Shares of BCE Inc. (BCE) suffered their biggest downdraft in at least a quarter century yesterday (Thursday), after an unexpected court ruling threatened to derail a $53.9 billion leveraged buyout (LBO).

A collapse would make it the biggest LBO ever to fail.  Indeed, BCE would top the list of 62 LBOs - with a combined value of $174 billion - that were announced last year and then later abandoned as borrowing costs more than tripled, Bloomberg News reported.

BCE had expected to complete the buyout by next month.

The shares of the No. 1 Canadian telephone company plunged as much as 16% yesterday - and closed at $33.10, down $4.73, or 12.5%  - after a Quebec judge had ruled that bondholders can challenge the sale because they weren’t treated fairly. The ruling throws the takeover deal in jeopardy, and could require the buyers to renegotiate the deal’s terms if they opted to proceed.

The decline was the biggest since 1983, when the company traded in its longstanding "Bell Canada" name for a new listing as "BCE."

One of the suitors, the Canada Pension Plan Investment Board, said it has no interest in making a renewed bid for BCE.

But in a late development yesterday, reports surfaced in the Canadian business press containing speculation that the all-but-certain collapse of the BCE-Teachers deal could prompt another bid by BCE rival Telus Corp. (TU), Canada’s No. 2 phone company. After much groundwork last year - much of it under the glare of close media scrutiny - Telus finally decided not to make a bid for BCE.

The current BCE LBO deal has been the subject of intense speculation over the past several months thanks to a declining capital market and lower trading prices than the offered $42.75 per share.

Back in June, BCE agreed to a $43.44-a-share offer from a group led by the Ontario Teachers’ Pension Plan. The market price of BCE’s U.S. stock is now 24% below the offering price the deal was based upon.

"The probability of the deal closing at [the agreed-upon price] on June 30 is almost zero," Craig MacAdam, a portfolio manager at Aurion Capital in Toronto, told Bloomberg. "But there’s still room to maneuver. The deal is not completely dead yet. All the stakeholders will have to get back to the table and renegotiate."

The bondholders - including CIBC Global Asset Management Inc., a unit of Canadian Imperial Bank of Commerce (CM) - say the LBO would overload the telecom firm with debt, substantially boosting the risk of a default. CIBC is one of Canada’s so-called "Big Four" banks.

According to details of the deal contained in regulatory filings, the teachers would raise about  $34.56 billion in debt (C$34 billion). The equity value of the deal is more than the debt, according to published reports.

Some of the teachers’ partners in the deal include Providence Equity Partners Inc., of Rhode Island and Madison Dearborn Partners LLC of Chicago. The buyout unit of New York-based Merrill Lynch & Co. Inc. (MER) joined the deal later on.

"The decision effectively terminates the proposed transaction," Mark Meland, a Montreal lawyer representing the bondholder group, said in an interview with Bloomberg. "Unless the decision is overruled, the plan of arrangement is now defeated."