The TELUS Share Conversion Proposal
Posted: 17 Apr 2014 Last revised: 4 Dec 2015
Date Written: January 14, 2014
On February 21, 2013, TELUS announced a proposal to convert the firm's non-voting shares into voting shares on a one-to-one basis, thereby eliminating the firm's dual class structure. Despite strong support from management, the board, two proxy advisory firms, and several large shareholders, the proposal was opposed by Mason Capital Management, a New York-based, event-driven hedge fund. Mason, which controlled almost 20% of the voting shares and had a large short position in the non-voting shares, had filed a dissident proxy circular recommending that shareholders vote against the proposal. With the success of the vote in doubt, the TELUS board had to decide what to do. Should they proceed with the vote as planned, postpone the vote with the intention of re-introducing the proposal at some point in the future, or cancel the proposal for good? And what should they do with Mason, which management viewed as an "empty voter" in this matter?
Although this case was written for an advanced corporate finance course, it is appropriate for other courses such as Investment Strategies, Alternative Investments, Hedge Funds, and Corporate Governance. The case has four learning objectives: 1) highlight the complex and poorly defined, yet increasingly common and controversial practice of "empty voting" (or equity decoupling); 2) provide an opportunity to discuss the mechanics and the economics of short selling as implemented by an event-driven hedge fund; and, 3) raise several fundamental questions about corporate governance such as why do shareholders have voting rights and why are voting rights valuable; and, 4) expose students to a range of institutional structures such as proxy contests, activist shareholders, dual class ownership structures, proxy advisors (ISS and Glass Lewis), and special committees.
Keywords: Empty voting, hedge funds, dual class shares, activist shareholders, Canada, corporate governance, proxy contests, short selling, telecommunications
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