Telus Corp. is holding a meeting in October in which shareholders will be able to vote on a proposal to combine its voting and non-voting shares into one class of stock — and it believes this time a U.S. hedge fund won't be able to block the plan.
In announcing the move Tuesday, the Vancouver-based telecom giant said it's rejecting demands from Mason Capital Management to call a vote on whether to give voting shareholders a premium once the stock is consolidated.
"We're going to defeat Mason, which will be cheered on by good corporate governance advocates," said chief financial officer Robert McFarlane in an interview.
Telus (TSX:T) first introduced its share-conversion plan in February, but withdrew the proposal right before its annual general meeting in May when it became apparent that what it calls Mason's "empty voting" tactics would render it unsuccessful.
By accumulating about a 20 per 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 said.
"It brings up a broader issue of corporate law that I think regulators are going move on because of our situation," said McFarlane.
Excluding Mason Capital, proxies representing about 92.4 of Telus shares were cast in favour of the Telus proposal in May.
At the Oct. 17 meeting, like the one in May, Telus will need to garner two-thirds support from non-voting shareholders. However, the threshold for voting shares has been lowered from two thirds to half, which should make it more difficult for Mason to block it again, said McFarlane.
In a release late Tuesday, Mason principal and co-founder Michael Martino said Tuesday's share-collapse proposal is no different from the one tabled in May "except that Telus appears to be attempting to circumvent the protections afforded to the voting shareholders under the law."
"Mason will vigorously oppose Telus' latest attempt to take value from voting shareholders and transfer it to the non-voting shareholders, including Telus' board of directors and company executives, whose personal economic interests are tied to the non-voting stock."
Martino said earlier that voting Telus shareholders must be compensated in the conversion plan because voting shares have always been worth more money.
"As a matter of fact, voting shares have unlimited upside vis-a-vis the non-voting shares," he said.
Mason is proposing a minimum premium valuation of either 4.75 per cent — which represents the historic average trading premium of the voting shares over the non-voting shares — or a minimum premium of eight per cent.
Telus said it's rejecting Mason's request.
"Telus' board of directors carefully reviewed Mason's requisition, and we found it both anti-democratic and invalid and therefore concluded unanimously to reject it," said board chairman Brian Canfield.
"Simply put, Mason's request would have imposed constraints on non-voting shares without giving holders of those shares a say. That is simply wrong."
In the Tuesday evening release, Mason vowed to keep pushing for a special meeting.
"Only the voting shareholders would have the right to vote at the meeting as the proposal in no way interferes with the rights or privileges of the holders of non-voting shares," he said.
"Mason and its counsel anticipated that Telus would attempt to frustrate this proposal by falsely claiming that the non-voting shareholders are also entitled to a vote. Mason will take appropriate steps to see its requisition through.”
Mason earlier warned Telus that it had until Thursday to send out a notice of a special meeting to vote on the mandatory premium or else it would call a vote itself.
McFarlane said October meeting should render Mason's request redundant.
Telecom analyst Troy Crandall said Mason wants to sell its shares in Telus at a profit and has to "sow some uncertainty on this somehow."
"They're trying to come out as looking like activist shareholders in a company that's done a stellar job in the past three or four years," said Crandall of Montreal-based MacDougall, MacDougall and MacTier.
"An activist shareholder gets involved in companies that haven't being doing well with poor management or poor performance. Telus has had some of the best performances of all the Canadian telecoms and even, one could say, all of the North American telecoms."
Martino said Telus' one-to-one conversion plan, with no compensation for voting shareholders, favours non-voting shareholders.
"This should be a ... negotiation amongst shareholders. If the non-voting shareholders want votes, then they should approach us and negotiate. They should give something up to get something."
Martino noted that Magna International (TSX:MG) eliminated its B class of shares under an agreement that granted about $1 billion in cash and shares to founder Frank Stronach, as well as control over a joint venture that will develop components for electric vehicles.
The class B shares held by the Stronach family were cancelled and the remainder converted into new common shares at a rate of 1.2 new shares for each B share held.
Mason Capital has also invested in other Canadian telecom and media companies with similar a share class structure to Telus, but Martino declined to name them.
Telus has said the non-voting shares go back to the days when U.S. telecom Verizon was a major strategic investor and were created for regulatory compliance reasons. Now, most of the non-voting shares are held by institutional and retail investors.
Shares in Telus closed down 77 cents at $63.50 Tuesday on the Toronto Stock Exchange. Non-voting shares were down 82 cents at US$62.62 on the New York Stock Exchange.