CRTC Approves Bell Canada Buyout, But Bondholder Appeal Could Hike Price
Bell Canada Enterprises got Canadian Radio-TV and Telecommunications Commission approval for its private equity buyout by the Ontario Teachers consortium, with conditions, Bell Canada said Friday. The deal “proposed to privatize the country’s largest communications company and included significant foreign interest,” said CRTC Chairman Konrad von Finckenstein. “Consistent with previous decisions, we have imposed conditions to address our concerns relating to corporate governance,” he said. “These conditions will ensure that control of BCE remains in Canadian hands once the transaction is completed.”
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The buyout conditions “are not critical,” but hurdles remain, SeaBoard Group analyst Iain Grant said in an interview. BCE still needs approval from Industry Canada, he said. But bondholders’ appeal of the Quebec Superior Court’s approval and “the actual financing of the deal are the only impediments to the closure of this transaction,” said Grant. “Then the real work of rebuilding BCE can begin.”
The deal “may still close” even if bondholders win their appeal, which seeks more value per share, Grant said: “It will just cost the buyers a few hundred million more to buy the acquiescence of the aggrieved.” In such a scenario, financing could be the snag, the analyst said. “If the money cannot be found, well, that is a horse of a different color,” he said. “That would scupper it.” BCE expects to close in the second quarter. But if the buyout isn’t inked by the buyout agreement’s June 1 anniversary, the parties could kill it without needing to pay a break-up fee, Grant said.
The CRTC conditions mostly ensure Canadians keep control at BCE after the buyout. The commission fixed BCE’s board at 13 directors. Canadian investors must “at all times” nominate six, one more than non-Canadian investors, who may choose five. Ontario Teachers nominates the remaining two, including the chairman, who “must be Canadian” and can’t be the CEO or a director nominated by a non-Canadian investor. The second Ontario Teachers representative must sit on the executive committee. The Independent Programming Committee must consist of Canadians with no affiliation to non-Canadian investors. And the threshold for veto rights must be $110 million, about five percent of the broadcasting assets’ value.
The CRTC feared that an arrangement between Ontario Teachers and former executive Morgan McCague conflicted with an Ontario ban on pension funds investing in more than 30 percent of a company’s voting shares. Under the arrangement, McCague would get 66.7 percent voting shares, voting as Teachers’ directs. But the CRTC accepted the deal after getting a letter from the Ontario Financial Services Commission saying there was no violation.