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Telus Corp.'s proposal to convert each of its non-voting shares into a common share has met with resistance from Mason Capital Management.© Chris Wattie / Reuters

The war of words between Mason Capital Management LLC and Telus Corp. escalated Monday as the hedge fund accused the Vancouver-based telecom giant of engaging in conduct that is "abusive" to common shareholders who oppose its share-consolidation plan.

New York-based Mason, which controls about 18.7 per cent of Telus's common voting shares, opposes the company's proposal to convert each non-voting share into a common share on a one-for-one basis. It argues the voting class deserves a premium because those investors have traditionally paid more for their shares and is demanding that Telus amend or nix its proposal.

"Telus's proposal destroys this substantial value to the detriment of an entire class of shareholders, not just Mason," stated Michael Martino, Mason's principal and co-founder.

"Telus's tactics are particularly hypocritical in light of its own recent announcement that it will use the company's money to pay for shareholder votes, but only those that are in favour of its proposal. This conduct is abusive of Telus shareholders such as Mason who disagree with management's position."

Telus has hired CIBC to contact bank-based brokers with retail investors who own Telus shares to convince them to vote for the plan. It is paying brokers 10¢ for every favourable vote by a retail investor if the vote is successful.

While that strategy to boost voter participation is fairly common in proxy battles, Mason contends that paying for votes is an unseemly tactic. Telus estimates that 20 per cent of its total outstanding shares are held by retail shareholders.

In order to succeed, Telus's plan requires the approval of two-thirds of the votes cast by each class of shareholder at its annual meeting on May 9.

Telus's typical voter turnout on proxy issues has been about 45 to 50 per cent in recent years. As a result, if voter turnout is low, particularly among retail investors, Mason would be in a realistic position to defeat the proposal due to its substantial voting power – even though its net economic interest in Telus is about 0.25 per cent due to its short trades.

(Mason is using a trading strategy that exploits the historical price gap between the two stock classes. If it is successful in blocking the deal, the non-voting shares would likely fall, relative to the voting shares, allowing it to reap a profit.) On Monday, Telus took pains to stress that proxy advisory firm Glass, Lewis & Co., LLC has joined Institutional Shareholder Services in reiterating its recommendation that shareholders endorse the proposal.

"This is an important proposal that, if successful, will enhance Telus's share liquidity and value for all long-term shareholders while advancing good governance," said Telus CEO Darren Entwistle. "I urge all shareholders to participate in the vote, and support our proposal."

That view was echoed by James Black, vice-president of Canadian equities at Beutel, Goodman & Company Ltd., which is a long-term Telus shareholder.

The Toronto-based money manager holds just under eight million voting shares and roughly one million non-voting shares – a position worth roughly $500-million at current share prices.

The firm has owned Telus shares for more than four years and supports its share-consolidation proposal because it simplifies Telus's capital structure and increases liquidity, while also aligning voting rights with economic interest, he said.

"Voting shareholders have not been abused in this process," added Mr. Black. "I own Telus shares and we have not been abused. We think this is a good transaction and we think it is appropriate."

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