Canada: CRTC Approves Sale Of BCE

On March 27, 2008, the Canadian Radio-television and Telecommunications Commission (CRTC) granted conditional approval of the deal to privatize Bell Canada Enterprises (BCE), Canada's largest telecommunications company.

Under the transaction, BCE, which is also Canada's most widely held publicly traded company, would become owned by a small group of investors that includes the Ontario Teachers' Pension Plan (Teachers') and three American private-equity firms, Providence Equity Partners International VI L.P. and its affiliated investment funds (Providence), Madison Dearborn Capital Partners V L.P. and its affiliated investment funds (Madison) and Merrill Lynch Global Partners, Inc. (Merrill Lynch). The transaction, valued at $51.7 billion, is the largest corporate acquisition in Canadian history and reputedly the largest private equity transaction in the world to date.

The transaction was subject to approval by several Canadian regulators, including CRTC approval under the Broadcasting Act. Although BCE's main business unit, Bell Canada, is a telecommunications carrier, it has interests in several broadcasting licensees, leading to the requirement for Broadcasting Act approval. The CRTC review was primarily aimed at ensuring that BCE will remain "Canadian owned and controlled" within the meaning of Canadian communications laws1. These laws restrict the number of voting shares that can be held by non-Canadians in regulated Canadian communications businesses2 and the number of board members that can be non-Canadian3. More significantly, they require the regulators to ensure that non-Canadians cannot exercise "control in fact" over the business, through any shareholder agreements or other arrangements.

The CRTC's approval and the conditions it imposed on BCE are generally consistent with recent regulatory precedents, applied to the specific circumstances of the BCE transaction.

The CRTC reiterated the legal test for control that it approved when it reviewed the sale of Alliance Atlantis Broadcasting Inc.'s broadcasting companies4. According to that test, "control in fact generally can be viewed as the ongoing power or ability, whether exercised or not, to determine the strategic decision-making activities of an enterprise. It can also be viewed as the ability to manage and run the day-to-day operations of an enterprise."

Applying this test to the facts of the BCE transaction, the CRTC required:

  • changes to ensure that the majority of BCE's Board of Directors would always comprise directors who are both (i) Canadian by citizenship or residency and (ii) whose appointments are not directly or indirectly controlled by non-Canadians;

  • increases in the thresholds for future BCE transactions that non-Canadian shareholders could veto (e.g. incurring debt, selling assets and making investments) to at least 5 per cent of the value of the broadcasting undertakings;

  • changes to the proposed Independent Programming Committee to ensure broadcast programming decisions were made by Canadians; and

  • other changes to the corporate governance structure, including the makeup of the executive committee and the quorums for board meetings, to satisfy itself that BCE would not be effectively controlled by non-Canadians.

The CRTC also expressed concerns about whether the structure of the transaction complied with Ontario pension legislation, but, as discussed below, deferred to an opinion from the Ontario pension regulator that the deal was compliant.

The BCE transaction remains subject to regulatory approval by Industry Canada under the Radiocommunication Act. In addition, the transaction has been the subject of litigation by certain Bell Canada bondholders. On March 7, 2008, the Québec Superior Court approved BCE's plan of arrangement for the transaction and dismissed all claims of the bondholders. The decisions dismissing these claims are currently under appeal. The transaction is also subject to the successful completion of financing arrangements made by Teachers' and its private equity co-investors.

Background Of The Proposed Transaction

BCE Inc. is the incumbent telecom service provider in most of Ontario and much of Québec and the Maritimes. Its subsidiaries include Bell Canada, Bell Mobility Inc., Bell Aliant Regional Communications Income Fund and Bell ExpressVu Inc. The companies provide telecom services including local and long distance phone service, wireless voice and data, and wireline Internet access. They are also involved in the distribution of broadcast services by satellite and terrestrial networks, as well as pay-per-view and video-on-demand services.

The CRTC received an application by BCE and some of its affiliates (the applicant) for authority to transfer effective control of the applicant to a corporation to be incorporated (BCE Holdco). BCE Holdco would hold the shares of BCE through its subsidiary 6796508 Canada Inc. (Bidco).

BCE and Bidco entered into a definitive agreement, effective June 29, 2007, pursuant to which Bidco agreed to purchase all of BCE's issued and outstanding common and preferred shares (BCE proposal). The BCE proposal was approved by a majority of BCE shareholders at a special shareholder meeting that took place on September 21, 2007 in Montréal.

The proposed transaction is to be effected by way of a Plan of Arrangement under Section 192 of the Canada Business Corporations Act. The estimated value of the transaction is $51.7 billion.

Following the completion of the transaction, BCE Holdco would be privately owned, with share capital consisting of Class A voting, non-participating shares (Class A shares); Class B non-voting, participating shares (Class B shares) and Class C non-voting, participating shares (Class C shares). The Class B and Class C shares would be economically equivalent and would together represent the total equity value of BCE Holdco.

