So this is where our story ends – the deal with nine lives finally takes a fatal bullet. Now that the long and tortured saga of BCE Inc. appears to be over, what lessons have we learned?
The first and most important lesson is that it's never over until it's over. I suppose it's possible that yet another deal-changing event could save the $35-billion sale of BCE to the Ontario Teachers' Pension Plan and its partners. After all, there have been so many twists during the past two years that I suppose there is always that slim possibility that something flies out of left field again to change the deal's prospects before the closing deadline on Dec. 11.
About the only shot BCE has left is to convince KPMG that its valuation team got it wrong when they concluded last week that BCE would be insolvent after Teachers closes the takeover and dumps $32-billion of debt on to the communications company. You have to hand it to BCE for trying, but the odds are stacked against it. When BCE and Teachers amended their definitive purchase agreement in July, they refined the mutual condition that led to KPMG's appointment and the tests by which it would calculate BCE's solvency. At this point, there isn't much room for BCE to challenge the independent auditor it vouched for, nor the valuation methodology it approved.
Then there is the matter of crashing asset values around the world. While the size of Teachers' planned massive acquisition of debt hasn't changed, BCE's asset values have plunged and other liabilities such as its deepening pension funding deficit have grown.
Regardless of what happens Dec. 11, this much is certain: The legacy of the BCE takeover journey will shape boardroom and courtroom strategies for years to come.
The Supreme Court of Canada is rumoured to be close to releasing its written reasons for slapping down a legal challenge to the bid by BCE bondholders. When it does, the decision is expected to clarify the duties of directors of Canadian target companies in change-of-control transactions.
It is also expected that it will set clearer ground rules for the conduct of fairness hearings to approve plans of arrangement. It will make clear who has the right to be heard at such hearings, and how fairness is to be determined. But as we await the decision, what are the lessons we have already learned?
First, process matters. The BCE board and special committee ran a thorough and rigorous process that withstood intense court scrutiny. They considered the merits of the transaction from all points of view – taking into account not only the shareholders, but also the bondholders and the impact of the transaction on Bell Canada as well as BCE. If they had not been so thorough, the result in the litigation would have been very different.
Second, choice of jurisdiction matters. In major transactions, future deal makers will probably think twice before choosing the Quebec courts as a forum for dispute resolution.
In my opinion, the unanimous 5-0 decision of the Quebec Court of Appeal in the BCE case was poorly reasoned, spectacularly wrong in its conclusions and generally reflected a lack of understanding of both corporate law principles and commercial realities. In the future, parties to sophisticated business agreements will be far better served by agreeing to adjudicate their disputes in Ontario, where the courts generally have much greater commercial sophistication.
As for the reputation of the Supreme Court of Canada, Chief Justice Beverley McLachlin has worked hard to strengthen her court as a business court. The Supreme Court's expeditious handling of the BCE bondholder matter, and the fact that its decision was highly applauded in the business community, did a lot to enhance respect for Canada's top court as a forum for the real-time adjudication of complex commercial disputes.
