July 11, 2012 / 8:26 PM / 5 years ago

U.S. hedge fund escalates fight with Canada's Telus

TORONTO (Reuters) - A U.S. hedge fund has escalated its battle with Telus Corp T.TO by asking a court to force the Canadian telecom to reveal how much support shareholders had given the company’s failed plan to unify its two classes of stock.

Mason Capital Management LLC, Telus’ largest shareholder, said it could base a decision on whether to increase or decrease its nearly 20 percent stake in the Vancouver-based company on knowing how much support the plan had drawn when shareholders voted in May.

The plan, which Telus withdrew when it became clear that Mason could block it, would have given a non-voting class of shares the same status as the more valuable voting shares.

As a short-seller of the non-voting stock, Mason likely made money by blocking the deal as it knocked the non-voting share price lower. The hedge fund could profit again if Telus revives the measure as it says it may do.

While it is not immediately clear what Mason’s end-game is in filing the petition to the Supreme Court of British Columbia, its continued presence on the Telus shareholder list could stymie Telus’ efforts to reintroduce the plan.

Canaccord Genuity analyst Dvai Ghose said Mason’s petition could push Telus to pay voting shareholders a premium in any eventual unification.

Mason has hired Blackstone Group LP to seek out a buyer for the stake, a source told Reuters in June, though it is not clear whether it would want to sell at this stage.

OBSCURED INFORMATION

In the petition, dated May 10, Mason’s lawyers asked for unredacted copies of the proxies submitted by holders of the voting stock. Mason said Telus had provided copies but information related to the proposal had been obscured, making it impossible to determine how investors had voted.

Mason had bought 19 percent of Telus’ voting shares ahead of the planned vote. The fund had borrowed a much larger number of non-voting shares and likely benefited as their value fell after Telus withdrew the vote.

At the time, Telus said that excluding Mason’s opposing vote, the proposal would have been approved by both classes of shareholders with a total of 92.4 percent in favor.

The filing showed that Mason has since slightly added to its position, which is now at almost 20 percent. It did not say how many borrowed non-voting shares it still held.

“EMPTY VOTING STRATEGY”

Telus said it opposed the filing.

“This is just another tactic by Mason to try to advance their empty voting strategy in the interests of their own short-term profits at the expense of our other shareholders,” spokesman Shawn Hall said in a statement.

Telus put its dual-share structure in place to comply with a law limiting foreign control of Canadian telecom companies at a time when U.S.-based Verizon Communications Inc VZ.N was a major investor.

The law limits foreign direct ownership in a major carrier to 20 percent. It also bars foreigners from owning more than a one-third interest in the carrier’s parent company.

The Canadian government recently passed legislation that enables a foreign buyer to control a telecom company with less than a 10 percent market share, a change that does not apply to Telus.

One of those smaller telecoms, Globalive, has asked a regulator to study whether Telus has breached the rules.

If Telus is shown to have violated the foreign ownership limits, it could endanger its bids on valuable wireless spectrum in an auction due next year, Laurentian Bank Securities’ Ron Mayers told BNN television.

Both Telus’ voting and non-voting shares fell 1.6 percent on Wednesday, with the voting stock closing at C$62.23 and the non-voting finishing at C$61.00 on the Toronto Stock Exchange.

Editing by Frank McGurty

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