NEW YORK – Is Institutional Shareholder Services (ISS) for or against Telus’ share consolidation plan? The proxy advisory firm back in April reiterated its recommendation to institutional clients that they vote in favour of the proposed plan that would eliminate Telus’ dual class share structure, but now appears to be contradicting itself, according to a news release sent out by the chief opponent of the plan, Mason Capital Management.
On the weekend, Mason issued a response to a new report issued by the ISS it claims is now critical of the share consolidation plan which is to be voted on at a general meeting of Telus scheduled for October 17, 2012
“The ISS report recognizes – and agrees with – Mason’s core arguments: that the voting shares are of greater value than the non-voting shares, and that Telus’ proposed one-for-one exchange ratio dilutes voting shareholders’ voting rights and transfers the premium they have paid for to the non-voting class,” said Michael Martino, Mason’s principal and co-founder in a news release.
Mason claims the ISS report, dated September 28, 2012, now recognizes the validity of its fundamental arguments. Mason highlighted the following comments from the ISS report:
- The proposed exchange ratio… in veering off from the well-established, enduring market ratio, is a cause for concern, and should legitimately be scrutinized by shareholders.
- The fact that the special committee’s financial advisor could not explain why the non-voting shares trade at a discount to the voting shares does not change, much less dismiss, the demonstrable facts that the discount does exist in market prices, and that any exchange ratio other than the market ratio affords a market premium – real economic value – to one class of shares or the other.
- An exchange ratio which forces the voting shares to suffer voting dilution, then cede a market premium to the other share class as well, flies in the face of the principle that voting rights themselves have value.
- Additional economic benefits from the transaction that would benefit both classes of shares – particularly the expectations of additional trading liquidity – do not necessarily provide logical justification for a transaction at this particular exchange ratio.
- …[T]he terms of the transaction do stipulate that employee stock options for non-voting shares will be exchanged for options on voting shares – which already traded at a higher price – without adjusting the strike price. This effectively grants a bonus, if not quite a windfall, to holders of those options, who saw their option value appreciate simply through the mechanism of the option exchange, before any organic price appreciation.
“In light of ISS' strong and highly critical statements against Telus’ proposed one-for-one exchange ratio, we expect voting shareholders, like us, will be perplexed and confused by ISS’ self-contradictory recommendation for the proposal. Fortunately, the power to defeat Telus unfair and oppressive proposal lies with the voting shareholders, who we urge to vote no on Telus’ proposed share collapse,” added Martino.
UPDATE: However, the ISS report itself does end up concluding with this statement: "The dissidents have not substantiated their assertions that trading liquidity will suffer from the collapse, that foreign ownership is already above the regulatory threshold (which would force a sell-off), that the apparent market embrace of the transaction is due single-handedly to the dissidents’ own frenzied purchase of shares, or that shareholder expectation of continued easing of foreign ownership restrictions is unrealistic, support FOR the transaction continues to be warranted.
"As the proposed transaction would align voting rights with economic interest, offers shareholders meaningful economic opportunity through increased trading liquidity and a dual listing on the NYSE, and has been ratified by a strong market response – and as the company’s Articles effectively preclude any exchange ratio other than the proposed one-for-one exchange –support for this proposal is warranted for both classes of common shares."
