Mason warns Telus in voting share spat

Telus Corp. (TSX:T) has until Thursday to send out notice of a special meeting of voting shareholders to deal with a U.S. hedge fund’s demands for a premium in the planned move to one class of common shares.

MONTREAL — Telus Corp. (TSX:T) has until Thursday to send out notice of a special meeting of voting shareholders to deal with a U.S. hedge fund’s demands for a premium in the planned move to one class of common shares.

If Telus doesn’t issue the notice by the deadline, Mason Capital Management has the right under Canadian corporate law to send the notice itself, Mason principal and co-founder Michael Martino said Tuesday.

“It’s a basic right of voting shareholders to call meetings,” Martino said.

Martino said voting shareholders of Telus must be compensated in the conversion plan because voting shares have always been worth more money.

“As a matter of fact, voting shares have unlimited upside vis-a-vis the non-voting shares,” said Martino, who was in Toronto to put forward Mason’s case on the plan by Telus management for one class of common shares.

New York-based Mason Capital defeated Telus’ plan last spring to convert its non-voting shares on a one-to-one basis and has been in a public fight with the Vancouver-based telecom.

Telus has said it will go ahead with share consolidation in the future and will make no concessions to Mason.

Mason is proposing a minimum premium valuation of either 4.75 per cent — which represents the historic average trading premium of the voting shares over the non-voting shares — or a minimum premium of eight per cent.

Telecom analyst Troy Crandall said Mason wants to sell its shares in Telus at a profit and has to “sow some uncertainty on this somehow.”

“They’re trying to come out as looking like activist shareholders in a company that’s done a stellar job in the past three or four years,” said Crandall of Montreal-based MacDougall, MacDougall and MacTier.

“An activist shareholder gets involved in companies that haven’t being doing well with poor management or poor performance. Telus has had some of the best performances of all the Canadian telecoms and even one could say all of the North American telecoms.”

Mason Capital owns almost 20 per cent of Telus’ voting stock, but has also disclosed that it has short sold the company’s non-voting shares. Short sellers make a profit when the stock price falls.

Martino said Telus’ one-to-one conversion plan, with no compensation for voting shareholders, favours non-voting shareholders.

“This should be a … negotiation amongst shareholders. If the non-voting shareholders want votes, then they should approach us and negotiate. They should give something up to get something.”

Martino noted that Magna International (TSX:MG) eliminated its B class of shares under an agreement that granted about $1 billion in cash and shares to founder Frank Stronach, as well as control over a joint venture that will develop components for electric vehicles.

The class B shares held by the Stronach family were cancelled and the remainder converted into new common shares at a rate of 1.2 new shares for each B share held.

Mason Capital has also invested in other Canadian telecom and media companies with similar a share class structure to Telus, but Martino declined to name them.

Mason asked for the meeting of voting shareholders on Aug. 2. Under the Business Corporations Act, Telus is required to hold the requisitioned meeting within four months and if Telus doesn’t send notice of the meeting to shareholders within 21 days, Mason has said it has the right to send the notice itself.

Martino noted there might not be any agreement on compensation for voting shareholders. “If it goes on like this forever, we’re happy with that,” he said.

On the other hand, if Mason’s proposed amendments are adopted, any share conversion deal could only be carried out below the specified minimum premium with the approval of 80 per cent of the voting shareholders, Mason has said.

Telus has said the non-voting shares go back to the days when U.S. telecom Verizon was a major strategic investor and were created for regulatory compliance reasons. Now, most of the non-voting shares are held by institutional and retail investors, many of them foreign.

Shares in Telus were down 75 cents at $63.52 in afternoon trading Tuesday on the Toronto Stock Exchange. Non-voting shares were down 78 cents at US$62.66 in trading on the New York Stock Exchange.

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