The Canadian National Post newspaper reported that the bondholders may launch a second legal challenge, seeking to use a provision in Canadian law that prevents pension funds–such as Ontario Teachers’–from owning more than a 30 percent stake in a single company. –L. Reed Walton

Lone Star Cleared of Korean Stock Manipulation Charges

A South Korean appeals court has reversed charges of stock price manipulation against hedge fund Lone Star.

The high court in Seoul overturned a district court ruling that Lone Star spread false rumors about a capital reduction at the credit division of Korea Exchange Bank (KEB). Korean officials alleged that Lone Star, which owns a controlling stake in KEB, wanted to artificially lower the stock price in order to cheaply re-integrate the independent credit division back into the bank. (For more information, please see the “Global Roundup” section of the Feb. 8 issue of Risk & Governance Weekly.) The court also overturned the conviction of Paul Yoo Hoe-Won, Lone Star’s head of Korean operations. Yoo had been sentenced to five years in prison for what prosecutors claimed was an instrumental role in the manipulation.

Chairman John Grayken of Dallas-based Lone Star said he was “gratified” by the appeals court’s decision. “We maintained our innocence throughout this process and are pleased today to have the court’s confirmation,” Grayken told the Financial Times.

The June 24 court ruling may clear the way for an acquisition of Lone Star’s stake in KEB by London-based banking firm HSBC. HSBC announced plans last year to acquire the stake for $6.3 billion, but the deal was derailed by the lower court’s verdict. The buyout offer has been extended until the end of July, but HSBC still needs to get approval for the deal from South Korea’s Financial Services Commission. After this week’s court decision, the commission said it would wait until all legal uncertainties are resolved; prosecutors likely will take the case to the country’s highest court, according to Bloomberg News. –L. Reed Walton