Supreme Court of Canada works their magic...

"It reaffirms what has been the basis of company law in Western Europe and North American for the last 250 years since share-owning corporations came into being: the duty of the directors of the company is only to the shareholders, because they are the owners of the company."
--Gavin Graham, Chief Investment Officer, Guardian Group of Funds.

Now, I wouldn't put this quote forward as an unbiased view, as the Guardian Group of Funds is a mutal fund company owned by the Bank of Montreal. For Mr. Graham to favour the shareholders isn't exactly groundbreaking, but this statement reveals an accurate sentiment of those who favoured the deal.

The Supreme Court of Canada ruled in favour of the $52 billion leveraged takeover of BCE. A ruling against would have killed Canada's largest corporate buyout in its history. The case pitted shareholders against bondholders in the most unprecendented of fashion, and pundits had no idea which way the Supreme Court judges were going to rule. Considering the years that have transpired since such a significant ruling dictating corporate law, their preparation and decisiveness is absolute remarkable. I'd love to go on and on about this, but as the seven justices who ruled have given themselves 6 months to elaborate on the reasons for their decision, the commentary is quite limited in scope. This has left the articles and segments profiling the story basically sticking to the facts. Even pundits strayed from making a prediction on the possible outcome....even when asked to....Pundits? Who would have thought?

After everything is said and done, though, it must not be forgotten that the bondholders had a legitimate argument. The fact that the takeover was leveraged (meaning that the entity buying BCE was taking on debt to complete the buyout) resulted in the value of the bonds being lowered by 18%. BCE will go from an investment grade credit to a private company with junk bond status. Meaning that the people that lent BCE money thinking it was a fairly safe loan, have now totally been sandbagged over a variable they couldn't possibly have foreseen. Their frustration is, as well as should continue to be, understood.

With this in mind, this case isn't only about bondholders versus shareholders, but the legitamacy of the rating agencies passing judgement on these bonds. They blew the call on asset-backed commercial paper, duping investors, and now here we are....again. This wasn't as safe a debt issue as they graded it to be. But then again, there's really no way they could have known. A future blog post really needs to take into consideration the flaws of ratings agencies.

A later musing, perhaps. For now, congrats to the shareholders of BCE and the Ontario Teachers' Pension Plan.....and congrats to the Supreme Court of Canada. All in a day's work, eh.