Telus plan for one class of common shares gets strong approval from shareholders

Telus Corp. will have a single class of shares after shareholders voted strongly in favour of the plan on Wednesday, defeating a U.S. hedge fund’s attempt to get a premium for holders of the company’s voting shares.

The Vancouver-based telecom and New York’s Mason Capital Management have been battling for months over the company’s one-for-one share conversion plan with no premium.

Telus (TSX:T) said shareholder support was solid in a vote held Wednesday, adding that none of Mason’s Capital Management’s four resolutions received the support from common shareholders required to pass.

Telus said 62.9 per cent of the common shares voted were in favour of the plan, while 99.5 per cent of the non-voting shares voted approved the change.

The company said participation of its common shares outstanding reached 73.6 per cent, while 84.6 per cent of the non-voting shares cast a ballot.

“We are very encouraged that we received decisive and resounding support from both classes of shareholders,” chief executive Darren Entwistle said from Vancouver.

Entwistle slammed the hedge fund for what he called its “empty voting” tactics and said Telus would push for regulatory change to prevent what was a legal strategy. He noted that Mason Capital was trying to profit from the traditional difference in price between the two classes of shares.

“We will continue to advocate broadly for legislative change to prevent empty voting. We think we’ve got a custodial responsibility in that regard,” Entwistle said.

“We are still going to carry on that path because we think it represents the right governance model to be followed by people who have a regulatory responsibility for securities.”

Mason participated at the shareholder meeting under protest and said it would be appealing the court orders Telus obtained to allow the votes to go ahead.

“Mason will also be appealing the decision that only a simple majority approval of the voting shareholders is required for the Telus proposal,” said Iain Scott, a lawyer for Mason.

Mason owns about 19 per cent of Telus’s voting stock, making it the largest voting shareholder. However, Mason sold short almost the same amount in non-voting shares, essentially betting the price of those shares would fall if the share consolidation plan was defeated. Short sellers make a profit when the stock price falls.

It is a legal trading strategy in Canada based on the traditional gap in prices between the voting and non-voting shares. Telus has said that Mason Capital was voting $1.9 billion worth of Telus’s common shares with only a $25 million net economic stake in the company.

Ratification of the share consolidation proposal is scheduled for final court approval in early November.

Entwistle said he thinks Mason will likely try to delay that approval.

“I think a reasonable forecast would be to expect them to continue to pursue a multiplicity of legal routes.”

The hedge fund has repeatedly said holders of Telus’ voting shares should get a premium to approve it, something Telus has said its governing rules don’t require it to do.

Telecom analyst Troy Crandall said one class of shares simplifies the situation and lets Telus’s management get on with running the company without the distraction.

As for Mason, Crandall said he doesn’t believe the hedge fund will immediately sell its stake in Telus, which would mean a loss.

“I don’t expect tomorrow that you’re going to see them sell a 19 or 20 per cent position in Telus,” said Crandall of MacDougall, MacDougall & MacTier in Montreal.

“When you have a very large position you cannot move out of things very fast, generally. It seems like something they will have to slowly and carefully move out of,” Crandall said.

“Given the way that they structured their trade, they need to have a spread and if they don’t get the spread they are essentially in a money-losing position,” he said of Mason.

Telus first introduced its share-conversion plan in February, but withdrew the proposal right before its annual general meeting in May when it said that Mason’s tactics would prevent the proposal from passing.

Shares in Telus closed at $62.89, up two cents, on the Toronto Stock Exchange, while the class A non-voting shares were down four cents at $62.28.