VANCOUVER – Telus announced today that it will become Canada’s largest income trust next year, assuming shareholders approve.
After its major announcement last week that the company will spend $600 million upgrading its network, the western telco’s board of directors unanimously approved the proposal from Telus management to reorganize the publicly trade company into an income trust fund. It will be the largest income trust (for now, unless BCE decides to go the same route sometime in the future, as has been speculated).
Initial distributions are anticipated to be in the range of $3.90 to $4.10 per unit on annualized basis, says today’s press release. The shareholder information circular is expected in December for special meeting in January 2007
The proposed reorganization is designed to enhance Telus’ national growth strategy and increase shareholder value by distributing an increased portion of Telus’ cash flow directly to fund unitholders, says the press release. "It is expected that Telus will enhance its ability to continue funding capital expenditures and future growth opportunities in its core business, and that units of the fund will be valued in more favourable terms than Telus shares currently. The current business and operations of Telus will be unaffected by the reorganization and will continue to be conducted by the current leadership and team members of Telus," it continues.
The conversion will be accomplished by way of a plan of arrangement under the Business Corporations Act (British Columbia) that is subject to the approval of at least 66 2/3% of the votes cast by the security holders of Telus at a special meeting expected to be held in January 2007.
Under the terms of the proposed conversion, holders of Telus common voting and non-voting shares will receive one trust unit of the fund for each Telus share held. The fund will be a mutual fund trust and have only one class of units.
"Creating Canada’s premier income trust supports the continued advancement of the successful national growth strategy Telus initiated in 2000," said Darren Entwistle, Telus president and CEO, in a statement. "The proposed reorganization reflects a continuation of our track record of making investments for future growth and returning surplus cash generated from our superior asset mix to shareholders in the most tax efficient way possible. Furthermore, converting Telus in its entirety to an income trust ensures that our integrated core businesses continue to drive operational excellence, differentiating Telus from our competitors."
Robert McFarlane, executive vice president and CFO added: "The reorganization into an income trust should enhance shareholder value by significantly increasing future cash flow available for distributing to unitholders and for investing in growth. Telus is pursuing a trust conversion at this time since it has recently utilized all of its tax assets and a conversion early in 2007 will optimize its future taxable position.
"Shareholders should also benefit from increased trading liquidity, which is expected to result from collapsing the current separate voting and non-voting shares to a single class of fund units. The proposed trust conversion should also be beneficial to debt holders given it is expected to enable increased future cash flow being available for debt servicing without affecting our existing prudent long term debt leverage policies," explained McFarlane.
The initial level of distributions mentioned above is more than 3.5 times the current annualized dividend level of $1.10. It is expected that Telus will maintain the current quarterly dividend level pending shareholder approval of the proposed income trust conversion.
Telus is also today reaffirming its 2006 consolidated annual guidance for revenue, EBITDA, EPS, capital expenditures and free cash flow, which was last updated on August 4, 2006. Such guidance includes $7 million of estimated expenses in 2006 related to trust conversion. Annual 2007 consolidated guidance is expected to be released in December 2006.
In addition to the requirement for shareholder approval, the reorganization will be contingent on a number of other conditions including the receipt of all necessary regulatory and court approvals. The fund will be fully consistent and compliant with government regulation related to income trusts and with the foreign ownership and control rules for telecommunications and broadcasting.
"For Telus shareholders resident in Canada, the conversion of Telus shares into units will result in a disposition giving rise to a gain or loss for tax purposes. Consideration is being given to providing Telus shareholders with an exchangeable security alternative that will permit eligible shareholders to elect to receive, at their option and subject to a maximum number of securities, securities exchangeable into units of the fund. The exchangeable securities will permit electing shareholders to defer all or part of the Canadian income tax consequences of the arrangement until the disposition of the exchangeable securities or their exchange for units of the fund. Current and potential shareholders are encouraged to seek independent tax advice in respect of the consequences to them of the proposed reorganization," says the press release.
TD Securities Inc. is providing advisory services to the board of directors in connection with the proposed reorganization and has provided the board with an opinion that the proposed conversion is fair, from a financial point of view, to Telus shareholders.
An information circular will be available on the Internet at www.sedar.com, www.sec.gov and on Telus’ web site at www.telus.com.
Although the timing of the completion of the conversion process cannot be predicted with certainty, management anticipates completion in late-January 2007.
