11/30/2012 09:24 EST | Updated 01/30/2013 05:12 EST

Telus says its foreign ownership cut in half due to hedge fund's reduced stake

Telus Corp. said Friday that its level of foreign ownership has been halved, largely due to the U.S. hedge fund it has been battling for months selling off its stake in the telecom company.

Telus said its non-Canadian ownership is roughly 15 per cent as of Nov. 16, down from almost 33 per cent last summer. Large Canadian telecom companies can't have foreign ownership levels that exceed 33.3 per cent.

Telus (TSX:T) has been embroiled in a fight with New York-based Mason Capital Management over its plan to convert the telecom company's non-voting shares into voting shares on a one-for-one basis without a special premium. Mason had owned almost 20 per cent of Telus.

"You can draw the conclusion that there has been a very, very significant reduction in Mason's share holding," chief financial officer Robert McFarlane said in an interview.

Mason Capital owned 18.7 per cent of Telus's voting shares and its position had helped push up foreign ownership in Telus to 32.6 per cent last summer.

A spokesman for Mason Capital declined to comment on the matter Friday.

"Based in part on this change in foreign ownership levels and short trading positions, Telus believes Mason Capital has materially reduced both its long and short positions in the company," Telus also said in a statement.

But McFarlane also said that it's possible Mason Capital may acquire shares on a short-term basis at the end of this month to avoid reporting its current trading position right away and make it seem as if it's a committed investor.

He said Mason Capital is selling off its stake in Telus to mitigate any financial downside. Both Telus and the hedge fund await court approval on the share conversion plan, already approved by both classes of shareholders in October.

"Their behaviour is illustrative of an organization that was trying to cut their losses while they could, while there's a spread remaining between the two classes of shares," McFarlane said.

Telus voting shares were up slightly, 44 cents to $65.01, in Friday afternoon trading on the Toronto Stock Exchange on heavy volume of 15.3 million shares.

On the New York Stock Exchange, non-voting shares in Telus (NYSE:TU) were up 1.3 per cent, or 85 cents, to $65.07.

Analyst Dvai Ghose of Canaccord Genuity said the decline in foreign ownership of Telus common shares implies that Mason Capital is unwinding its position.

Ghose also said the lower foreign ownership level puts to bed small telecom Globalive's claim that Telus may have been in breach of foreign ownership restrictions.

"While Mason is not the only foreign holder of Telus common shares, if we assume that the decline in foreign ownership of Telus shares from 32.6 per cent on June 29 to 15 per cent on Nov. 16 was entirely driven by Mason, its stake in Telus common shares could be as low as two per cent," Ghose said in a research note.

"While we assume that Mason still owns more than two per cent of Telus common shares because we assume that other foreigners may have sold down as well, nonetheless it seems that Mason has unwound a large chunk of its Telus voting share ownership."

McFarlane said Mason has "educated" the market about how to take advantage of loopholes in how trades are reported, and in what's known as "empty voting."

"These guys, they take the cake," he said, noting the issue will be studied in law schools and by corporations.

Telus has criticized Mason for empty voting, which is a legal investment strategy.

By accumulating an 18.7 cent stake in Telus in common stock while at the same time short-selling nearly the same amount of non-voting and common Telus stock, Mason was able to vote nearly $2 billion worth of stock with only a $25-million net economic stake, Telus has said.

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 have prevented the proposal from passing.