VANCOUVER – Telus withdrew its share conversion proposal just hours before the plan was to be put to a vote at its annual general meeting of shareholders on Wednesday morning.
The company said in a statement that it decided against the move in large part because of a campaign led by the U.S.-based hedge fund Mason Capital Management which it accused of using empty voting trading tactics designed to defeat the plan. Empty voting is buying shares to vote them while simultaneously short selling shares in the same company, a practice that Telus called “troubling” noting that it gives a fund more votes than its economic stake warrants.
Mason Capital was voting $1.9 billion worth of Telus’ common shares with only a $25 million net economic stake. If Mason’s shares are factored out, Telus said that its proposal was on track to be “overwhelmingly approved” by more than 92% of its shareholders.
Telus said that it originally made the proposal in response to shareholder feedback that preferred a single voting share class over a dual share class structure, as it would create superior share value and liquidity while aligning the its capital structure with what is generally viewed as best practice.
However, Mason Capital rapidly acquired common shares only after Telus announced the proposal in February, taking it to a position of 19% of the common shares, while simultaneously shorting a similar number of non-voting and common shares. Telus alleges that Mason's goal was to defeat the proposal and thus widen the gap in trading value between Telus' share classes in order to profit from its short trades.
"Our discussions with shareholders over the past few weeks and the 92.4 per cent of the votes they have cast in favour make it clear they are strongly supportive of Telus' proposal and that it would have been overwhelmingly accepted if not for the interference of Mason Capital”, said president and CEO Darren Entwistle, in the statement. “In the face of Mason's massive empty voting and the resulting inequity inflicted upon Telus' other shareholders, our best option at this juncture is to withdraw this proposal and reintroduce a new proposal in due course. We remain committed to a one-for-one share conversion and ask for our shareholders continued support."
Moving on to its financial results, first-quarter profits at Telus increased by 6.1% to $348 million from $328 million during the same period last year. Revenue was up 4% to $2.63 billion from $2.5 billion year-over-year, and consolidated EBITDA rose more than 2% to surpass $1.0 billion for the first time.
Wireless net additions of 22,000 were 31% lower year-over-year but included the addition of 63,000 postpaid subscribers. Postpaid net additions were up 21% from the same quarter in 2011, while smart phone subscribers now represent 56% of the total postpaid subscriber base compared to 38% a year ago. Total wireless subscribers increased 5.1% to 7.36 million.
Telus added 44,000 new TV customers in the quarter, virtually unchanged from the same period last year. The Telus TV subscriber base was 553,000 at quarter end, up 54% from a year ago. High speed Internet net additions of 16,000 were flat and reflected the pull-through effect of Optik TV sales, as well as continued broadband service expansion.
Total network access lines (NALs) dropped 4.6% year-over-year to 3.5 million. Residential lines fell 7.2% reflecting heavily discounted offers from competitors in Western Canada and wireless and Internet-based technological substitution. Business NAL losses of 10,000 accelerated from a year ago largely due to the implementation of voice and data services for wholesale customers in the first half of 2011, ongoing competition in the small and medium business market, and conversion from legacy voice services to IP services.
