By John Bugailiskis
VANCOUVER - Telus still finds itself fighting off a two-pronged battle involving its share-consolidation proposal that has seen a charge re-stated that it is breaking foreign ownership regulations, however, the company calls both actions “nuisance filings” that are unfounded and misleading.
Globalive Wireless Management, the parent entity of Telus competitor Wind Mobile, is demanding a public CRTC review of the incumbent carrier’s ownership structure. Globalive contends the number of voting shares owned by foreign investors in the competing carrier, such as hedge fund manager Mason Capital Management, is outside the 33.3% level permitted. It points to reports from shareholder services firm Broadridge Financial Solutions Inc. as evidence.
To some, it seems like payback to charges Telus made in 2009 when it spearheaded a drive to examine Wind's ownership structure that led to a rare CRTC public proceeding on the matter. In the end, then-Industry Minister Tony Clement overturned a ruling by the CRTC that barred Wind from the Canadian market because of its foreign funding. Despite the history, Shawn Hall, spokesperson for Telus, says he’s at a loss to explain Globalive’s recent actions.
“It is a bit difficult to understand their interest in this issue,” Hall told Cartt.ca. “They are not a public company, and they are exempt from Canadian foreign ownership rules because they have less than 10% market share.”
Telus warned in March that it faced the prospect of reaching foreign-ownership levels that could exceed the maximum allowed because at the time, Mason was acquiring blocks of voting shares in what became a successful attempt to halt Telus’ share-combination plan. Through the purchases, Mason claimed nearly 20% of Telus voting stock.
In filings made to the CRTC which it says was spurred on by the share conversion problems, Globalive alleges as much as 48% of Telus’ voting shares are in foreign hands, and that the company’s complex checks and balances are ineffective and only vaguely understood by outside observers, including regulators. But Telus’ Hall counters that Globalive’s methodology is faulty.
“Globalive’s response is inaccurate and misleading. It relies on false data to make a sensational claim,” contends Hall. Broadridge reports use geographical and mailing information to provide companies a snapshot of where their investors are based, but does not filter out short trading and other factors that can result in shares being counted more than once, he added, noting that Broadridge even wrote its own letter to the CRTC noting that its data should not and is not meant to be used to count shares in the way Globalive has.
“The issues they are putting forward simply don’t exist and we have definitely proven they don’t exist. We are fully compliant with foreign ownership obligations and our long established system to monitor and control foreign ownership works. Their filing is a waste of the CRTC‘s time and taxpayers dollars and should be dismissed.”
It’s now up to the CRTC to decide to act on the Globalive complaint.
Hall explains that Telus uses a foreign ownership monitoring and control process involving a reservation and declaration system for non-Canadian shareholders purchasing its voting shares. “The process has proven effective in maintaining our foreign ownership levels under the threshold allowed despite Mason’s efforts,” said Hall.
“The mechanisms in place collect requests to buy shares and approves only those that keep us within the foreign ownership request. Telus has never gone over 33.3% because our processes work.”
Telus says that as of June 29, 32.59% of its voting shares were held by non-Canadians and that the figure includes the ownership stake of Mason Capital Management.
The company has been in a year-long battle with Mason over a plan to eliminate its two classes of shares and convert into one class of common voting shares, which Mason opposes. Mason set out to defeat the Telus proposal because the voting shares would rise in value, relative to the non-voters.
Telus has stated publicly that despite the setback with Mason, it remains committed to a one-for-one share conversion and that it intends to reintroduce a new proposal in due course.
Telus claims that Mason had been conducting “empty voting,” effectively buying up voting shares of the company and simultaneously short-selling non-voting shares in an effort to undermine its share-consolidation proposal. “What they were trying to cause to happen is to increase the price split between the two shares to widen so they can profit from their short trades. That is directly contrary to the interests of other shareholders who want share appreciation", says Hall.
“It is just another nuisance play to advance their empty voting strategy to and generate short term profit for themselves at the expense of other shareholders.”
As previously reported, Mason recently called for a meeting of Telus’ voting shareholders to ask them to change the company’s bylaws to allow for a higher valuation for the voting shares. It contends a premium should be paid to voting class shareholders due to a subsequent windfall that would be created for those holding less valuable non-voting shares.
But Hall maintains that the only substantial difference between voting and non-voting shares is the ability to elect Telus directors, and that historically there has only been a “slight gap in their values, 4.5% on average”.
In addition, it’s company policy that in the event that foreign ownership restrictions are lifted, “our non-voting shares would automatically become voting shares,” adds Hall. “We will take their proposal under consideration,” he added, but gave no timeline when the company would respond.