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Telus Corp (T-T), one of the country's largest telecommunications providers, has withdrawn a plan to unify its share structure after the proposal failed to win enough support, in a victory for dissident shareholder Mason Capital.
The Vancouver-based company also posted a 6-percent rise in first-quarter profit as it signed more valuable smartphone customers than expected and set the pace on other wireless industry metrics. But it took a hit on its landline television, Internet and telephone businesses as a rival offered heavy discounts.
"The wireless results were absolutely superb and led the industry in every metric," said Canaccord Genuity analyst Dvai Ghose. "They're clearly the premium wireless carrier in Canada once again."
But Telus suffered a setback in its plan to convert its non-voting shares into voting shares on a one-to-one basis. It could have proceeded only if a two-thirds majority of each class were cast in favor for the proposal.
Telus was due to announce the results of the shareholder vote on Wednesday at its annual meeting in Edmonton, Alberta. Instead, it said it was dropping the proposal, at least for now. Opposition was led by Mason Capital Management LLC, with about 19 percent of voting shares.
Canaccord's Ghose said low turnout by shareholders was to blame. "What defeated Telus today wasn't Mason. ... What defeated Telus essentially was not high enough voter turnout," he said.
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Telus, which had the support of two influential advisory firms, said more than 90 percent of non-Mason shares that had been cast supported the move. It did not disclose the overall turnout.
Ghose expects Telus to come back to shareholders within a year with a similar plan, and make a stronger effort to explain its benefits. He doubts Mason will remain involved.
"Mason's tying up a lot of capital in this thing and I don't think they will forever," Ghose said.
The hedge fund, which had also borrowed a much larger number of non-voting shares, will likely benefit from the blocked proposal as the price of the non-voting shares fall back. It can then buy them cheaply to pay back the borrowed shares.
The dispute could well turn into an extended battle of wills, with Mason saying there was no reason to assume it would not be a long-term Telus shareholder.
Telus has said the plan would have increased liquidity and removed a historical discount on its non-voting shares, which are entitled to the same dividend payout as the voting shares. It said it was good corporate governance to allow one vote for one share.
Mason said the proposal would have unfairly discriminates against holders of voting stock, who generally paid more for their shares.
Telus said the jump in both classes of shares since it first proposed the plan in February demonstrated that the company's proposal had wide support. The voting shares had gained 4 percent while the non-voting stock added 5.9 percent up to Tuesday in a weak broader market, it pointed out.
After it withdrew the proposal, Telus said net profit rose to $348 million, or $1.07 a share, in the three months ended March 31, from $328 million, or $1.01, in the year-earlier period.
Revenue rose 4 percent to $2.6 billion.
Telus added 63,000 net postpaid subscribers, who sign multi-year contracts to use the latest devices and typically pay four times more a month than pre-paid users.
Desjardins Securities analyst Maher Yaghi said he had expected Telus to add 49,000 postpaid customers.
Rogers Communications Inc. (RCI.B-T), Canada's largest wireless provider, added 47,000 postpaid customers in the quarter, while BCE Inc. (BCE-T), the country's largest telecom company, added more than 62,000.
"The wireless results were absolutely superb and led the industry in every metric," said Canaccord's Ghose. "They're clearly the premium wireless carrier in Canada once again."
The cost of retaining wireless customers rose 4 percent while the average monthly bill it collects rose 1.7 percent to $58.87 as the company signed up more data-using customers to high-end phones such as Apple Inc's iPhone.
Telus and other carriers spend heavily upfront to subsidize sales of the iPhone and other high-end devices.
Telus added 44,000 television customers as it aggressively built and promoted its Internet-based Optik TV service, which is making inroads against its cable rival Shaw Communications (SJR.B-T) in a fight for the attention of western viewers.
Its wireline earnings before interest, tax, depreciation and amortization -- which covers landline telephone, Internet and television -- fell by 11 percent as high-margin voice services fell and it paid to encourage Optik's growth.
"The wireline numbers were quite terrible on a financial basis and mixed on a subscriber basis," Ghose said, adding that sharp discounting from rival Shaw had hurt Telus in the quarter but that a price war wasn't sustainable for Shaw.
Telus doubled an earlier estimate of restructuring costs for 2012 to $50 million, but said that landline profit targets were still achievable. It also confirmed other full year targets.