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Telus Corp. (T-T) is vowing to launch legal action to prevent its largest shareholder, a U.S. hedge fund, from once again scuttling its share-consolidation plan.
The Vancouver-based telecom giant said Friday that it will do battle with Mason Capital Management LLC in the Supreme Court of British Columbia next week. It will seek a court order to block the investment firm's attempt to hold its own meeting of Telus's shareholders in October.
New York-based Mason, which controls just less than 20 percent of Telus's voting shares, announced earlier in the day that it is calling a meeting early on Oct. 17 to give investors a chance to endorse its rival proposal to secure a minimum premium for voting shareholders in the event of a successful share-consolidation transaction. In doing so, Mason is trying to pre-empt Telus's plans to convert its non-voting shares to voting shares on a one-to-one basis by holding its competing vote just hours before the company's own special meeting of shareholders.
"Mason Capital's announcement of a second meeting the same day is an absurd tactic designed to confuse shareholders in the hope of widening the spread between the trading price of the company's common and non-voting shares so that Mason can profit from their empty voting trading strategy," said Telus's chief financial officer Robert McFarlane. "We believe that Mason's meeting and resolutions are undemocratic and invalid under Canadian law."
He added: "Mason is proposing to remove key rights held by Telus's non-voting shareholders without giving them an approval right ... Mason's attempt to hold a separate shareholder meeting is contrary to corporate law, good governance and shareholder democracy and therefore we intend to halt this inappropriate move."
Telus also noted that it has invited shareholders to put forward "appropriate resolutions" for a shareholder vote at its own Oct. 17 meeting. The company's comments came shortly after a B.C. Supreme Court judge granted its request to adjourn a related legal proceeding until next week.
In court, Justice John Savage said the two matters, Telus's new application to invalidate Mason's meeting and an earlier petition by Mason to obtain more detailed proxy information from the company, were closely related matters worthy of being heard together -- likely next Thursday and Friday.
"I'm not convinced that the current matter… [needs to] urgently proceed today," Justice Savage said as he adjourned Friday's hearing. He said he would leave it to lawyers to decide "which matter will proceed first."
One of Telus's lawyers, Robert Anderson, said his team decided to ask for an adjournment because of Mason's application to call its own investor meeting. Mason's counsel, meanwhile, declined to comment at the court proceedings.
Earlier in the day, Mason said its shareholder meeting would be held at 10 a.m. local time on Oct. 17 in Burnaby, B.C. That is just four hours ahead of Telus's own meeting, also in Burnaby, at 2 p.m. In making that announcement, Mason, too, indicated that it is prepared to seek court backing for its move.
In the case of a share consolidation by Telus, Mason is proposing a premium valuation of at least 4.75 percent - the historical average trading premium of the voting shares over the non-voting shares - or an enhanced minimum premium of 8 percent - a move that would require a change to Telus's bylaws. If those proposals flop, then voting shareholders could vote on a non-binding advisory resolution, essentially a moral-suasion tactic, to recommend a minimum premium for voting shares.
Although investors who hold Telus's non-voting shares will be allowed to attend the Mason-requisitioned meeting, they will not be entitled to vote on the premium proposal, the hedge fund said.
"Today's action furthers Mason's efforts to protect the rights of all Telus voting shareholders. Given the oppressive actions taken by Telus to disenfranchise an entire class of shareholders, it is critical that voting shareholders have the opportunity to vote on a binding change to Telus's articles to establish an appropriate minimum premium to be paid in any dual-class collapse transaction, " said Michael Martino, principal and co-founder of Mason, in a statement.
"Moreover, Telus's recycled proposal demonstrates the lengths the company is willing to go to circumvent the protections afforded to the voting shareholders under the law. Mason will continue to vigorously oppose Telus's latest attempt to take value from voting shareholders and transfer it to non-voting shareholders, who include Telus's board of directors and company executives, whose personal economic interests are directly tied to the non-voting stock."
Telus, though, has previously rejected Mason's premium proposals, arguing that voting shareholders should not receive a special payout for the share conversion. The company has long argued that its proposal to convert all its non-voting shares into voting shares on a one-for-one basis upholds the values of good corporate governance and reflects a long-accepted conversion ratio that is enshrined in the company's articles.
Earlier this month, the Vancouver-based telecom giant revived its share consolidation plan, despite having nixed an earlier proposal in May due to Mason's staunch opposition.
This time, however, Telus's approval requirement for the measure only requires a simple majority of the votes cast by owners of voting shares, rather than the previous hurdle of two-thirds that was required under its earlier proposal. Analysts have said that should make it easier for the proposal to pass muster this time around despite Mason's objections.
In July, Mason filed a petition with B.C.'s highest court to force Telus to disclose more details about how voting-class shareholders voted on its earlier share-consolidation proposal.
The hedge fund wants to obtain the ballots cast by voting shareholders in early voting on the measure (prior to the company's decision to kill the proposal in May), arguing that Telus has only provided it with heavily-redacted proxy information.