The Ontario Teachers' Pension Plan (OTPP) faces legal action from spurned bidder Catalyst Asset Management after the takeover of Bell Canada Enterprises (BCE) by the consortium led by the Canadian pension plan was approved.
Fullard said: "The intention is to allow pension plans to participate in the economy but not control it."
However, rules that govern the takeover of BCE state it must be controlled by a Canadian firm. The other parties in the consortium include US private equity firms Providence Equity Partners, Madison Dearborn Partners and Merril Lynch Capital Partners.
Fullard claimed: "In acquiring BCE, which has to be Canadian controlled, OTPP has to have more than 50% and yet pension regulations prohibit them having more than 30% - it's a diametrically opposed objective. OTPP came up with a novel way to circumvent that rule."
Under the structure of the proposed transaction, Morcague holdings Corp, an entity set up by Morgan McCague, formally senior vice-president of quantitative investments at the OTPP board, would hold 66.7% of the shares of BCE Holdco.
However, Morcague can only vote on the shares in the manner instructed by OTPP.
The Canadian Radio-television and Telecommunications Commission approved the sale of BCE on the condition the application would be automatically withdrawn if the position expressed in a letter from the pensions regulator, the Financial Services Commission of Ontario (FSCO), which would seem to lend support to the deal, was successfully challenged in Court.
Fullard said: "[The deal] is in violation of the pension investment regulation and the regulator said it was ok. We cannot challenge the FSCO letter till the deal closes."
OTPP provided $4bn of the $8bn in equity for the deal, while the overall value of the leveraged buyout is $52bn.
A spokeswoman for OTPP said it had no comment to make on the issue and was continuing to work towards closing the deal.
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