Editorials: Bondholders and the BCE buyout

The place for…fight against the BCE buyout is the market, not the courts. And the market has already decided.

All is fair in love and war. In corporate takeovers, too, especially when they’re good for shareholders. And that’s why we think bondholders out to block the buyout of BCE Inc. doth protest too much.

Sophisticated fund managers such as CIBC Global Asset Management Inc. and Manulife Financial Corp. are not happy about the distribution of power that went into planning the Canadian telephone giant’s future. Claiming they will not benefit as much as shareholders, who got to vote on a private-equity bid to take over the company, the bondholders in question have launched a costly court action that has held up approval of what they call an “unfair” deal.

Some industry watchers suspect the bondholders are using the court action as a delay tactic to shake a settlement out of BCE, which insists the bondholders’ case is without merit but wants to get the deal through the courts. Let’s be less cynical and assume the bondholders truly feel they are entitled to more. The buyout, bondholders say, offers shareholders a significant premium, while some “debenture holders have been obligated to sell their holdings at substantial losses due to the requirement that they hold only investment-grade securities.”

Well, so what? If BCE’s bondholders wanted to have shareholder voting rights, they should have bought shares, not bonds. They know the difference. It is hard to imagine the same creditors arguing that shareholders should be given a vote if a company had hit hard times, gone the CCAA route and filed for protection from creditors.

Remember Stelco’s restructuring, the one in which bondholders took full advantage of a bad business call and forced the company to be dramatically undervalued. That ensured they didn’t have to share the spoils that (as the shareholders who were wiped out correctly insisted) would come from an acquisition.

True, BCE’s shareholders are only making a buck because the new owners plan to heavily leverage, taking on $34.4 billion in debt, and the debentures have been downgraded to junk as a result. That may not be fair, but it is life in the capital markets.