New York hedge fund Mason Capital Management has won the latest legal victory in the dispute over Telus Corp.'s share conversion strategy, but the telecom company has signalled it's still in the fight with a plan to hold an already scheduled vote on consolidation.
Mason Capital Management was given the green light by the British Columbia Court of Appeal to go ahead with its rival meeting of voting shareholders of Telus to consider a premium for the share conversion plan.
Mason said it will ask the court for directions to hold its own meeting and will also ask for a postponement of Telus's meeting, slated for Wednesday.
But Telus said Friday that it still will hold its shareholder meeting on Oct. 17, despite Mason's victory.
"We're looking forward to our Oct. 17 shareholder meeting," said Nick Culo, vice-president of corporate communications.
The B.C. Court of Appeal set aside a lower court decision that had prevented Mason Capital from having its own meeting of Telus's voting shareholders.
"In my view, it is appropriate to allow the parties to work out the logistics for the scheduled meetings, with the assistance of the Supreme Court, as necessary," Justice Harvey Groberman said in a written decision.
Telus (TSX:T) wants to convert its dual-class share structure, which separates shares that have voting rights and non-voting A shares (TSX:T.A). Mason has repeatedly said holders of Telus's voting shares should get a premium to approve it, which Telus said it isn't required to do.
The court, however, did express concern about Mason's "empty voting," or hedged position in Telus, which the telecom firm has also criticized.
"The limited financial stake that Mason has in Telus is a cause for concern. It has placed itself in a position where the well-being of the company or the value of the company’s shares is of limited concern to it," Groberman said.
"Instead, its interests lie in widening the gap between the prices of non-voting and common shares."
Mason Capital owns about 19 per cent of Telus's voting stock, making it the largest voting shareholder. Mason shorted 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 less desirable non-voting shares. Telus has complained that Mason Capital was voting $1.9 billion worth of Telus' common shares with only a $25 million net economic stake in the company.
The judge said Mason Capital doesn't appear to be violating any laws, and the appeal court can't intervene on "empty voting."
"To the extent that cases of 'empty voting' are subverting the goals of shareholder democracy, the remedy must lie in legislative and regulatory change," Groberman said.
Mason Capital said Telus shareholders with voting rights will get their say.
"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."
Mason has proposed 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 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 "empty voting'' tactics would prevent it from passing.
Telus has said the share conversion plan will give it more liquidity, is in line with good governance and will allow the telecom company to list its common shares on the New York Stock Exchange.
Traditionally, the non-voting shares have been primarily held by Canadian institutional and retail investors.
Voting shares in Telus added 10 cents to close at $62.71 Friday on the Toronto Stock Exchange.