A New York hedge fund is attempting to derail a plan by Telus, the Canadian telecoms group, to improve liquidly in its stock by collapsing together its voting and non-voting shares.
Since Telus announced on February 23 that it would merge its voting and non-voting shares at a one-for-one ratio, Mason Capital has accumulated a 19 per cent stake in the voting stock and said that it will oppose the share class move as holders of the voting rights deserve to be paid a premium.
The company requires the approval of two-thirds of the holders of both share classes at its May 9 annual meeting to collapse the two classes into one.
The dual voting structure at Telus, which has a market capitalisation of C$19bn, was a consequence of Canadian laws which prohibit foreign ownership of more than a third of telecom providers. When the business was merged with a subsidiary of Verizon in 1999, it was necessary to create the dual voting structure.
The voting shares have traded at a 4 to 5 per cent premium to the non-voting stock in recent years. However, under the company’s bylaws, holders of the non-voting stock have “coat tail” rights, which mean they must receive the same price in any takeover. A change in the foreign ownership law would also see the voting structure collapse at a one-for-one ratio.
Robert McFarlane, chief financial officer, said: “If our board decided to consolidate the shares at something other than a one-for-one ratio, it is practically the only way I can think of to discriminate against the non-voting shares.”
Telus received a fairness opinion supporting the one-for-one conversion ratio from Scotia Capital, a Canadian bank.
Mason, which specialises in trading around corporate events, has also taken a short position in the non-voting shares, meaning that it will profit from a widening of the spread in price between the two classes that has closed since the company’s announcement.
“The proposal disproportionately benefits Telus’ management and directors who predominately own or are compensated in non-voting shares,” Mason said in a statement on Monday.
Mr McFarlane rejected the suggestion that management incentives priced against the non-voting stock provided a reason to collapse the voting structure. “There is no one that I am aware of who would allege that who has been a shareholder for more than six weeks,” he said.
There are around 175m voting shares outstanding and 150m non-voting. Since the announcement, the two share classes are up 6 per cent and 8 per cent respectively. The third largest shareholding block in the voting shares are company employees, Telus said.