Canadian quadruple-play telco Telus has announced a new proposal to reform its legacy shareholding structure by exchanging its non-voting shares into common shares on a one-for-one basis, which it will put to a vote of all shareholders on 17 October 2012. The proposal will require approval from two-thirds of its non-voting shareholder votes cast, plus approval by a simple majority of common share votes cast. Telus currently has approximately 175 million common shares and 151 million non-voting shares issued and outstanding, so the exchange would result in a single class of approximately 326 million common shares. Upon approval, common shares would be listed on the New York Stock Exchange (NYSE) for the first time.
Telus’ dual class share structure was designed more than a decade ago when the company’s predecessors – BC Telecom and Telus Alberta – merged. At the time, BC had a majority non-Canadian shareholder – GTE, now Verizon – and so the company created non-voting shares so that the merged company would comply with federal telecommunications legislation restricting foreign ownership to no more than 33.3% of voting shares. Verizon subsequently divested its shares in the company, significantly reducing foreign ownership in the company.
Having decided a one-for-one conversion ratio was the fairest way to proceed for all shareholders, in February 2012 Telus announced the share conversion proposal. However, one of its shareholders, Mason Capital, subsequently acquired approximately 33 million, or 19%, of Telus’ common shares, while simultaneously selling short nearly the same number of non-voting shares. This so-called ‘empty voting’ strategy gave Mason CAD1.9 billion (USD1.92 billion) worth of Telus common shares with only an estimated CAD25 million net economic stake, and Mason opposed the share conversion proposal, which Telus says was an effort to achieve short-term profit by widening the spread between the trading price of the two share classes. Accordingly, Telus withdrew the proposal as it said an absence of regulatory oversight of empty voting practices made it apparent that a vote on the proposal would not have succeeded. Subsequently, Mason disclosed in July that its Telus common share position was just under 20%.
‘With this proposal we are responding to the overwhelmingly positive support from shareholders since we introduced our first proposal to convert non-voting shares into common shares in late February,’ said Darren Entwistle, Telus president and CEO.