A Telus (TSX:T) plan to harmonize its voting and non-voting shares is being opposed by one of the largest shareholders outside of Canada, putting the plan at risk.
Telus wants to convert its non-voting shares to common shares, which are worth more, in order to increase liquidity.
But Mason Capital Management LLC, which bought 19% of Telus' common shares, plans to vote against the conversion plan when it comes to a shareholder vote on May 9.
Telus needs two-thirds of its voting shareholders to approve the plan. Mason Capital's plans to vote against it could therefore block the conversion.
If that happens, investors who bought non-voting shares in the anticipation of the value going up will get stung, and Mason will cash in by short-selling non-voting shares.
The non-voting shares are a holdover from regulations that limited the amount of foreign ownership a Canadian telecom could have to 33.3%.
One of the non-Canadian shareholders was Verizon Wireless, which owned stock in Telus' precursor, BC Tel, before it merged with Alberta telecom Telus. Because of the foreign ownership rules, Verizon was forced to buy non-voting shares, which are worth less than voting shares.
By converting non-voting shares to common shares, Telus had hoped to increase their liquidity.
Since Telus announced plans to hold a shareholder vote to convert non-voting shares to common shares, the spread between the two classes of stock shrank, as investors bought up non-voting shares, thinking they would be worth more once the conversion took place.
But foreign hedge funds like Mason have been buying up voting shares and shorting non-voting shares. This means that, if the conversion can be stopped, the spread between the two classes will increase again, allowing them to double down by selling their voting shares while making a profit by short-selling non-voting shares.
