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Telus Corp: Dual Class Share Shenanigans
Posted by: Frank Voisin (IP Logged)
Date: April 11, 2012 06:29AM
Telus Corporation (TSE: T) is the third player in Canada’s telecommunications oligopoly, providing a variety of internet, traditional phone and mobile services. The company has a dual class share structure, with both voting and non-voting shares. As expected, the voting shares have traditionally garnered a slight premium. Then the company made this announcement in late February:
Quote:The interesting point here is that, despite the premium price of voting shares, the company decided that a 1:1 conversion ratio would be fair. This created an arbitrage opportunity:
Arbitrage opportunities don’t last long, and pretty quickly after the consolidation plans were announced, the traditional pricing gap between the voting and non-voting shares contracted as investors shorted the voting shares and went long the non-voting shares.
Then, in recent weeks, the gap began to once again expand. It turns out that not everyone was happy with the 1:1 ratio and pressure began to mount for the deal terms to be changed. Some investors began shorting the non-voting shares, believing that the ultimate conversion ratio would have to change to reflect the historical premium paid by investors in the voting shares. One of these investors, Mason Capital, announced that it would vote against the conversion:
Quote:The next steps will be a mad rush until May 9th by each side to shore up support for their positions. Since the vote requires 2/3 approval by each class of shareholders separately, and Mason owns almost 19% of the voting shares, Telus has its work cut out for it. Given that Mason has about $1.2 billion riding on the short side of its bet, my guess is they already have the support they need.
A lot of the comments circulating online about this are unfavorable to Mason, but I think Mason’s point here is legitimate. An investor paying a premium for voting rights should never have to see others get the same right for free. I am also unconvinced by the company’s explanation for the need for this conversion, which has been variously described as such:
Quote:What the CEO fails to mention is that the discount will be eliminated at the expense of those who paid for it up front. There’s no such thing as a free lunch and the combination of two share classes does not magically create sustained shareholder value.
What do you think of this?
Author Disclosure: None
Re Telus Corp Dual Class Share Shenanigans
Posted by: batbeer2 (IP Logged)
Date: April 11, 2012 12:06PM
>> What do you think of this?
I think everyone owning these shares should instruct their broker to not loan them out to short sellers.
That would create some fireworks for Mason.
Thanks for an article worth reading.