Mason Capital Management LLC (“Mason”) today responded to the report issued by Institutional Shareholder Services Inc. (“ISS”) regarding the proposed dual share-class collapse transaction of TELUS Corporation (TSX:T, T.A; NYSE: TU), which is to be voted on at a general meeting of TELUS scheduled for October 17, 2012.
Michael Martino, Mason’s principal and co-founder, said: “The ISS report recognizes – and agrees with – Mason’s core arguments: that the voting shares are of greater value than the non-voting shares, and that TELUS’ proposed one-for-one exchange ratio dilutes voting shareholders’ voting rights and transfers the premium they have paid for to the non-voting class.”
The ISS report, dated September 28, 2012, recognizes the validity of Mason’s fundamental arguments. For example, the report notes that:
- “The proposed exchange ratio… in veering off from the well-established, enduring market ratio, is a cause for concern, and should legitimately be scrutinized by shareholders.”
- “The fact that the special committee’s financial advisor could not explain why the non-voting shares trade at a discount to the voting shares does not change, much less dismiss, the demonstrable facts that the discount does exist in market prices, and that any exchange ratio other than the market ratio affords a market premium – real economic value – to one class of shares or the other.”
- “An exchange ratio which forces the voting shares to suffer voting dilution, then cede a market premium to the other share class as well, flies in the face of the principle that voting rights themselves have value.”
- “Additional economic benefits from the transaction that would benefit both classes of shares – particularly the expectations of additional trading liquidity – do not necessarily provide logical justification for a transaction at this particular exchange ratio.”
- “…[T]he terms of the transaction do stipulate that employee stock options for non-voting shares will be exchanged for options on voting shares – which already traded at a higher price – without adjusting the strike price. This effectively grants a bonus, if not quite a windfall, to holders of those options, who saw their option value appreciate simply through the mechanism of the option exchange, before any organic price appreciation.”
Mr. Martino continued, “In light of ISS' strong and highly critical statements against TELUS’ proposed one-for-one exchange ratio, we expect voting shareholders, like us, will be perplexed and confused by ISS’ self-contradictory recommendation for the proposal. Fortunately, the power to defeat TELUS unfair and oppressive proposal lies with the voting shareholders, who we urge to vote “NO” on TELUS’ proposed share collapse."