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Mason Capital takes issue with analyst report on legal fight with Telus

People pass by a Telus store in Toronto.

Michelle Siu/The Globe and Mail

A U.S. hedge fund that is picking a legal fight with Telus Corp. over its failed share consolidation plan, is now challenging a research report written by a Bay Street telecommunications analyst.

Mason Capital Management LLC, which controls just under 20 per cent of Telus's common stock, issued a statement to the telco's other shareholders on Monday to address what it claims are "misleading statements" contained in a recent research note penned by Canaccord Genuity analyst Dvai Ghose.

That research note was published on July 11, one day after Mason filed a petition with the Supreme Court of British Columbia in an effort to force Telus to reveal more details about how investors voted on its now-withdrawn shareholder proposal. Mason has previously argued that proxy data could reveal whether Telus is in breach of foreign investment rules that prevent non-Canadians from controlling more than 33.3 per cent of the voting shares of major telecommunications companies.

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In his report, Mr. Ghose suggested that even if Telus is offside on foreign ownership, despite its rigorous controls, it has various remedies at its disposal (under the Telecommunications Act and the company's articles) to correct the problem, adding those counter-measures could have the potential to hurt Mason – which recently increased its ownership stake in Telus's common shares to 19.98 per cent from 18.7 per cent.

"The report incorrectly states that Telus could remove the voting rights associated with Mason's voting shares of Telus in order to remedy a failure by Telus to meet the Canadian ownership requirements," Mason said in its statement on Monday.

"Contrary to the report, if Telus were in breach of the Canadian ownership requirements, it would not be in a position to single out Mason's voting shares to resolve its compliance problem. Telus has issued reservation numbers to Mason in respect of all of Mason's voting shares, and all such shares are registered in the official allocation of shares established by Telus under its foreign ownership control procedures for ownership by non-Canadians. Telus has thus formally recognized Mason's right to hold such shares as a non-Canadian."

Mr. Ghose declined comment on Mason's press release on Monday. Telus, meanwhile, has previously stated that continues to be fully compliant with foreign ownership restrictions. None of Mason's allegations has been proved in court.

For its part, Mason is using a trading strategy that capitalizes on the historic price gap between Telus's voting and non-voting shares. Due its trading position, the hedge fund has an interest in maintaining the widest possible spread between the two share classes.

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