U.S. class action lawyers watching BCE saga

So who will BCE Inc. shareholders sue in order to get their $42.75 if the leverage buyout deal collapses today as expected?

The BCE board has the biggest target on its back in any shareholder lawsuits U.S. class-action lawyers will file, says Michael C. Spencer, a plaintiff lawyer with Milberg LLP.

His firm was ranked No. 1 last year by RiskMetrics for shareholder recoveries in securities litigation, settling 17 cases for US$3.8-billion.

Valuation firm KPMG and the group proposing to buy BCE — the Ontario Teachers’ Pension Plan and its private-equity partners — will also be targeted. The banks and lawyers advising on the deal are probably off the hook, he said, but that depends on what lawyers dredge up when the statements of claim fly.

Shareholder class actions are big business south of the border. BCE trades on the New York Stock Exchange so U.S. attorneys are watching developments closely. "It’s on the radar screen," Mr. Spencer said.

Any litigation coming out of this failed LBO, he said, will centre on KPMG’s handling of the solvency opinion, which the firm refuses to issue. BCE has retained PricewaterhouseCoopers to persuade KPMG otherwise.

Mr. Spencer said the complete story about the deal "is still shrouded in a certain amount of mystery."

"The line between what was known to the public and therefore everyone who took the risk if they bought in expecting to reap a bonanza — versus things that were concealed and which share purchasers didn’t know about — would be a ripe subject for litigation," Mr. Spencer said.

Expect some shareholders to argue they bought shares after the agreement on the basis of representations made that the parties wanted this deal to close in December, he said.

Where it goes next depends on the action BCE takes, he said. For example, will BCE sue to enforce the contract? Such litigation would involve the purchasing consortium, and possibly KPMG over whether "solvency does or does not exist." He said that since BCE hired PwC to "take a separate run at that, I assume that it is still actively being considered at the BCE board level, as it should be."

If the BCE board members "fold their tents too quickly," he said, expect shareholders to bring a case to sue on behalf of BCE, known as a derivative action. In fairness to BCE, Canadian lawyers don’t hold out much hope for BCE to successfully enforce the contract. "There will be litigation, but there will be no liability. At the end of the day you make business judgments," predicts one prominent Bay Street lawyer.

Mr. Spencer’s not so sure, noting he can "certainly see it happening down here. A lot of that would depend on whether the KPMG opinion is completely arm’s length and on the up and up."

Under the contract, Teachers’ picked KPMG and BCE agreed to the appointment. KPMG is also auditor of one of the banks financing the deal and there’s speculation the banks don’t want this deal to go through. Mr. Spencer said that type of intrigue is what lawyers pursue.

"If that kind of litigation went forward, we would be looking at emails and we would be looking at the way in which the conclusion KPMG eventually reached was derived."

He said this is just unfolding and there will be many cross-border litigation matters to sort out. In the meantime, he said, it’s a case of "watch and see what happens."