Telus claims ‘resounding’ victory in proxy fight

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Telus Corp. is claiming a "resounding" victory in its protracted proxy battle with a U.S. hedge fund after more than 81 per cent of the telecom company's shareholders voted in favour of its share-consolidation plan.

Buoyed by that level of investor support, Telus's chief executive officer Darren Entwistle is vowing to charge ahead with his company's proposal to convert its non-voting shares to voting stock on a one-for-one basis – even as Mason Capital Management LLC questions the legitimacy of the vote and lays the groundwork for legal appeals.

Despite that lingering uncertainty, Mr. Entwistle was quick to suggest that Wednesday's vote was a triumph for shareholder democracy. He noted that investors would benefit from having a single class of stock, helped by a new listing of common shares on the New York Stock Exchange to boost liquidity and, in general, enhanced corporate governance once the share conversion is complete.

"The endorsement that we got from both our non-voting shareholders and our common shareholders was both resounding and decisive," Mr. Entwistle said in an interview with The Globe and Mail after Wednesday's shareholder meeting in Burnaby, B.C.

Telus confirmed that 81.1 per cent of total shares voted were in favour of its share-exchange proposal. Providing a further breakdown of the results, it stated that 62.9 per cent of the 128.8 million common shares voted were in favour of its plan, along with 99.5 per cent of the 127.7 million non-voting shares that cast ballots during the vote.

Even so, during the meeting, a Telus shareholder questioned why the board has spent so much time, energy and money on battling Mason.

"The one point of dissonance that was raised is, 'Isn't it a shame that we have to incur the expense to do something of this ilk to get the share-exchange done.' And I would actually empathize with that particular comment," Mr. Entwistle said. "It's reflective of the world that we live in, which is very legalistic. And when you've got an interloping hedge fund such as Mason, then these things become necessary."

Although Telus has launched an aggressive public relations campaign to position itself as a champion of good corporate governance, Iain Scott, a lawyer with McCarthy Tétrault who is representing Mason, confirmed the New York-based hedge fund would be seeking appeals.

During the meeting, Mr. Scott questioned why Telus has gone through great lengths to prevent voting shareholders from expressing their views. He also criticized Telus for failing to hand out paperwork detailing Mason's resolutions.

"Telus could have adjourned its meeting to allow voting shareholders more time to consider the implications of this decision and the new alternative put forward by Mason," Mr. Scott said early in the meeting, noting that no proxies were solicited for Mason's resolutions.

"The result is that you, Mr. Chairman (Telus chairman Brian Canfield), now hold proxies that were deposited by shareholders who had no opportunity to consider the implications of that decision, who thought they had no alternative to what Telus is proposing."

In that regard, Mr. Scott criticized Telus for neglecting to give more details to shareholders on Mason's positions: "You, Mr. Chairman, now will vote those proxies on the matters before this meeting. You will do so without any idea of how the shareholders would actually vote if given a meaningful opportunity to consider the matter."

Now that its proposal has been endorsed by shareholders, Telus will ask the courts to sanction the plan – a legal process that is likely to occur at the beginning of November. Even so, it could be months before Telus's share consolidation comes to fruition because of Mason's legal appeals.

Earlier this week, Mason said it was seeking appeals of at least two decisions by the Supreme Court of British Columbia that are related to Wednesday's vote. The first one centres on the approval threshold for the proposal, which Telus revised to a simple majority of the votes cast by voting shareholders (and two-thirds approval from its non-voting shareholders) when it revived its proposal in August.

Telus's earlier proposal, however, had set the bar for approval at two-thirds of the votes cast by each class of shareholder – a level that Mason wants to restore. The hedge fund is also challenging the overall legitimacy of Telus's meeting in a separate appeal.

The investment firm has long maintained that voting shareholders deserve a premium to participate in a share-consolidation transaction because they have historically paid more for their shares.

For Telus, though, Wednesday's shareholder vote marks a key milestone in what has been a protracted proxy battle with its largest shareholder. The Vancouver-based telco first announced its one-for-one share conversion plan in February, saying the move would extend voting rights to all shareholders.

By early April, however, its proposal was under attack by Mason, which had obtained control of nearly 20 per cent of Telus's common stock in the weeks following the company's announcement. The hedge fund, though, also has a short position on Telus non-voting stock that is almost as large as its ownership of voting shares – which means it has a small net economic interest in the company.

As a result of Mason's opposition, Telus pulled the plug on its proposal in early May once it became clear that it was doomed to fail a shareholder vote at the company's annual general meeting. It later resurrected its proposal in August after substantially lowering the bar for approval.

While that tactic has been disparaged by Mason, Mr. Entwistle is equally critical of Mason's trading strategy.

"When it comes to empty voting, that actually drives the structural separation between the magnitude of your economic interest and the magnitude of your voting power," said Mr. Entwistle, who calculated that Mason's voting power to be 891 times greater than its economic interest.

Mr. Entwistle added that Mason's only route to making a profit would be to stop Telus's share-exchange proposal from going ahead, "where both share classes are then going to lose value but the spread will widen, they will make their money on the widening of the spread and then they will exit."