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Proxy advisory firm ISS backs share stance, Telus says

People pass by a Telus store in Toronto on June 3, 2012.

Michelle Siu/The Globe and Mail

Telus Corp. says it has again received the backing of a leading independent proxy advisory firm in its fight with U.S. hedge fund Mason Capital Management over the company's dual share structure.

In a statement issued Monday, Telus quotes Institutional Shareholder Services Inc. as backing management's proposal that non-voting shares be exchanged for common shares on a one-for-one basis.

"This proposal represents another meaningful step forward in the company's governance regime, in resuscitating the principle that voting rights should be commensurate with economic interest," ISS is quoted as saying in a statement.

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Telus president and chief executive officer Darren Entwistle said the recommendation from "a trusted neutral expert on corporate governance and proxy voting confirms that Telus's proposal is fair and beneficial to all shareholders, and is consistent with the principles of good corporate governance and shareholder democracy."

"We ask all of our shareholders to support our proposal, casting their votes for good governance and the value-creating benefits fostered by collapsing our share structure into one class of shares," Mr. Entwistle added.

Telus has called a meeting for a shareholder vote on the issue Oct. 17.

Both ISS and Glass Lewis & Co., another major global governance and proxy advisory services firm, recommended twice previously in favour of a similar proposal Telus put forward earlier this year.

However, Telus withdrew its earlier proposal in the face of fierce opposition from Mason Capital, which complains that voting shareholders are not being compensated for the value of their stock under the proposal.

"This is one of the worst share collapse deals for voting shareholders in Canada since at least the year 2000," Michael Martino, principal and co-founder of Mason Capital, said last week.

Mason Capital said it believes a conversion ratio of 1.08, or an 8 per cent premium, would be appropriate under the share conversion plan.

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Telus chief financial officer Robert McFarlane said the company isn't offering a premium for the share conversion because both classes of shareholders will benefit.

"It will benefit both the voting and the non-voting shares by combining the liquidity and the marketability of the shares, leading to a listing of the voting shares for the first time on the New York Stock Exchange," he said.

Mason Capital owns about 19 per cent of Telus's voting stock, making it the largest voting shareholder. But Mason has also disclosed that it has short sold the company's non-voting shares. Short sellers make a profit when the stock price falls.

Martino also said the hedge fund is legally challenging Telus's assertion that 50 per cent – not two-thirds – of voting shareholders need to support its share conversion proposal.

At the Oct. 17 meeting, Telus will need to garner two-thirds support from non-voting shareholders. However, the threshold for voting shares has been lowered from two thirds to half, which should make it more difficult for Mason to block it again, Telus has said.

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