Mason Capital Management LLC ("Mason") today announced that it has filed and is sending its dissident proxy circular to voting shareholders of TELUS Corporation (TSX:T; TSX:T.A; NYSE: TU) ("TELUS") for the general meeting of TELUS scheduled for October 17, 2012. Michael Martino, Principal and Co-Founder of Mason Capital, said, “TELUS’ actions stand to set a very dangerous precedent in corporate Canada. The company is closing its eyes to the market premium of the voting shares and the rights of the class of shareholders who paid the premium for those voting rights. Mason urges all of TELUS voting shareholders to act now to protect these valuable rights, which were paid for, and to reject TELUS’ flawed proposal.” Added Martino, “Our effort to protect all voting shareholders is recognized by leading independent governance experts who have confirmed that this proposal, which unfairly transfers value from the voting shareholders and provides it to the non-voting shareholders, is the result of a flawed and conflicted process. The lack of a proper process was only exacerbated by the fact that the holdings of management and the Board are heavily weighted towards the non-voting shares. TELUS has misinformed shareholders from the outset, including about management’s and the Board’s interest in the non-voting shares. Mason will continue its efforts to redress TELUS’ failures of corporate governance to ensure that Voting shareholders receive the benefit of a fair exchange ratio in a dual-class collapse transaction.” In May 2012, TELUS withdrew its proposal to convert all of its non-voting shares into Voting shares on a one-for-one basis because it faced certain rejection by voting shareholders. TELUS' new share collapse proposal is the very same proposal that was already rejected, except this time TELUS has attempted to circumvent the requirement for a two-thirds approval of voting shareholders. TELUS is moving the goalposts in a coercive attempt to make it easier to force the transaction through.
The proxy circular filed today includes a letter to voting shareholders, which outlines the reasons Mason believes voting shareholders should vote “No” to TELUS’ proposed plan of arrangement to exchange non-voting shares into voting shares at a one-to-one ratio, including:
- Voting Shares are Historically and Fundamentally More Valuable Than Non-Voting Shares
- Over the past 13 years, TELUS voting shares have traded at an average premium of 4.83% relative to the non-voting shares; the premium has been as high as 15.23%.
- Investors acquiring TELUS shares have been able to freely choose whether to acquire TELUS shares without voting rights or to pay a premium to acquire TELUS shares with voting rights. The 4.83% average premium that investors have been willing to pay for voting rights is based on over $98 billion in trades in voting shares occurring over the 13 year period prior to the announcement of TELUS initial share collapse proposal.
- TELUS management falsely claims that voting rights have no value whatsoever, when in reality, the differences between the shares classes are real and substantive, and the significant and long-standing market price differential has been established in well-informed, highly-liquid markets.
- The right to vote is fundamental: it allows the Voting class to elect the directors and thereby determine the entire direction of the Company, including whether to pursue a change of control transaction.
- TELUS One-for-One Share Collapse Proposal Would Dilute the Voting Shareholders Exclusive Voting Control from 100% to 54% for Zero Consideration, and Result in a Permanent Loss of the Market Premium That the Voting Shareholders Have Paid For
- Blackstone Advisory Partners L.P. has provided a precedent analysis to Mason that implies a conversion ratio greater than 1:1. The Blackstone Precedent Analysis is available in its entirety with the letter to shareholders and proxy circular.
- TELUS’ Board Demonstrated Clear Corporate Governance Failures
- When the directors of a company decide to undertake a transaction to rearrange the voting rights of its shareholders, no matter how noble their intentions, their overriding duty is to ensure that it is implemented in a fair manner so as to respect the rights and interests of shareholders affected. The directors of TELUS failed to perform this function:
- They did not establish a process whereby the interests of each class would be fully and independently considered, including failing to obtain an independent fairness opinion for the voting class.
- They failed to address the apparent conflicts of interest arising from the fact that the personal holdings of the directors and senior officers are heavily tied to the non-voting shares. 89% of the personal holdings of the members of the special committee of TELUS shares, options, DSUs and RSUs were tied to the non-voting shares.
- They approved a transaction that, on its face, sacrificed the interests of one class to bestow a windfall benefit on the other.
- They consistently demonstrated a “fixed mindset”, refusing to consider any alternatives to TELUS management’s one-to-one proposal, despite it having been rejected by voting shareholders.
- TELUS Board Relied on a Flawed Scotia Fairness Opinion
- Regarding TELUS and the 22 precedent transactions referred to in Scotia Capital's fairness opinion, Scotia ignores historical trading prices of the two stock classes and the increases or decreases in share values that results from the exchange ratios in all 23 transactions
- Scotia disregarded the historical 4.83 percent premium of TELUS voting shares determined over 13 years and $98 billion of trades
- Scotia's list of 22 precedents included 14 where only one class of stock traded, which only highlights Scotia's disregard for the relevance of trading prices in determining an appropriate exchange ratio
- In the 8 precedents considered by Scotia where both classes traded, 5 of them had an exchange ratio greater than one-to-one for the benefit of the share class with superior voting rights
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