TORONTO (Reuters) - A major investor in Telus Corp T.TO who opposes its move to scrap a dual-class share structure said the move would unfairly discriminate against holders of voting stock.
Mason Capital Management LLC, a New York-based fund, said the proposed move would also lower the level of foreign ownership allowed and crimp the liquidity of the stock.
Shareholders in Telus, Canada’s third largest wireless carrier, will vote on the measure to convert its non-voting shares Ta.TO into voting shares on a one-for-one basis at an annual meeting on May 9. Two-thirds of shareholders in each class must vote in favor for the proposal to be adopted.
“As proposed, the transaction will seriously compromise the interests of the voting class and confer a windfall benefit on the non-voting class,” Michael Martino, the managing director of Mason Capital, wrote in a letter to the Canadian telecom company’s shareholders on Monday.
Martino said in the letter that Mason would like to see a revised proposal that pays a premium for the voting stock, based on the 4 to 5 percent historical difference in trading price between the two types of shares.
Telus has no intention to negotiate a premium, its chief financial officer, Robert McFarlane, said. He said that most major investors in the voting stock had expressed support for the one-for-one conversion.
The spread has narrowed since Telus announced the proposal.
Mason owned 18.7 percent of Telus’ voting shares at the end of March and has borrowed a much larger number of non-voting shares, it said earlier this month.
Mason stands to benefit if it receives a premium for its voting stock or if it can block the proposal, which would likely lead to a fall in the non-voting stock price, which Mason could then buy cheaply to pay back the borrowed non-voting shares.
Mason needs to win over investors holding 25 million of the 175 million voting shares to block the proposal.
The company’s non-voting shareholders are guaranteed to receive the same price as voting investors in any takeover scenario and the company is widely held, giving little reason for them to trade at a discount, he said.
Telus’ 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 VZ.N was a major investor. When initiated, they were offered on a one-to-one basis.
Foreign investors cannot own more than one-third of Telus’ 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.
Mason’s Martino said moving to a single voting class would reduce the level of permitted foreign holdings of Telus’ total equity to 33 percent from 64 percent and force foreign funds to sell 2.8 million shares as soon as the conversion took effect.
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.
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.
If the proposal is passed Telus has said it would list its stock on the New York Stock Exchange, in addition to its current listing on the Toronto Stock Exchange.
The voting shares closed Monday trade at C$58.77, while the non-voting shares were at C$57.56.
Reporting by Alastair Sharp in Toronto; editing by Carol Bishopric and Bob Burgdorfer