On Friday, Canada's Supreme Court ruled favorably on the proposed $52 billion (USD) takeover of Bell Canada – Canada's largest telecom. The buyout will probably become the largest leveraged buyout in the world. The judgment, throws out a lawsuit by BCE bondholders who challenged the transaction and allows the deal to proceed. The court didn't provide a rationale for its ruling; the court spokesperson said an opinion will be issued at a later date.

Last winter, the existing BCE bondholders circled their wagons. They complained that the sale is going to cost them $1 billion (USD) because of the slippage of Bell Canada's share value since the original offer was made. This led to a high-profile lawsuit with a decision in May 2008 by Quebec's Court of Appeals favoring the existing bondholders and stopping the sale. That decision was overturned last Friday.

Last week's favourable ruling removed a key legal hurdle that had been in the way of the long-debated acquisition of Bell Canada parent firm BCE by the Ontario Teachers' Pension Plan and three private equity firms, including Providence Equity Partners and Madison Dearborn Partners. At the credit boom's peak in June 2007, the group agreed to buy BCE, including all outstanding debt and accounting for currency fluctuations.

The Canadian Supreme Court ruling came as a surprise because directors of corporations usually only consider the rights of shareholders when making a deal.

The proposed buyout still has hurdles to overcome because the buyers are still negotiating with banks for financing after the banks tried to tighten the financing terms. Citigroup, Deutsche Bank, Royal Bank of Scotland and Toronto-Dominion Bank, are four banks that have committed to financing the debt portion of deal. In a jointly issued statement they said they still backed the proposed sale

Rumours are that the banks may bring their BCE offer down to $38.47 (USD) per share. This would be an 11% cut of the original deal price of $42.76 (USD), according to Desjardins Securities analyst Joseph MacKay.

Elliott Soifer, vice president of Desjardins Securities International, said, 'We're very relieved because this is the way that we always understood the capital markets work and the Supreme Court has clarified that. This is one of the most important decisions that's ever come out of the Supreme Court with regard to corporate law.'

If the proposed sale eventually fails for other reasons, it will hurt the Ontario Teachers' Pension Plan, at least in the short term, because they are the largest Bell shareholder, holding about 6.3 percent of the company's stock. The collapse of the buyout would probably depress Bell's shares for a long time.

After the buyout, industry analysts expect Bell Canada to step up their efforts to more aggressively compete with Canadian cable TV operators such as Rogers Communications, Videotron, and Shaw, which have begun taking data, landline, and other telecom business away from Bell Canada. X