Canadian incumbent Telus has suffered a blow ahead of its EGM on Wednesday after an appeal court ruled in favour of its activist investor Mason Capital.
Telus is seeking approval from shareholders at the 17 October meeting to simplify its share…
Canadian incumbent Telus has suffered a blow ahead of its EGM on Wednesday after an appeal court ruled in favour of its activist investor Mason Capital.
Telus is seeking approval from shareholders at the 17October meeting to simplify its share structure by converting each non-voting share into a single common share.
Mason disagrees with the plan, arguing it would dilute the value of its voting shares. The hedge fund believes a 1:1 conversion rate does not reflect the “superior value” of the existing common shares, which have historically traded 4%-5% higher than the non-voting shares.
Mason wants to hold a separate shareholder meeting, also to take place on the 17th, to vote on a proposal that would guarantee owners of voting shares a premium of 4.75% should Telus successfully do away with the current share structure.
Telus’ attempt to block the separate meeting was initially confirmed by the Supreme Court of British Columbia, but now the province’s appeal court has overturned that decision.
“Despite its hedged position, Mason does hold an economic interest in Telus. Further, its contention that the historic premium that has applied to the Telus common shares should be preserved in any share exchange is a cogent position that could reasonably be advanced by any holder of common shares,” said Justice Groberman, one of three justices who presided over the decision.
“In the exchange proposed by Telus, the common shareholders will see a massive dilution of their voting power without any direct economic compensation or benefit.”
Despite the ruling in favour of the hedge fund, the justices also expressed concern about Mason’s hedged position in Telus and said it was not in the company’s economic interest and subverted shareholder democracy. However, the court said it did not have jurisdiction over this and suggested “the remedy must lie in legislative and regulatory change”.
The justices also agreed with a suggestion from Mason’s counsel that the Supreme Court should assist in coordinating logistics around the two meetings taking place on the 17th so there is order to the day’s proceedings.
However, Mason has also said it wants Wednesday’s EGM postponed.
“Telus has refused to consider the concerns of its voting shareholders and has demonstrated that it was prepared to go to almost any length to force through its one-to-one proposal,” Mason said in a statement.
“Now voting shareholders will have the opportunity to have a say on the critical issue of a fair minimum premium for the Telus voting shares in a share conversion.”
In a statement Telus’ Nick Culo, VP of corporate communications, said: “We’re looking forward to our October 17 shareholder meeting.”
Independent proxy firms, Glass Lewis and Institutional Shareholder Services (ISS) have recently reiterated their support for the share conversion plan.
In a report Glass Lewis acknowledged that dissident shareholders had some valid points, but said: “We believe the long-term benefits resulting from a simplified share structure outweigh any potential short-term gains from a higher conversion ratio.”
A bitter feud has been brewing between the operator and the New York investor since spring, when Mason effectively blocked the operator’s first attempt to abandon its two-tier share arrangement through a tactic that Telus described as empty voting.
This is Telus’s second attempt to scrap its share structure, and Mason is again trying to stop the operator. To increase its chances for success, Telus has lowered the approval threshold from two thirds to a simple majority.
