Telus (TSX:T) said Wednesday that a Canadian court has ruled that its largest investor cannot hold a meeting to consider a proposal that could jeopardize the telecom company’s stock consolidation plan.
U.S. hedge fund Mason Capital Management LLC is locked in a dispute with Telus over the company’s revived plan to consolidate its voting and non-voting stock on a one-for-one basis.
The fund, which holds around 19 per cent of Telus’s voting shares, has also “sold short” some of its shares — a stock-trading manoeuvre that Telus argues reduces Mason’s true holding to less than one per cent of the company’s economic value.
Generally, an investor or group of investors with at least five per cent of a company’s stock are entitled to demand, or requisition, a meeting of a Canadian public company’s shareholders.
In August, Mason Capital called a shareholder meeting on October 17 – the same day as Telus planned to hold a meeting of its own – prompting Telus to say it would ask a court to intervene on its behalf.
Mason Capital maintains that voting shareholders paid more, on average, for their stock than non-voting shareholders and should be rewarded for that as the two share classes merge.
Telus said universal voting rights are consistent with good corporate governance.
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The Supreme Court of British Columbia has determined that the actions of Mason Capital were contrary to law and that Mason’s meeting and resolutions will not proceed, Telus said in a statement.
“When a party has a vote in a company but no economic interest in that company, that party’s interests may not lie in the wellbeing of the company itself,” Telus said, citing the court in a statement.
“The interests of such an empty voter and the other shareholders are no longer aligned and the premise underlying the shareholder vote is subverted.
“The court also said that only Mason stands to profit if the price spread between common shares and non-voting shares increases, and that only Mason is indifferent to the overall value of Telus itself.”
Telus added that it will go ahead with its shareholder meeting in October.
“We firmly believe this proposal is fair and beneficial to all shareholders, is widely supported by shareholders with a true economic stake in our company, and is consistent with the principles of good corporate governance,” said Telus’ president and CEO Darren Entwistle.
“Moreover, this effort is supporting material value creation for our company and both classes of our shareholders.”
“While we are disappointed by the court’s decision, on a review of the reasons, we have concluded that there are strong grounds of appeal,” Mason Capital Management said in response to the decision.
“Mason will be pursuing an appeal on an expedited basis to ensure that this important matter is decided before the October 17 meeting of Telus shareholders.
“We believe it is critical that the owners of the voting shares have the opportunity to vote on a binding change to the company’s articles to establish an appropriate minimum premium to be paid in a dual class collapse transaction.
“Mason will continue to oppose the actions of Telus aimed at unfairly taking value from the voting shareholders and transferring it to the non-voting shareholders, which include Telus’ board of directors and executive management team, at a 1-for-1 exchange ratio.”
The New York-based firm added that as the court noted “…the question of the appropriate conversion ratio is a matter that concerns all shareholders and is not collateral to the government of the company.”
Mason said it will vote its shares against Telus’ proposal and, to the extent required, will assert substantial claims available to it and other voting shareholders against the “oppressive actions” Telus has taken against the class of voting shareholders.
Telus and its two biggest competitors, BCE’s (TSE:BCE) Bell Canada and Rogers Communications (TSE:RCI.A) dominate the Canadian telecom market.
About the author:
Joyanta Acharjee has worked for over 10 years as a financial journalist in the UK for Dow Jones, AFX News and Thomson Reuters and joins from BNN – Canada’s Business News Network. He has covered corporate news and was a correspondent following the hedge fund industry in Europe and the UK. His work has appeared in The Wall Street Journal Europe, The UK’s Daily Telegraph and Fortean Times magazine. A British citizen, he is based in Toronto.