Telus Corp. is proposing to eliminate its dual-class share structure with an eye to extending voting rights to all shareholders.
The Vancouver-based telecom company announced late Tuesday a plan to convert each non-voting share into a common share on a one-for-one basis. It also announced a 5-per-cent quarterly dividend increase, to take effect in July.
Telus’s proposed share conversion is aimed at shedding a redundant share structure, dating back more than a decade, now that it no longer has a single, dominant foreign shareholder.
President and chief executive officer Darren Entwistle said Telus is acting on the advice of shareholders by unveiling the proposal, arguing that the move would also result in improved trading liquidity. If the plan is approved, Telus’s common shares would be dual-listed in Toronto and New York for the first time.
“Notwithstanding the fact that both classes of shares are entitled to the same dividend, are widely held and have similar liquidity, our non-voting shares have historically traded at a discount to our common shares,” Mr. Entwistle said in a release.
“The approval of this proposal will eliminate this price discount. Telus believes the proposed simplification of our share structure to a single class is beneficial and fair to all shareholders, and consistent with good corporate governance.”
The majority of Mr. Entwistle’s shareholdings are voting shares, chief financial officer Robert McFarlane said in an interview late Tuesday.
Telus had about 174.9 million common voting shares outstanding and 149.9 million common non-voting shares outstanding as of Jan. 31, according to Bloomberg data.
Before Tuesday’s late announcement, Telus’s non-voting shares gained 5 cents to close at $53.80 on the Toronto Stock Exchange, while its voting-class shares lost 12 cents to close at $55.90.
Telus also announced Tuesday that it is hiking its quarterly dividend 3 cents, to 61 cents as of July 3.
Shareholders will vote on the share-conversion plan at the company’s annual meeting on May 9. To pass, it must be approved by two-thirds of the votes cast by common shareholders, and two-thirds of the votes cast by non-voting shareholders. It would have to be finalized through a court-approved plan.
Michael Simpson, a portfolio manager with Sentry Investments who owns Telus stock, applauded the move, and said he will vote in favour of the proposal. “It will eliminate the discount between the voting and non-voting shares, which has ranged from $2.20 to $3 a share.”
After all approvals, Telus estimates it would have about 325 million issued and outstanding common shares.
Dual-class shares have long been criticized by corporate governance advocates for giving some shareholders more power than others through voting rights. They are often used by family controlled companies (such as Telus’s chief rival Shaw Communications Inc.), which are eager to obtain capital without relinquishing control of the business.
In Telus’s case, the dual-share structure dates to the 1998 merger of Telus Corp. and BC Telecom. At the time, BC Telecom was a controlled subsidiary of U.S.-based GTE.
GTE was subsequently acquired by New York-based telecom giant Verizon Communications Inc. When Telus merged with BC Telecom to create a national carrier, Verizon took sizable holdings of non-voting shares to remain compliant with the Canadian government’s foreign investment rules.
In 2000, Telus acquired Clearnet, which already had a dual-share structure. Part of the purchase consideration was a share-for-share exchange, which made it necessary to maintain that dual-share structure. In 2004, Verizon sold its 22-per-cent interest in Telus.
Telus currently estimates its foreign shareholdings at less than 20 per cent, which would ensure it remains compliant with federal rules.
With files from reporter Shirley WonReport Typo/Error
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