The U.S. hedge fund that is fighting a high-stakes proxy battle with Telus Corp. over its share-consolidation plan has won the latest round of legal wrangling in British Columbia's court system.
A three-judge panel from the British Columbia Court of Appeal has overturned an earlier decision by that province's Supreme Court that prevented Mason Capital Management LLC from holding a rival meeting of Telus shareholders.
Mason, which owns almost 20 per cent of Telus's voting shares, will now ask the court for directions on holding its own meeting of investors so they can consider its alternative proposal to secure a premium for voting shareholders. It will also ask the court to force a postponement of a Telus-requisitioned investor meeting on Oct. 17 at which shareholders are due to vote on the telco's plan to convert all non-voting shares to voting shares one-for-one.
The New York-based hedge fund has long argued that voting shareholders deserve a premium to reflect the traditional price gap that has existed between the two share classes. It has previously proposed a premium valuation of at least 4.75 per cent – the historical average trading premium of the voting shares over the non-voting shares or an enhanced minimum premium of 8 per cent. Securing such a premium would require a change to Telus's bylaws.
"We are pleased by the court's ruling, which fully vindicates our position that the voting shareholders of Telus should have the opportunity to vote on a fair exchange ratio share in a share collapse transaction," Mason said in a statement.
"Telus has refused to consider the concerns of its voting shareholders and has demonstrated that it was prepared to go to almost any length to force through its one-to-one proposal. Now voting shareholders will have the opportunity to have a say on the critical issue of a fair minimum premium for the Telus voting shares in a share conversion."
For its part, Telus appeared unfazed by Friday's court decision, with a spokesman indicating the company has no plans to put off its special meeting of shareholders. "We're looking forward to our Oct. 17 shareholder meeting," said Nick Culo, vice-president of corporate communications.
Telus has roughly 174.9 million voting shares and 150.8 million shares in the non-voting class. The price difference between the price of Telus non-voting and voting stock jumped Friday, signalling that the market is pricing in a bigger chance that Mason will defeat Telus's one-for-one share consolidation plan. The gap between the two classes of shares was 70 cents as of the end of the day Thursday. By Friday afternoon, after the ruling, it soared to $1.15 as voting stock rose and the non-voting shares fell.
"It should also be noted that, despite its hedged position, Mason does hold an economic interest in Telus. Further, its contention that the historic premium that has applied to the Telus common shares should be preserved in any share exchange is a cogent position that could reasonably be advanced by any holder of common shares," the British Columbia Court of Appeal said in its decision.
"In the exchange proposed by Telus, the common shareholders will see a massive dilution of their voting power without any direct economic compensation or benefit."
The court also stated that Mason's hedged trading strategy, which is predicated on exploiting the price spread between the two share classes, was a "cause for concern." Even so, it noted that such trading tactics are not illegal.
"There is, at the very least, a strong concern that its interests are not aligned with the economic well-being of the company. That said, there is no indication that it is violating any laws, nor is there any statutory provision that would allow the court to intervene on broad equitable grounds. To the extent that cases of 'empty voting' are subverting the goals of shareholder democracy, the remedy must lie in legislative and regulatory change," the court said.