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Telus stock consolidation brews "potential conflict of interest" - Academic

Telus stock consolidation brews "potential conflict of interest" - Academic

Canadian telecoms company Telus' (TSE:T) plans to end its dual-class share structure could be a "potential conflict of interest" for certain executives, according to a Canadian business academic.

Earlier this year, a proposal to convert Telus non-voting shares into a common share on a one-for-one basis was dropped by Telus as activist U.S.-based hedge fund Mason Capital Management, which controls 20 per cent of Telus common shares, launched a campaign against the consolidation. Mason saw the proposal as unfair and is seeking a higher conversion premium as Telus voting shares have historically traded higher than non-voting shares.

In a recent blog posting, Dr Richard Leblanc, Associate Professor in Law, Governance & Ethics at Toronto's York University said that Telus' plans to collapse its dual-share structure brought up "red flags".

"We will see how this case plays out, but the red flags to me at least, are (i) the potential unfair treatment of one class of shareholders to the benefit of another; and (ii) the potential conflict of interest by the Telus board and certain executives. These are both legitimate questions and areas of inquiry," Leblanc wrote.

"Telus appears to be attempting to collapse voting and non-voting shares without apparently acknowledging a relevant historical practice of around a 4-5% premium at which voting shares have been trading. The case is important as other companies with dual class shares may contemplate similar collapses," York University's Leblanc wrote.

Leblanc cited one expert report that said: "16 individuals on the board and in the executive office stand to benefit a total of $3,370,003."

The York University professor write that a board of directors cannot disregard the interests of one class of shareholders in favour of another. 

"If it does, voting shareholders may properly claim that their interests have been unfairly disregarded or prejudiced under what is known as the "oppression remedy."

Telus has scheduled a meeting in October at which shareholders will be able to vote on the proposal. The firm believes that the activist investor may not be able to block the plan this time round.

"We're going to defeat Mason, which will be cheered on by good corporate governance advocates," Telus CFO Robert McFarlane told the press recently. 

Mason's principal and co-founder Michael Martino responded: "Mason will vigorously oppose Telus' latest attempt to take value from voting shareholders and transfer it to the non-voting shareholders, including Telus' board of directors and company executives, whose personal economic interests are tied to the non-voting stock."

The full blog posting from Dr Leblanc can be read here: http://www.yorku.ca/rleblanc/blog/?p=1124

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August 10 2015

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