More BCE Excitement

Common shareholders of BCE Inc., the holding company of telecomm giant Bell Canada, have filed a class action lawsuit demanding the payment of a dividend they had expected this summer.

Black-letter law is that no one can claim a right to a dividend. If an investor wants regular payments as a matter of right, the instrument he wants isn't a stock, it's a bond. Dividend policy is a matter within the business judgment, i.e. the nearly-unlimited discretion, of the board of directors.

The real point of the lawsuit, it would seem, is to derail the underlying deal. What the owners of equity do get, instead of a guarantee of payments, is a right to have a say in the major corporate decisions. That right is the basis for the existence of this blog, after all. I'm not entirely clear on how, in the plaintiffs' view, they've been deprived of that right here, but it seems that "pay us the dividends" is more a measure of damages in their eyes than the alleged legal injury.

The privatization of BCE will be (if the teachers'-pension folk behind it manage to pull it off) the largest leveraged buy-out ever. The deal was signed more than a year ago, though the closing has had to be delayed because the prevailing buisness climate has hardly been conducive to such wheeling-dealing.

A bond rating agency has estimated that if the deal does go through this December as now scheduled, BCE's consolidated debt will be C$42 billion, which is more than twice last year's revenue.

The deal has already generated some fascinating litigation. If you follow that link, you'll get to my earlier discussion of a challenge to this same transaction by bondholders.

So it may yet generate more.