Morcague Holdings Corp. (Morcague) would hold 66.7 per cent of the Class A shares of BCE Holdco, with the balance of 33.3 per cent held by non-Canadians, namely Providence, Madison and Merrill Lynch. The Class A shares would be subject to a voting agreement between Morcague and Teachers' Private Capital, a division of Teachers'.

The majority of the Class B shares and all of the Class C shares of BCE Holdco would be held by Canadians, with Teachers' holding the largest equity stake in the company at 51.6 per cent. Non-Canadians would hold approximately 42 per cent of the equity of BCE Holdco, with Providence (17.3 per cent), Madison (9.0 per cent) and Merrill Lynch (6.1 per cent) being the largest non-Canadian shareholders.

Bidco and BCE would have Class A and Class B shares issued and outstanding. BCE Holdco would own 100 per cent of the Class B shares and 58.1 per cent of the Class A shares of Bidco, with the balance of 41.9 per cent of the Class A shares held by Morcague. Similarly, Bidco would own 100 per cent of the Class B shares and 58.1 per cent of the Class A shares of BCE, with the balance of 41.9 per cent of the Class A shares held by Morcague. A summary of the proposed equity structure can be found on the CRTC's website.

Regulatory Approvals

The transaction required approvals from a number of regulatory agencies, including the CRTC, Industry Canada, Investment Canada and the Competition Bureau.

The CRTC must approve the proposed transaction under the Broadcasting Act, as a result of the proposed transfer of BCE's broadcasting assets (the subject of today's decision). The CRTC also reviews ownership of telecommunications carriers under the Telecommunications Act on a periodic basis. Industry Canada, which acts as Canada's spectrum regulator, must also review the proposed transaction under the Radiocommunication Act.

The tests for Canadian ownership and control are similar under all three acts, and stricter than those under the Investment Canada Act, which is therefore unlikely to pose a significant hurdle for the transaction. The fact that the investors acquiring BCE do not directly compete with it simplifies the Competition Act review.

Ownership And Control Review Under The Broadcasting Act

The CRTC has authority under the Broadcasting Act to regulate the broadcasting system in Canada to implement identified policy objectives, including the requirement that the Canadian broadcasting system be effectively owned and controlled by Canadians5.

The Governor-in-Council6 has issued a direction to the CRTC, pursuant to subsection 26(1) of the Act, respecting the classes of applicants to whom licences may not be issued or to whom amendments or renewals thereof may not be granted (the Direction)7. Pursuant to the Direction, no broadcasting licence may be issued, and no amendment or renewals thereof may be granted, to an applicant that is a "non-Canadian." A "Canadian" is defined to include a "qualified corporation."

The Direction defines a qualified corporation as a corporation that is incorporated or continued under the laws of Canada or a province, and that meets the following conditions:

  • the CEO and 80 per cent of the directors are Canadians; and

  • Canadians beneficially own and control, directly or indirectly, in the aggregate and otherwise than by way of security only, at least 80 per cent of all votes and all voting shares, both issued and outstanding.

In the case of a corporation that is a subsidiary corporation,

  • the parent corporation must be incorporated or continued under the laws of Canada or a province; and

  • Canadians must beneficially own and control, directly or indirectly, in the aggregate and otherwise than by way of security only, not less than 662/3 per cent of all votes and all voting shares, both issued and outstanding.

Further, if a corporation does not meet the criteria set out above (i.e., the CEO or more than 20 per cent of directors are not Canadian, or Canadians do not own and control 80 per cent of all votes or of all issued or outstanding voting shares), then neither that corporation nor its directors may exercise control or influence over any programming decisions of a subsidiary that is a broadcasting licensee. Instead, an "independent programming committee" must be established, with responsibility for the programming decisions of the subsidiary corporation.

"Control" is an important aspect of the test. Under the Direction, the CRTC is to determine whether an applicant is controlled by a non-Canadian, on the basis of personal, financial, contractual or business relations, or any other considerations relevant to determining control in fact.

An important factor in determining whether non-Canadians exercise effective control over a broadcasting licensee is the degree of influence that non-Canadian investors can exercise through the board of directors and its committees. In that respect, the CRTC examines such elements as the number of board and committee members appointed by Canadian investors and by non-Canadian investors, respectively, and whether directors designated by Canadian investors are adequately represented at all board and committee meetings.

Specific Rulings On Canadian Control

After considering the issues related to Canadian control, the CRTC made its approval of the transaction conditional on specific amendments to the "Principal Investor Agreement" between the investors. The CRTC's conditions were aimed at achieving the following objectives:

  • to fix the membership of the Board of Directors at 13 including, within the total membership, six designees of Teachers', one Independent Director and the CEO, all of whom must be Canadians;

  • to provide that the Chair of the Board will have a tie-breaking vote over the appointment and dismissal of the CEO;

  • to provide that a Chair will be appointed to the Board at all times, that the Chair will be a member of the Board but will not be a designee of a non-Canadian shareholder, will be a Canadian, and will not also serve as the CEO;

  • to include a requirement that any vacancy on the Board or on a committee of the Board caused by Teachers' losing the right to designate a member be filled by the designee of the Canadian investor who acquires the largest number of shares from Teachers', and that any such designee must be a Canadian;

