April 11, 2012 / 5:03 PM / 6 years ago

Telus dual-share merger opposed by big shareholder

TORONTO (Reuters) - A plan by Telus Corp (T.TO), Canada’s third largest wireless carrier, to discard its dual-share structure faces opposition from its largest shareholder.

A pedestrian is reflected in the window of a Telus store while using a mobile phone in Ottawa February 11, 2011. REUTERS/Chris Wattie

Mason Capital Management LLC, a New York-based investor, said on Tuesday it has advised Telus that it intends to vote against the proposal.

Shareholders will vote on the proposal to convert Telus’s non voting shares Ta.TO into voting shares on a one-for-one basis at the company’s annual meeting on May 9. Two-thirds of shareholders in each class must vote in favor for the proposal to be adopted.

An affirmative vote would lead to Telus listing its shares on the New York Stock Exchange in addition to the Toronto Stock Exchange.

Announcing the proposal in February, Telus said the move would increase liquidity and remove a historical discount on the non-voting shares, which are entitled to the same dividend payout as the voting shares.

It also said it was good corporate governance to allow all shareholders to get one vote for one share.

A source at Telus said on Wednesday that the company believes that Mason’s opposition stems from its strategy of trading on the spread between the two types of shares, an arbitrage that would be eliminated if the proposal goes through.

Mason was not immediately available to comment. In a filing to Canadian regulators on Tuesday, It said it held 18.7 percent of Telus’s outstanding common shares at the end of March as well as a much smaller share of the non voting stock.

Mason also said it had also borrowed a much larger number of non voting shares.

The hedge fund stands to benefit if it can block the proposal, which would likely lead to a fall in the price of the non voting stock, which Mason could then buy cheaply to pay back the borrowed non voting shares.

Telus’s dual share structure was designed to comply with laws limiting foreign control of Canadian telecom companies at a time when U.S.-based Verizon Communications Inc was a major investor.

Foreign investors cannot own more than one-third of Telus’s voting shares. In March, the company said foreigners owned 24 percent of its voting shares, but that if it fulfilled all pending orders the level would exceed the legal limit.

The rules blocking foreign ownership in Canadian telecoms were modified in March to allow foreign control of smaller operators, but that move does not directly affect Telus.

Telus’s common shares fell slightly on Wednesday to C$57.18. They have gained more than 13 percent in the last six months but are only up 1.2 percent since the start of the year. The non voting shares were at C$55.79, up 2.8 percent since the start of the year.

($1=$1.00 Canadian)

Reporting by Alastair Sharp in Toronto; Editing by Peter Galloway

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