B.C. regulator won’t intervene in Telus dispute

The British Columbia Securities Commission (BCSC) says it will not intervene in a dispute between Telus Corp. (T-T) and a New York-based hedge fund.

The hedge fund, Mason Capital, is leading a battle to vote against Telus' proposal to scrap the company's dual share structure. Shareholders will vote on the proposal at the company's annual meeting next week.

Telus recently approached the BCSC to make the hedge fund disclose more information about its holdings in the telecommunications company. Specifically, the company wanted Mason Capital to provide details on when it acquired its stake in Telus and why it has simultaneously shorted much of its holdings.

Mason Capital currently owns around 18 percent of Telus' voting shares, but has taken a sizeable short position in both the companies non-voting and voting shares.

But the regulator says the hedge fund has not violated regulations in its battle to get shareholders to vote against the proposal.

"This is not a situation where Mason, despite technical compliance with the legislation, is circumventing requirements that Telus shareholders would reasonably expect to have applied to Mason," Paul C. Bourque, executive director at the BCSC said in a letter to the company. "When there is no contravention of the legislation, intervention in the capital markets must be rare if participants are to have any expectation of certainty."

Telus has called Mason Capital's move "opportunistic" and "event-driven," accusing it of trying to profit from a short-term strategy.

"In our view, TELUS shareholders have a right to understand the full story in respect of Mason's holdings and their economic interest in the vote," Shawn Hall, a spokesperson at Telus says. "It's disappointing the BCSC is not going to require Mason to enhance its disclosure to enable a better understanding by investors."

Telus CFO Robert McFarlane recently told BNN that the company's decision to combine the two share classes is a "win-win" for shareholders as "broader liquidity and trading depth benefits both classes."

Telus has received the backing of two proxy advisory firms -- Institutional Shareholder Services and Glass Lewis -- which it says should persuade shareholders to vote in favour of the plan at its upcoming annual shareholder meeting.

Mason Capital maintains that it is only trying to realize the premium typically afforded to voting shareholders. Historically, there is premium offered to voting shares compared to non-voting shares, but as part of Telus' proposals all shareholders would received the same amount for their shares.

"It is unfortunate that TELUS continues to try to divert attention from the real issue, which is the value of control," the group said in a statement this week.

"Mason has made numerous disclosures and fully complied with its disclosure obligations, which make our position abundantly clear. We question TELUS' motivations in submitting a complaint to regulators shortly before its proposal is to be voted upon and making its complaint public before the regulators have had the opportunity to even consider or respond."

Telus says its battle with Mason Capital highlights the growing concern among regulators of "empty voting", which is takes place when there is voting with little economic interest of a company.

"These damaging practices are contrary to the basic tenants of corporate democracy in that the outcome of shareholder votes should not be affected by sizeable voting positions accumulated without the public's knowledge by investors who do not have a meaningful net economic interest due to their shorting the same company's shares," Hall says.

"We believe that securities regulators need to modernize their regulatory framework to protect issuers and investors from potential abuses of empty voting and hidden ownership such as that which Mason is currently pursuing in its trading strategy in TELUS shares."