VANCOUVER – Telus' seesawing foreign ownership levels have once again come down to the 15% level the carrier announced for mid-November. Based on large reservation applications by non-Canadian investors, most likely from New York hedge fund Mason Capital, Telus' potential foreign ownership level briefly spiked to more than 30% at the end of November. These reservation applications have now expired unfilled and therefore all requests by non-Canadians to purchase common shares are being considered and approved, if they do not risk causing the company to exceed the foreign ownership regulatory cap of 33 1/3% says Telus.
Telus believes Mason Capital temporarily borrowed or otherwise acquired its shares for a few days over the end of the month to avoid publicly disclosing what otherwise would have been a significant reduction in its shareholdings in Telus. A similar pattern was observed at the end of October.
Mason previously filed on September 10, 2012 under the Alternative Monthly Reporting System (AMRS) that it owned approximately 18.7% of Telus Common Shares as of August 31, 2012. The AMRS only requires updated disclosure within 10 days after the end of a month if an investor's position has materially changed as of the last day of that month compared to their previous position disclosed pursuant to the AMRS. In contrast, entities subject to the usual early warning rules must normally file details of any material changes in their trading position promptly after making the change and insiders (including entities holding more than 10% of Telus' common shares), must ordinarily file a report within five days of any change in their position, giving investors critical information on a timely basis and ensuring an open and transparent market.
The AMRS is intended to allow large but passive institutional investors – such as pension funds – to avoid the extra workload of having to file daily reports on their trades.
"Mason Capital's trading tactics appear designed to exploit the AMR system so that they can hide their true position in Telus shares," said Robert McFarlane, Telus Executive Vice-President and CFO. "It's a misuse of a tool created for large passive investors whereas Mason has employed an activist trading strategy to undermine Telus' efforts to consolidate its share structure. By using this disclosure system to avoid reporting their shrinking holdings in Telus, we believe Mason is hoping to create the illusion that they are maintaining their investment position while awaiting the judgment of the BC Supreme Court on their appeals against Telus' application for a Final Order to approve the share exchange plan of arrangement. Such a tactic is consistent with an objective to maintain the largest possible spread between our share class prices, while they continue to exit their remaining spread widening trade position in order to minimize their financial loss."
Telus noted several large trades at the end of October and again at the end of November. Both times, Telus saw an approximately corresponding increase in the short common position. Subsequently, these trading positions were unwound immediately following month-end. Telus believes Mason was temporarily increasing its ownership over the reporting period and thus avoiding reporting that its actual ownership in the carrier has declined sharply as it exits its position with as little financial loss as possible.
