Mason proposes valuation guarantee for Telus shareholders

August 2, 2012

A U.S. hedge fund is giving Telus Corp. yet another shove over its plan to clean up its share structure.

Mason Capital Management LLC said Thursday it is calling a meeting of Telus's voting shareholders. The question on the table: whether to change the company's bylaws to enshrine a higher valuation for the voting shares, of which Mason owns nearly 20 per cent.

The move is yet another tactic in a months-long war between New York-based Mason and Western Canada's largest telecommunications company.

In February, Telus set out a plan to eliminate its dual-class share structure by giving non-voting shareholders the vote – a so-called "one for one" plan that would have eliminated the discount those shares have always traded at. But it ran into an unexpected obstacle in Mason, which bought up a large amount of voting stock, then short-sold the voting shares.

Mason then set out to defeat the Telus proposal; if it could do so, it would profit, because the voting shares would rise in value, relative to the non-voters.

Facing defeat, Telus cancelled the plan in May, just before it was slated to come to a vote. But the company vowed to try again, and that's why Mason is now trying to throw another legal hurdle in its way.

Under Mason's proposal, Telus's bylaws would change so that voting shareholders are guaranteed a minimum premium of 4.75 per cent for their shares, which Mason says represents the historic average trading premium, if Telus should try to collapse its dual-class structure again. Alternatively, they might opt for an "enhanced premium" of 8 per cent, which was suggested by Blackstone Advisory Partners after an evaluation. And, if anyone wants to change that minimum, 80 per cent of the voting shareholders must approve it.

So the aim of this vote is either to ensure voting shareholders like Mason get paid extra, or solidify the current share structure at Telus to secure the advantage that voting shareholders already have.

The Business Corporations Act in British Columbia would force Telus to hold the requisitioned meeting by the beginning of December; Mason, as the owner of more than 5 per cent of the company, has the right to call the shareholders to such a vote.

But Telus doesn't appear to be concerned, saying it would consider the proposal and respond to Mason. "This is just another nuisance play by Mason Capital to try to advance its empty voting strategy and generate short-term profit for themselves at the expense of other shareholders," said spokesman Shawn Hall.

On the Canadian corporate landscape, it's unusual to see a company waging a proxy battle over, among other things, the change to a company's rulebook. It's possible that Mason is only pursuing this line of attack because it believes that Telus has found support from other significant investors to make another run at share-consolidation proposal – and it wants to pre-empt it.

Adding weight to the theory that Mason wants to beat Telus to the punch, there has been an unusually high volume of trading on this stock in recent weeks. The stock has traded so heavily, in fact, that Wind Mobile today requested yet another government investigation into the company's foreign ownership.

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