Late this afternoon the Supreme Court of Canada delivered its most important business decision since the court was established in 1875.
The decision related to BCE and its friendly takeover by a consortium of companies headed by the Ontario Teachers Pension Fund for $52 billion dollars – the largest takeover in world history.
More specifically the question the Court dealt with was whether the directors of BCE adequately took into consideration the interests of the bondholders viz.a viz. the shareholders.
Shareholders use their money to buy stock in the company. So if the company’s shares go up the shareholder makes money. If the stock goes down the shareholder loses money. There are no guarantees. Buying stock means taking a risk.
The bondholders do not buy stock; they lend the company their own money. There is a contractual obligation to pay the bondholder interest on his or her money and to pay back the whole amount when the bond becomes due. There is little risk.
In the case before the Supreme Court the company argued that it owed the bondholders only their contractual obligations. The bondholders argued that the company failed to properly consider their interests in a debt-heavy takover that is gutting the value of their investment.
Today the Supreme Court came down unanimously on the side of the shareholders. Presumably now the deal, which must be wrapped up by June 30, will go ahead.
Do you agree with the Supreme Court’s decision?
Do you think it will now be more difficult for companies to raise financing because potential bond buyers will feel their interests are being subordinated to the interests of shareholders?