VANCOUVER April 26, 2012
Darren Entwistle yellow proxy
The shareholder letter:
Brian Canfield Darren Entwistle
April 25, 2012
Dear Fellow TELUS Shareholder,
May 9, 2012
The benefits of the proposal to convert Non-Voting Shares one for one to Common Shares include:
- Enhancing the liquidity and marketability of TELUS’ shares. Today, TELUS has approximately 175 million Common Shares and 150 million Non-Voting Shares. Approving the proposal would result in one much larger Common Share class with more than 325 million shares outstanding. This would enable our shareholders to more effectively purchase and sell our Common Shares. In addition, for the first time the Common Shares would be listed on the New York Stock Exchange (NYSE).
- Enhancing TELUS’ leadership in respect of good corporate governance practices by granting the right to vote to shareholders holding approximately 46% of the shares that already have the same economic interest as the holders of Common Shares, such as the same dividend. A "one share — one vote" principle is strongly endorsed by the Canadian Coalition for Good Governance.
- Simplifying TELUS’ capital structure with the establishment of a single class of shares.
February 21, 2012 $610 million $615 million April 20, 2012
TELUS’ strong share price performance since the announcement builds upon a superior TELUS share price performance of a 74% increase since the beginning of 2010 compared to only a 3% increase for the TSX and a decline of 2% for the MSCI telecom index.
February 21, 2012 three cent
Leading Proxy Advisory Firms Support the Proposal
Institutional Shareholder Services Inc. (ISS) and Glass, Lewis & Co., LLC (Glass Lewis), the two leading independent proxy advisory services firms, have each recommended in their initial reports that holders of Common Shares and Non-Voting Shares vote in favour of the proposal.
ISS concluded a vote in favour of the proposal is 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 [of the Common Shares] 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."
Glass Lewis also recommended that shareholders vote in favour of the proposal, noting, "the potential long term financial benefits of a simplified share class structure, which will replace a share structure that was established to address foreign ownership restrictions that are no longer a major concern for the Company, outweigh any short term dilutive effects or costs resulting from the Conversion."
New York Hedge Fund’s Interests Are Contrary to the Interests of Legitimate TELUS Shareholders
The proposal is opposed by Mason Capital Management (Mason), an opportunistic, event-driven hedge fund that recently amassed a large voting position in TELUS following the announcement of the proposal with a view to profiting from a short-term trading strategy. Mason has employed an "empty voting" strategy that involves taking long and short positions in TELUS’ shares in order to vote shares in which it does not have a net economic interest, and Mason is expected to exit its position opportunistically in the near future.
April 20, 2012 Mason’s reported ownership position grossly overstates its actual economic interest in TELUS, such that its economic interest in TELUS is only 416,400 shares, representing less than 0.25% of TELUS’ total shares outstanding.
As referenced by ISS, "if announcement of the transaction itself increased the company’s market value higher, voting down the transaction should logically result in the loss of some or all of that incremental market value." Despite this, Mason is seeking to defeat the proposal because it believes that the trading price of the Non-Voting Shares will decrease more than the trading price of the Common Shares and therefore Mason will profit. Why? Because the gain on its Non-Voting Share short position would exceed any loss on its offsetting Common Share position. This is in stark contrast to other holders of Common Shares and Non-Voting Shares whose interest is in seeing the shares appreciate in value.
Mason’s Allegations are Unfounded
One for One Conversion Ratio
The Special Committee of independent directors that was established to consider the proposal carefully considered the interests of the holders of each class of shares and received advice from Scotia Capital Inc. (Scotia Capital), an independent financial advisor, with respect to the most appropriate conversion ratio and the fairness of the proposal to holders of each class of shares. The Special Committee carefully considered a range of different possible conversion ratios and the reasons for and against them and concluded that a one for one conversion ratio was the most appropriate ratio for a number of reasons, including:
- The Common Shares and Non-Voting Shares have equivalent economic rights, including the right to any dividends, or distributions or a share of proceeds on any winding up of TELUS.
- TELUS’ articles provide for a one for one conversion ratio (i) upon the elimination of foreign ownership restrictions and (ii) in connection with a take-over bid that is not extended to holders of Non-Voting Shares on the same basis as holders of Common Shares.
- A one for one conversion ratio was proposed publicly in connection with TELUS’ planned conversion into an income trust in 2006 and recommended by the financial advisor retained for that transaction. This proposal did not proceed despite widespread shareholder support due to the federal government’s announcement of a change in tax policy. Given the articles and TELUS’ history, it should be expected that a conversion would eventually occur on a one for one basis.
