Telus Corp. is forging ahead with plans to consolidate its dual-share structure after scoring a court victory over a U.S. hedge fund.
"At the end of the day, what this is all about is shareholder democracy and one share gets one vote, and that is consistent with good corporate governance," Telus chief financial officer Robert McFarlane said in an interview Wednesday.
New York-based Mason Capital Management LLC controls nearly 20 per cent of Telus voting shares, but the hedge fund also has a short position on Telus non-voting stock that is almost as large as its ownership of voting shares.
Late Tuesday, a Supreme Court of British Columbia judge issued a decision that prevents Mason from holding an Oct. 17 meeting that had been designed to thwart the Vancouver-based telecommunications company's share-consolidation plan.
"When a party has a vote in a company but no economic interest in that company, that party's interests may not lie in the well-being of the company itself. The interests of such an empty voter and the other shareholders are no longer aligned and the premise underlying the shareholder vote is subverted," Mr. Justice John Savage said in a 32-page judgment.
Mason said on Aug. 31 that it wanted to call a meeting for Oct. 17 to give investors a chance to endorse its rival proposal to secure a minimum premium for voting shareholders in the event of a share-consolidation transaction. In doing so, Mason was trying to pre-empt Telus's plans to convert its non-voting shares to voting shares on a one-to-one basis by holding its competing event just hours before Telus's own special meeting of shareholders.
Orestes Pasparakis and Robert Anderson, two of the lawyers representing Telus, argued that their client's case should win the day. "Mason's requisition for a meeting was deficient and unlawful. It means Mason can't hold a separate meeting," Mr. McFarlane said.
Mason said Wednesday that it will appeal the court's decision. "We believe it is critical that the owners of the voting shares have the opportunity to vote on a binding change to the company's articles to establish an appropriate minimum premium to be paid in a dual-class collapse transaction," Mason said.
The judge agreed with Telus that Mason is indifferent to the overall success of the telecommunications company.
"Telus argues that Mason's position is an example of empty voting. Mason has simultaneously acquired common shares and shorted non-voting shares. Mason's control over Telus's voting stock is many times Mason's net economic interest in Telus. Through its trades, Mason has successfully decoupled its economic interest in Telus shares from the voting rights carried with those shares," Mr. Justice Savage wrote. "Mason only stands to profit if the holders of the common shares are unwilling to accept the one-to-one conversion."
Telus has been trying for months to abolish its current share structure, which denies the holders of 151 million non-voting shares the right to have a say in the election of the board and other matters. Telus has about 175 million voting shares.
The non-voting shares trade at a lower price than the voting stock. If the Telus plan were to pass, that discount would be eliminated.
With a report from Rita Trichur in Toronto