Mason Capital Management LLC (“Mason”) today publicly released a letter to TELUS Corporation (TSX:T; TSX:T.A; NYSE: TU) urging TELUS to disclose its current foreign ownership levels and the basis on which it has determined that it is in compliance with the Canadian ownership requirements. Mason is a significant shareholder of TELUS.
“The uncertainty surrounding TELUS’ compliance with the foreign ownership restrictions has persisted for many months now, since the company’s March 22, 2012 press release. The recent application by Globalive to the CRTC has heightened these concerns. TELUS should put this issue to rest by updating the market with full and plain disclosure of its current levels of foreign ownership and the steps it has taken to ensure compliance,” said Michael Martino, Principal and Co-Founder of Mason.
In its letter to TELUS, Mason cites information from the proxies submitted for TELUS’ recent special and annual shareholders meeting which shows that approximately 42% of TELUS’ voting shares voted at the meeting were held by shareholders who declared themselves non-Canadian or refused to answer the required declaration as to their residency.
The text of the letter follows:
MASON CAPITAL MANAGEMENT LLC
|28 June 2012|
|Board of Directors|
|555 Robson Street|
|Vancouver, British Columbia|
We are writing to request the directors of TELUS to act promptly to address the current uncertainty surrounding TELUS’ compliance with the Canadian telecommunications ownership rules and cause TELUS to make full and plain disclosure of its current levels of foreign ownership and the steps it has taken to ensure compliance.
Globalive’s recent application to the CRTC has raised serious questions regarding TELUS’ compliance and the efficacy of its control procedures. In response, TELUS spokespeople have made some cryptic comments to the press dismissing the application and asserting that TELUS is in compliance. Yet TELUS has not made any public statement as to what its current foreign ownership levels are or the basis on which it has determined that it is in compliance.
For months now, TELUS has avoided any public statements as to its foreign ownership levels. Its last disclosure was a press release on March 22, 2012, in which it stated its permitted foreign ownership levels were in danger of being exceeded. Its management proxy circular issued in April was backdated to March 22, presumably to avoid any public disclosure on these issues.
Why has TELUS not updated the market? Given the negative consequences of non-compliance to TELUS (including potential loss of eligibility to carry on business as a Canadian carrier and to bid in the upcoming spectrum auction) and to its shareholders (including potential forced sales of over 20 million shares if non-Canadian ownership levels are at those suggested by the Broadridge reports), prompt and full public disclosure of TELUS’ state of compliance is not only appropriate but required under relevant Canadian disclosure rules applicable to the company.
TELUS has stated that formal ownership declarations are more accurate than Broadridge reports for purposes of determining foreign ownership levels. However, the formal ownership declarations included with TELUS’ proxies for its recent shareholder meeting, which TELUS has in its possession and which are available to any TELUS shareholder, show that approximately 42% of voting shares voted for the election of the directors at the meeting were held by shareholders who declared themselves non-Canadian or refused to answer the declaration, contrary to the requirements of the proxy.
Mason understands that the 33.3% allocation of voting shares formally designated by TELUS under its foreign ownership reservation system for ownership by non-Canadians has, for several months now, been fully or close to fully allocated to non-Canadian shareholders. Yet in addition to these shares, there appear to be substantial numbers of voting shares held by non-Canadian shareholders who, unlike Mason, failed to comply with TELUS’ control procedures and hold their voting shares outside of TELUS’ reservation system. The formal ownership declarations included with the proxies show that approximately 7.8 million voting shares were held outside the reservation system by shareholders who declared themselves non-Canadian or refused to answer the ownership declaration, contrary to the requirements of the proxy.
The results of the formal ownership declarations included with the proxies are broadly consistent with the Broadridge reports submitted by Globalive.
The directors of TELUS have a responsibility to inform themselves as to the nature and extent of any compliance issues and see that TELUS updates the market accordingly. The directors cannot acquiesce in non-disclosure without becoming responsible for it along with management.
As we have previously pointed out to TELUS, significant trading activity has been taking place on the basis of the outdated and incomplete information. The uncertainty and risk created by TELUS’ lack of disclosure is impeding Mason and presumably other TELUS shareholders in evaluating their investment options.
Given that TELUS will soon need to provide additional information in the context of the Globalive-initiated CRTC proceedings, it is hard to see what justification there could be for any delay by TELUS in publicly disclosing such information now for the benefit of its shareholders.
|Michael E. Martino|
|Principal and Co-Founder|