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Telus' (T-T) plan to eliminate its dual-class share structure is being opposed by hedge fund Mason Capital that says the move is unfair. But Telus is fighting back, saying the plan to convert every non-voting share to a voting share on a one-to-one basis is in the best interest of holders of both classes of shares.
"By combining these two share classes the broader liquidity and trading depth benefits both classes -- it's a win-win and the market has already ruled on that with our share prices on both classes up tremendously since the date of the announcement," Telus CFO Robert McFarlane tells BNN.
Telus this week announced it had 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.
"It is an important validation of the soundness of the company's proposal that the two principal proxy advisory firms that institutional investors look to for independent advice have supported our conversion proposal after a detailed and thorough review of the facts," Darren Entwistle, TELUS president and CEO, said in a statement this week.
Telus says that Institutional Shareholder Services believes the move would "align voting rights with economic interest" while Glass Lewis says "the potential long term financial benefits of a simplified share class structure…outweigh any short term dilutive effects or costs resulting from the conversion."
Ron Mayers, senior vice president at Laurentian Bank Securities, tells BNN that Telus is defending its move to end the dual share class structure, saying that while it has benefited all shareholders, its time may have passed.
"Telus didn't want to issue these non-voting shares in the first place, they did it to advantage their capital structure and advantage the shareholder base as a whole, having derived that benefit by having a greater number of shares, they would argue it is only fair that now we collapse it one-for-one," he says.
But Mason Capital, the hedge fund opposing the move, says the backing of the two proxy advisory firms is "premature".
"ISS and Glass Lewis did not have the benefit of the reasons for voting against TELUS' proposed share reorganization, which Mason publicly announced yesterday [Monday]. Glass Lewis has retracted their report and ISS will review our analysis and rationale and update their recommendation accordingly," Mason Capital said in a statement earlier this week.
Mason Capital claims the move to eliminate non-voting shares has "serious flaws and reflects a systematic bias against the voting class." The hedge fund claims the premium traditionally attached to the voting shares should be reflected in any conversion.
"It is not fair to holders of the voting shares to take away this value without fair compensation," the hedge fund says.
But Telus says the move by Mason Capital is simply not in the interest of shareholders.
"They have a negligible economic interest in the company because they have shorted virtually their entire position," McFarlane tells BNN. "It's a hedge strategy to essentially try to drive a no-vote on the share consolidation and drive apart the value of the shares and make a profit through their short position on the non voting shares -- that's not exactly aligned with the interest of the company or shareholders."
Mayers says Mason Capital's push for a premium for its voting shares isn't an anomaly.
"Does Mason's argument have somewhat more intuitive appeal? Sure. Is there a precedent for it? Absolutely," he says.