03/22/2012 02:55 EDT | Updated 05/22/2012 05:12 EDT

Telus says foreign investors buying shares; could push ownership past limits

Telus Corp. (TSX:T) said Thursday that foreign hedge funds have been buying up its stock and could push its Canadian ownership below the government-mandated level in an attempt to derail a proposal to create a single class of common shares.

"It's our understanding that one or more foreign hedge funds are really taking this trading position," Robert McFarlane, the telecom company's chief financial officer, said Thursday.

"Telus could go above the 331/3 per cent foreign-ownership limit and there may be a number of foreign trades that the telecom company can't approve as a result," McFarlane said in an interview.

"It shows you that there has been a massive attempt, or a significant attempt, by hedge funds to purchase voting shares in a short-term trading tactic to go against the proposal," he said.

Telus is proposing to convert its non-voting shares into common shares. Both classes of shareholders will vote on the proposal at the Vancouver-based company's annual meeting on May 9. Each class of shareholders will need to approve the proposal by two-thirds or more to have it pass.

"It reflects good corporate governance. It's going to happen either this time or another time, but the company is committed for this to happen," McFarlane said.

McFarlane said foreign ownership in Telus's shares has never exceeded 20 per cent since U.S.-based telecom Verizon sold its last stake in the company in 2004.

Traditionally, the non-voting shares have been primarily held by Canadian institutional and retail investors, he said.

"The heritage in our case of the non-voting shares harkens back to when Verizon was a major strategic investor. This non-voting share was created for compliance reasons."

The market trading prices of both Telus common and non-voting shares have increased notably since the announcement of the proposed share class conversion on a one-for-one basis, Telus said.

"Furthermore, the spread in prices between the two Telus share classes has narrowed substantially," Telus said.

"The sole purpose appears to be to exert influence over the proposed share conversion and to increase the share trading spread for near-term profit."

Telus recently reported that its profit increased by almost five per cent in the fourth quarter, helped by more customers signing up for its TV and high-speed Internet services and continued growth in the use of smartphones.

The company has reported that fourth-quarter net income was $237 million, a 4.9 per cent increase from $226 million in the same year-earlier quarter.

On an earnings per share basis, the results were equal to 76 cents per share — below average analyst expectations of 78 cents per share, according to a poll by Thomson Reuters — but above the 70 cents per share earned a year ago.