Outlines True Economic Implications of TELUS’ Proposal to Exchange Non-Voting Shares for Voting Shares on a One-for-One Basis
Urges TELUS Voting Shareholders to Vote the BLUE Card and Reject the Proposal
NEW YORK--(BUSINESS WIRE)-- Mason Capital Management LLC (“Mason”) today sent a letter to voting shareholders of TELUS Corporation (TSX:T) regarding the proposed dual share-class collapse transaction which is to be voted on at a general meeting of TELUS on October 17, 2012.
The letter summarizes the rationale for Mason’s opposition to TELUS’ proposal to convert its non-voting shares into voting stock on a one-for-one basis and outlines the economic impact it will have on all TELUS voting shareholders.
The text of the October 2, 2012 letter follows:
Dear Fellow TELUS Voting Shareholder:
You paid a premium for your voting rights. Now you have the opportunity to save your voting power and the premium that you paid by voting NO on TELUS' proposal to exchange its non-voting shares for voting shares on a one-for-one basis. Here are the facts about the true economic implications of what TELUS is proposing. Based on this proposal, you will be forced to:
- Relinquish 46% of the voting power you currently hold for no compensation;
- Give up the premium that you paid for your voting shares for no compensation; and
- Accept one of the worst offers for a share collapse seen in Canada in over a decade.
We understand the corporate governance goals of having one class of shareholders, but those benefits can still be attained under a share conversion with an exchange ratio that is fair for ALL TELUS shareholders. If you vote to REJECT the unfair one-for-one conversion ratio proposed by TELUS, TELUS should return with an appropriate conversion that treats all shareholders fairly.
TELUS’ October 17, 2012 meeting is rapidly approaching. We urge you to vote your BLUE proxy or voting instruction form prior to 12:00 noon (EDT) on October 15, 2012.
Mason owns a significant stake in TELUS, and our economic interests are aligned with those of all TELUS voting shareholders on this proposal. We are not seeking to influence management decisions, change the composition of the TELUS Board or seek other changes relating to the underlying enterprise. To the contrary, Mason’s position is a very simple one: We believe that voting shareholders deserve to be treated fairly and that any dual-class share collapse should be implemented in a manner that does not result in the transfer of both wealth and voting power to the non-voting shareholders without providing compensation to the voting class.
TELUS’ PROPOSAL BLATANTLY IGNORES THE FACT THAT VOTING SHARES ARE HISTORICALLY – AND FUNDAMENTALLY – MORE VALUABLE
As holders of TELUS voting shares, you know that when acquiring TELUS shares, you had the choice of buying TELUS shares without voting rights, or paying a premium for the right to vote. You chose to pay that premium. In fact, in the 13 years prior to TELUS’ initial proposal in February 2012, $98 billion in TELUS voting shares traded at an average premium of 4.83% relative to the non-voting shares, and the premium has been as high as 15.23%.
In addition to the historical trading-premium of voting shares, there is a fundamental value in holding the right to vote. The voting class of shareholders possesses exclusive governance rights that enable them to effectively control the company. Voting shareholders have the ability to elect directors, who in turn set the strategic direction of the company – including whether to pursue a change in control transaction – and are entitled to requisition special meetings.
Now, TELUS is attempting to force through a share collapse proposal that would make voting shares and non-voting shares equal in value without compensating voting shareholders for the premium they have already paid. For voting shareholders, this proposal would result in an economic loss of $183.6 million in value and a 46% reduction in voting power – with no compensation whatsoever.
TELUS HAS CONSISTENTLY DEMONSTRATED A FIXED MINDSET AND DISMISSED ITS SHAREHOLDERS’ VALID CONCERNS
Mason understands the corporate governance goals of having one class of shareholders, and we are not opposed to a share collapse, provided there is a fair exchange ratio. Despite our repeated attempts to engage TELUS to discuss conversion options and an exchange ratio that would treat ALL shareholders fairly, TELUS has obstinately refused to consider anything beyond the flawed and oppressive one-for-one exchange.
Interestingly, the majority of TELUS’ Board and Management team’s holdings are tied to the non-voting shares. As a group, the Board and management team hold approximately $150 million more in non-voting shares than voting shares and stand to make more than $4 million – at the expense of voting shareholders – if this proposal is approved. TELUS’ response is that this wealth transfer “does not constitute a material interest”. We can’t help but ask ourselves whether the Board and management would have put forth this same proposal if their holdings were instead tied more closely to voting shares.
TELUS RAN A FLAWED AND CONFLICTED PROCESS
When the directors of a company decide to undertake a transaction to rearrange the voting rights of its shareholders, no matter how noble their intentions, their overriding duty is to ensure that it is implemented in a fair manner so as to respect the rights and interests of shareholders affected. TELUS failed to perform this function. TELUS did not establish a process whereby the interests of each class would be fully and independently considered and never obtained an independent fairness opinion for the voting class.
Instead, TELUS has closed its eyes to the market premium of the voting shares and the intrinsic value associated with voting rights. TELUS relied on a flawed Scotia Capital Fairness Opinion for the non-voting shareholders to support its proposal. Scotia disregarded the historical average premium of 4.83%, which is derived from $98 billion in trades over 13 years, and ignored the increases or decreases in share value that resulted from the exchange ratios in the 22 precedent transactions it considered. Scotia’s list of 22 precedent transactions included 14 in which only one class of stock was traded, making such “precedents” meaningless in assessing the TELUS proposal. In 13 of these 14 transactions, the high vote shares were not publicly traded prior to the conversion and are therefore not at all comparable to TELUS, where both share classes are widely held and have excellent trading liquidity. In the remaining (and relevant) eight precedents, five of them had an exchange ratio greater than one-to-one.
