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Telus has a history of rewarding shareholders with dividend growth, according to Yield Hog panelist Tony Demarin of BCV Asset Management.SHAUN BEST

So now we know who is messing with Telus Corp. 's plan to collapse its dual-class share structure: New York-based hedge fund Mason Capital. And it appears Mason does indeed have a shot at blocking the proposal.

Mason said in a filing today that it has accumulated almost 19 per cent of Telus's voting shares, and plans to vote against Telus's proposal to convert its non-voting shares into voting shares at a 1:1 ratio.

Given that Telus needs approval of two-thirds of the class to do the consolidation, Mason is in a realistic position to block the plan. To do so, one of two things has to happen. Turnout of investors who are in favour of the deal has to be low, or Mason has to have allies. Word is, Mason does.

Telus left an opening for hedge funds to make a buck when it announced the conversion proposal in February. The non-voting shares have generally traded at a discount of about 5 per cent, or an average of about $2.50 a share, to Telus voting shares. So the 1:1 ratio was a bit of a gift to owners of non-voting stock.

The standard play for a hedge fund in such a situation was to buy non-voting stock, go short the voting shares, and sit back. When the conversion was completed, you would be given voting stock in return for your non-voting stock. You could close out the short position, and be up $2.50.

But then something happened. As some funds put on that trade, basically erasing the historical gap between the two classes of stock, other funds like Mason then appear to have gone the other way.

The opportunity was this: If Mason and others could buy enough voting shares to create the threat of stopping Telus's plan when it came to a shareholder vote, while shorting the non-voting stock, the gap between the stock classes would more than likely widen out again (and it has been doing so). Mason would make money as the gap widened.

It's clear Mason has been shorting non-voting shares. The fund manager said in its filing that it had shorted at least 21.6 million non-voting shares, but had gotten requests from the people who lent the stock to return it.

That's likely long-term holders of Telus non-voting shares realizing that the consolidation is in jeopardy and recalling any stock that's been shorted.

That turns the trade for Mason and any hedge funds that are quietly allied with it from a hedged one into a directional trade, making it more risky.

If Telus wants to win this vote, it's going to have to hustle. The company will need to get on the phone to ensure that all of its institutional shareholders who favour the consolidation recall any remaining non-voting stock that's been shorted, and ensure that all voting shareholders vote at the meeting to approve the consolidation.