  • to require BCE Holdco to maintain the same quorum requirements for the committees of the boards of Bidco and BCE as those that apply to BCE Holdco;

  • to deem members of the Board designated by the non-Canadian principal investors to be non-Canadian for purposes of determining whether a quorum is present at any meeting of the Board;

  • to add a second Teachers' designee to the Executive Committee;

  • to increase the threshold for transactions requiring investor approval to $110 million (so satisfying the 5 per cent of undertaking value adopted by the CRTC in its CanWest/Alliance Atlantis decision); and

  • to incorporate specific definitions of "independent" (in the context of "independent directors") and "ordinary course" (in the context of shareholder approval of transactions not in the ordinary course of business).

In addition to requiring BCE to file the amended Principal Investor Agreement, the CRTC directed it to file:

  • an executed amended bylaw establishing the Independent Programming Committee, and providing that no member of the committee will be a director, officer or employee of any non-Canadian shareholder; and

  • an executed amended Advisory Services Agreement, including amendments providing that the services rendered under that agreement by non-Canadian investors will not relate to programming and that Teachers' will be entitled to review and provide input with respect to the services.

Subject to compliance with these conditions, and its determinations regarding the tangible benefits package (summarized below), the CRTC approved the application.

Compliance With Ontario Pension Legislation

The CRTC also considered the issue of whether the structure of the transaction complied with Ontario pension legislation. The relevant law8 prevents a pension plan from investing directly or indirectly in securities of a corporation to which are attached more than 30 per cent of the votes that may be cast to elect the directors of the corporation (director-voting shares).

Under the proposed transaction, Teachers' would not own more than 30 per cent of the director voting shares, indeed it would own no voting shares at all. However, a company owned by a former Teachers' executive, Morgan McCague, would own 66.7 per cent of the Class A voting shares in BCE Holdco. An agreement between Teachers', Mr. McCague, Mr. McCague's company and related companies requires the shares to be voted in accordance with Teachers' instructions and gives Teachers the right to require Mr. McCague to transfer the shares.

The CRTC accepted this arrangement only after being provided with a letter from the Financial Services Commission of Ontario stating that the proposed structure complied with the 30 per cent restriction on Teachers' holding director-voting shares.

Tangible Benefits

The broadcasting assets involved in this transaction include Bell ExpressVu, cable assets in the province of Québec and a minority stake in CTVglobemedia Inc. The CRTC generally expects applicants to commit to specific benefits to the broadcasting system representing a financial contribution of 10 per cent of the value of the broadcasting assets transferred in a transaction. However, no benefits are required for the transfer of control of broadcasting distribution undertakings (such as Bell ExpressVu or the Québec cable assets), but only broadcast programming undertakings.

BCE allocated $109.6 million of the transaction value to the applicable broadcasting assets for the purpose of calculating the associated tangible benefits.

The CRTC revised the value of BCE's applicable broadcasting assets from $109.6 million to $219.1 million, based largely on inclusion in the valuation of an identified acquisition premium, the value of BCE's "IPTV" service (Internet Protocol pay-per-view and video-on-demand) and the value of operating lease commitments. This higher valuation increased the tangible benefits package to $21.9 million. As part of this package, the CRTC has directed that $10.5 million be placed in a fund whose annual revenues will support new media initiatives.


The CRTC's decision is generally consistent with recent precedents involving other transactions reviewed by the CRTC and Industry Canada. However, the decision provides useful guidance on issues related to the specific circumstances of the BCE transaction.

The full text of the CRTC's decision is available on its website.


1. Principally the Broadcasting Act. However the Telecommunications Act and the Radiocommunication Act also regulate the ownership and control of Canadian telecommunications and broadcasting companies such as BCE.

2. It is often incorrectly reported in the media and elsewhere that Canadian law limits non-Canadians to owning no more than 46.7% of a telecommunications or broadcasting company. In fact, the rules limit the holding of voting shares by non-Canadians to 20% at the operating company (or broadcast licensee) level and 33.3% at the holding company level. Voting rights cannot be cumulated between two companies to total 46.7%. There is no specific limit on the percentage of non-voting shares that can be held by non-Canadians.

3. 20% at the level of a telecommunications carrier or broadcasting licensee.

4. CanWest MediaWorks Inc., on behalf of Alliance Atlantis Broadcasting Inc. Across Canada, Broadcasting Decision CRTC 2007-429 Ottawa, 20 December 2007.

5. Subsection 3(1)(a) of the Act.

6. Effectively the Federal Cabinet.

7. Order in Council P.C. 1997-486, Direction to the CRTC (Ineligibility of Non-Canadians), 8 April 1997; as amended by Order in Council P.C. 1998-1268, 15 July 1998.

8. The Ontario Pension Benefits Act, which incorporates, by reference, Schedule III to the federal Pension Benefits Standards Regulations, 1985, including the so-called 30% rule found in subsection 11(1) thereof.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.