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U.S. hedge fund looking for buyer for its $2-billion stake in Telus

Date: Wednesday, June 6, 2012
Author: Boyd Erman and Rita Trichur, The Globe and Mail

The U.S. hedge fund that battled Telus Corp. is shopping its almost 19-per-cent voting stake in the firm to global telecom companies interested in getting a head start should Canadian foreign-ownership rules be relaxed.

Mason Capital Management LLC has hired Blackstone Group LP to seek a buyer for the $2-billion stake, said a person familiar with the situation.

Blackstone bankers are said to have contacted as many as 30 parties around the world who might be interested in the block, including other investment companies, as well as strategic buyers already in the telephone business. The process began in mid-May.

Mason has been vague in public statements about its plan for the Telus shares. The firm has said that it might choose to stick around as a longer-term Telus shareholder. Jonathan Gasthalter, a spokesman for Mason, declined to comment Tuesday.

Any foreign telecom company that buys the Mason stock might have to wait some time to get its hands on more of Vancouver-based Telus. The news that Mason is interested in selling comes as federal Industry Minister Christian Paradis said liberalization of ownership rules on Canada’s largest telecom companies will not happen any time soon.

“We will need to hold public hearings and this is not in the cards for now,” he said on Tuesday.

New York-based Mason accumulated the block of Telus voting stock as part of a strategy to profit from opposing Telus’s planned collapse of its dual-share structure on a one-for-one basis.

After successfully blocking the Telus plan last month, it was not clear what Mason would do next. Buying up almost one-fifth of one class of shares in a company is hard enough on the sly; disposing of that much stock in the open market is even more difficult. Finding a taker for the whole block could solve that problem, and a buyer eyeing a takeover of all of Telus down the road might be willing to pay top dollar.

Telus is an advocate of lowering the restrictions on foreign ownership, with chief financial officer Robert McFarlane saying at a telecom summit on Tuesday that Canada should be “liberalizing foreign ownership restrictions for all carriers regardless of size.”

Buying the almost 33 million voting shares held by Mason would not necessarily give a would-be acquirer as big a head start on a Telus purchase as it might appear. Telus’s dual-class structure is designed to collapse automatically, with non-voting stock becoming voting stock on a one-for-one basis, should foreign-ownership limits be eliminated. That would dilute the influence of the Mason stock significantly.

The dual-class share structure that Mason fought to preserve is a relic of a time when Telus was owned in part by a large foreign phone company. New York-based Verizon Communications owned a large chunk of Telus and the non-voting shares were created in 1999 to deal with that.

Earlier this year, Telus wanted to eliminate the structure by converting all non-voting shares into voting shares on a one-for-one basis. Most Telus shareholders, aside from Mason, supported the plan. However Mason’s stake was big enough to raise the threat of the proposal failing, and Telus backed down on May 9.

“Regardless of what Mason Capital chooses to do with their holdings, Telus remains committed to achieving a 1:1 conversion of our non-voting shares in due course,” Telus spokesman Shawn Hall said in an e-mail.

The fight over Telus’s proposed share-class collapse raised questions about so-called “empty voting,” because Mason had hedged its position so its exposure to the ups and downs of Telus’s stock price was much less than its stake in the voting shares would suggest. Regulators are examining the issue.