DOW JONES NEWSWIRES

Canada's Supreme Court has ruled in favor of BCE Inc. (NYSE:BCE) (BCE), overturning a lower-court decision to block the C$34 billion (US$33 billion) leveraged buyout of the company by an investor group led by ( OTP.YY).

As reported, in a surprise ruling in May the Quebec Court of Appeal sided with bondholders who argued the deal was unfair to them since it would significantly reduce the value of their debentures.

After the lower court ruled to block the sale to the Ontario Teachers'-led group, BCE took its case to Canada's top court, arguing the lower-court decision would be responsible for destroying billions of dollars in shareholder value.

The Supreme Court heard the case June 17. The appeal was heard by seven of the nine justices. It said Friday that it will provide its reasons at a later date, but it didn't elaborate.

"The decision of the Court of Appeal is set aside and the trial judge's approval of the plan of arrangement is affirmed," the Supreme Court said.

The appeal was allowed with costs throughout.

The ruling in favor of BCE paves the way for the deal to close as scheduled on June 30. However, there has been speculation that bondholders are preparing a further legal challenge that disputes the proposed new ownership structure of the privatized company.

When the Quebec Court of Appeal issued its surprise rejection, pushing BCE shares down sharply, the banks involved in the deal were trying to pressure the buyers to accept better terms in light of the credit crisis. The deal had been plagued for months before the Quebec court ruling by rumors that either the transaction would be repriced or would collapse altogether.

The Ontario Teachers'-led group, which also includes Provident Equity Partners and Madison Dearborn Partners, is offering C$42.75 a share. Toronto-Dominion Bank (NYSE:TD) (TD), Citigroup Inc. (NYSE:C) (C), Deutsche Bank AG (NYSE:DB) (DB) and Royal Bank of Scotland Group PLC (NYSE:RBS) (RBS) are providing financing for the deal.

Lenders could still try to revive efforts to renegotiate terms of the deal, which could result in a lower price. Some analysts believe the offer could fall to as low as C$38.75 a share. The commitment deals the LBO syndicate has with banks for loans to finance the transaction stipulate the LBO has to be completed by November.

In Toronto Friday, BCE closed up 0.4% at C$34.60 on volume of about 11 million shares.

In the wake of the decision favorable to BCE, many analyst expect BCE's share price to rise sharply on Monday, approaching the C$42.75-a-share bid price.

When a leveraged buyout is announced, shareholders usually get paid a premium for their shares, while bondholders lose out. Since leveraged buyouts usually involve taking on new debt and assume the existing bonds, those bonds become less creditworthy and lose value.

BCE had argued that BCE bondholders didn't negotiate any protections for mergers in their bond agreements and, as a result, were out of luck.

The bondholder group includes Aegon Capital Management Inc., Addenda Capital Inc., Phillips, Hager & North Investment Management Ltd., Sun Life Assurance Co. of Canada and CIBC Global Asset Management Inc.

-Judy McKinnon; 416-306-2100; AskNewswires@dowjones.com

The leveraged buyout group aiming to take Canada's BCE Inc. (NYSE:BCE) (BCE) private includes Providence Equity Partners.

(In a story published at 4:45 p.m. EDT, the firm's name was misspelled.)

    (END) Dow Jones Newswires   06-20-08 1700   Copyright (c) 2008 Dow Jones & Company, Inc.