- A majority of recent dual class share collapse transactions have been done on a one for one basis.
- In some prior transactions non-voting shareholders have been prepared to pay a premium to a controlling shareholder for agreeing to a mergers and acquisition transaction or to put control into the market and thereby increase the share price. These precedents are not comparable as TELUS has no controlling shareholder and the Non-Voting Shares benefit from coat-tail protection in connection with a take-over bid, which ensures equal economic participation if a takeover premium is offered to the Common Shares.
- Contrary to Mason’s assertions, the fact that some companies have allowed a controlling shareholder to demand a premium, does not make it right or fair, nor is it consistent with the view of the Board or the TELUS articles, nor is it applicable to a situation like TELUS where the common shares are widely held and liquid.
- An independent financial advisor, Scotia Capital, provided a fairness opinion that the one for one conversion ratio is fair from a financial point of view to holders of each class of shares.
Liquidity & Foreign Ownership
The proposal will not reduce trading liquidity by reducing the permitted level of foreign ownership. Since 2004, the level of non-Canadian ownership of Common Shares and Non-Voting Shares has generally been well under the 33.3% limit. The recent increase in foreign ownership of the Common Shares above historical levels is an exceptional development that is the direct result of Mason’s predatory actions, as they acquired 19% of the Common Shares despite having only a minor net economic investment. Based on current ownership estimates, we expect the percentage of foreign ownership of our Common Shares to be significantly below the 33.3% limit after completion of the conversion and combination of the two classes. Furthermore, after Mason closes out its position, foreign ownership can be expected to return to normal levels consistent with year-end holdings of approximately 18%.
In fact, the elimination of the dual class share structure is expected to improve liquidity since trading volume will be concentrated in a much larger single class of shares. Another consideration is that there will be an 85% increase in the amount of Common Shares available to be purchased by non-Canadians and the Common Shares will be listed on the NYSE for the first time. TELUS’ one-class structure will also be comparable to other Canadian telecommunications companies with highly liquid stock such as BCE and MTS Allstream, which have a single class of common shares.
When it comes to claims about conflicts of interest, it bears repeating that Mason has little net economic interest in the Common Shares and stands to profit handsomely through its shorting strategies if it defeats the proposal and devalues the Non-Voting Shares. Mason’s allegations must be assessed in light of its real objectives.
How to vote
The proposed elimination of TELUS’ dual class share structure is in the long-term best interests of holders of Common Shares and Non-Voting Shares. We urge you not to let the short-term trading strategies of an opportunistic hedge fund such as Mason frustrate a proposal that is in the best interests of TELUS and shareholders who have a real economic interest in TELUS. The defeat of the proposal would reward "empty voting" – voting without an economic interest – and make a mockery of the well-established principle of voting in proportion to one’s economic interest.
two-thirds of the votes cast two-thirds of the votes cast yellow 5:00 p.m. EDT Monday, May 7, 2012
|Voting method||For registered shareholders and TELUS Employee Share Plan holders||If your shares are held with your investment dealer or financial institution|
|Go to investorvote.com||Go to proxyvote.com|
|Voting by mail or delivery||yellow||yellow|
PLEASE VOTE YOUR YELLOW PROXY OR VOTING INSTRUCTION FORM IN FAVOUR OF THE PROPOSAL
Thank you for your consideration of this important proposal and please ensure you vote.
This letter contains statements about expected future events of TELUS that are forward-looking and subject to certain risks and uncertainties, including those described in the "Forward Looking Statements" section of TELUS’ 2012 information circular. Permission was not requested to quote from the ISS Report and the Glass Lewis Report.
|This news release and letter contains statements about expected future events of TELUS that are forward-looking. By their nature, forward-looking statements require the Company to make assumptions and predictions and are subject to inherent risks and uncertainties. There can be no assurance that the proposal will receive voting approval and if not approved the market price of Non-Voting Shares and/or Common Shares may decline, given that share prices in both classes increased on the announcement of the proposal. There is significant risk that the forward-looking statements will not prove to be accurate. Readers are cautioned not to place undue reliance on forward-looking statements as a number of factors could cause actual future events to differ materially from that expressed in the forward-looking statements. Readers should review the risks and uncertainties set out in the "Forward Looking Statements" section at page 14 of TELUS’ 2012 Information Circular the Risks and Risk Management section of TELUS’ 2011 Annual Report , available at www.sedar.com . Except as required by law, TELUS disclaims any intention or obligation to update or revise forward-looking statements. Permission was not requested to quote from the ISS Report and the Glass Lewis Report.|
Canada $10.4 billion Darren Entwistle
$250 million Canada
SOURCE TELUS Corporation