BCE Inc. plans to ask the Supreme Court of Canada to quash the Quebec Court of Appeals recent ruling in favor of BCE bondholders. Can it win? Lets review some arguments the judges might hear.
Normally, shareholders are considered the owners of the company. Other stakeholders, such as bondholders and employees, are involved on a contractual basis. In the past, these stakeholders were protected from abuses to the extent their contracts detailed specific protection. The BCE bondholders didnt have clauses protecting them from LBOs, so one could argue they have no recourse.
The Quebec Court of Appeal appears to have looked past this line of logic. One argument in support of their position could be: abuse of the bondholders was so wanton that an exception was in order.
A rebuttal to this would be that the ruling gives other stakeholders (e.g. employees) a precedent to which they could appeal and overturn acquisitions that displease them (e.g. the ones requiring cost cuts and layoffs). Such expanded interference in the management of the company could end up obstructing measures vital to the firms health, or even survival.
But what if the harmful measures reflect more of an attempt by shareholders to enrich themselves at the expense of other stakeholders than an attempt to address issues vital to the firms health or survival? Some might argue this description fits the BCE situationand the bondholders therefore should be heard.
Itll be a tough call, nearly a coin toss. If I had to decide, though, I would come down in favor of shareholder sovereignty. That view has more of a foundation in the past and in other countries, notably the U.S. Also, letting stakeholders nullify acquisitions regardless of their contracts may keep some companies from taking the stiff medicine they need to return to health.