Even more notable, Scotia completely missed five relevant Canadian precedents, including Sprott, where high vote shares received a 1.25-to-1 conversion ratio, despite the existence of coattail protections. By focusing on the wrong precedents and disregarding trading prices – a critical component of any exchange offer – Scotia delivered a flawed opinion.
TELUS’ PROPOSAL IS AMONG THE WORST DEALS IN RECENT CANADIAN HISTORY FOR HOLDERS OF SUPERIOR VOTING RIGHTS
At the request of Mason, Blackstone Advisory Partners L.P. conducted an empirical analysis of 25 precedent share-class collapse transactions (the “Precedent Analysis”). The data from these transactions implies a 1.0774-to-one exchange ratio to the holders of TELUS voting shares based upon the average premium, as a percentage of the applicable company’s total market capitalization, received by the class of shares surrendering voting rights in these relevant transactions. The data also shows that TELUS’ proposal would result in a loss of $1.05 (or 1.9%) in value of each voting share, which is equivalent to a transfer of $184 million from voting shareholders to non-voting shareholders. TELUS’ proposal would cause voting shareholders to suffer a greater loss of value, both in dollars and as a percentage of market capitalization, than any Canadian precedent reviewed.
The full Blackstone Precedent Analysis dated September 24, 2012 is set out in the Mason dissident circular. It presents an analysis of 25 precedent transactions, market data and the terms of the proposed TELUS transaction, which Mason considered in reaching its conclusions in the Mason Circular. The Precedent Analysis does not constitute a fairness opinion, valuation, solicitation or recommendation by Blackstone as to how shareholders should vote on the proposed transaction. Blackstone is an internationally recognized investment bank that is regularly called upon to provide financial advisory services with respect to mergers & acquisitions and other corporate transactions, including analyses relating to dual share class unifications.
FOCUS ON THE FACTS – DO NOT BE DISTRACTED BY TELUS’ MISLEADING AND EGREGIOUS ASSERTIONS
Over the last several months, TELUS has sought to distort the facts and distract voting shareholders from the issue at hand by offering up baseless criticisms of Mason. TELUS has asserted that when it announced its planned share collapse, both classes of stock went up as a result of shareholder support of the transaction. What TELUS fails to acknowledge is that the same day it announced the share collapse, TELUS also announced a dividend increase of $0.12 per share. Upon examination of the trading activity following dividend increases over the past four years, we found that the average increase to TELUS’ total market capitalization was 5.6% -- even higher than the 3.7% increase that was realized on the date of TELUS’ share collapse and dividend announcements. Based on this data, one can fairly and reasonably conclude that the price movement was a result of the dividend increase and not tied to TELUS’ claimed benefits of a share collapse transaction.
We’d also like to remind you that voting shareholders have already spoken on this matter. This past May, TELUS was forced to withdraw the very same share conversion proposal because it faced certain rejection by shareholders, yet TELUS remains unwilling to consider a fair exchange ratio. Now, in a desperate and coercive effort to force this proposal through on its second try, TELUS is moving the goalposts by lowering the threshold for approval from 66.67% down to 50%. This oppressive tactic raises serious fiduciary questions and begs the question, how far will TELUS go to advance the interests of non-voting shareholders over voting shareholders?
ON THE QUESTION OF A FAIR EXCHANGE RATIO, MASON IS 100% ALIGNED WITH THE INTERESTS OF ALL VOTING SHAREHOLDERS
Mason is engaged in this argument because we want to protect our rights – and the rights of all voting shareholders. We will not stand idly by as TELUS seeks to effect this unfair and highly-flawed proposal, which leading proxy advisory firm Institutional Shareholder Services Inc. (“ISS”) has stated is a “cause for concern” and “should legitimately be scrutinized by shareholders.”
|Michael E. Martino|
|Principal and Co-Founder|
|MASON CAPITAL MANAGEMENT LLC|
EXERCISE YOUR FULL POWER AS A VOTING
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Forward looking statements:
This letter to shareholders contains statements about expected future events that are forward-looking. By their nature, forward-looking statements require Mason to make assumptions and predictions and are subject to inherent risks and uncertainties. Whether actual results and developments will conform with our expectations and predictions is subject to a number of risks, assumptions and uncertainties, many of which are beyond our control, and the effects of which can be difficult to predict, including, without limitation, risks, assumptions and uncertainties related to: the approval of the Proposal by shareholders, the consummation of the Proposal by TELUS; actions taken by TELUS to frustrate Mason’s actions or objectives; changes in market conditions; the market value and trading price of the Common Shares; the level of foreign ownership of TELUS; actions taken by TELUS to remedy a breach of the foreign ownership levels; intervention by regulators or the courts; and other factors set out in TELUS’ Management Circular. In evaluating any forward-looking statements in this letter to shareholders, we caution readers not to place undue reliance on any forward-looking statements. Readers should specifically consider the various factors which could cause actual events or results to differ materially from those indicated by our forward-looking statements. There is significant risk that the forward-looking statements will not prove to be accurate. Unless otherwise required by applicable securities laws, we do not intend, nor do we undertake any obligation, to update or revise any forward-looking statements contained in this letter to shareholders to reflect subsequent information, events, results or circumstances or otherwise.
Sard Verbinnen & Co
Jonathan Gasthalter/Dan Gagnier/Brooke Gordon
+1 (212) 687-8080
NATIONAL Public Relations
Peter Block / Sarah Coombs / Jennifer Lee
+1 (416) 586-0180
Source: Mason Capital Management LLC