The stock market says Telus Corp. is on its way to defeating Mason Capital, the hedge fund that has been a thorn in the telecom company’s side for months.
The spread between the prices of Telus’s two classes of shares clearly signals the market's bet that Telus will succeed in pushing through the planned one-for-one collapse of its dual-share structure in a meeting next month, despite opposition from Mason.
Mason’s strategy is built to profit from a widening price discrepancy between Telus voting shares and non-voting shares. Up until this week, the spread had consistently been more than $1. Now, the spread is 46 cents and shrinking. The closer the spread gets to zero, the more the market is pricing in Telus successfully converting its non-voting shares to voters on a one for one basis.
The odds of Telus winning got a lot better on Tuesday evening, when a judge ruled in a strongly worded opinion that Mason had no right to hold a shareholder meeting to attempt to thwart Telus’s plan (Mason says it plans to appeal).
In light of the ruling, it made perfect sense that the spread would shrink drastically on Wednesday when markets opened. Here’s the funny thing though: The spread collapsed on Tuesday, before the judge’s ruling was made public. As of Monday night, the spread was $1.14 between the higher-priced voting shares and the lower-priced non-voters. By Tuesday’s close, it was less than half that, at 56 cents.
There are a few possible explanations for the pre-judgement movement.
An unlikely one is a leak. While plenty of things leak in Canadian capital markets, court rulings are not in that category. Also, the ruling wasn’t distributed, even to lawyers for the sides, until after the market closed.
Another possibility is that Mason was forced to cover some of the short sales it used to establish its position, which would act to close the spread.
A third possibility is that someone simply guessed right. Still, regulators might want to have a look.