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Equity Decoupling and Empty Voting: The Telus Zero-Premium Share Swap

as published in M&A Lawyer, October 2012, at 1, 4-8

Northwestern Law & Econ Research Paper No. 12-16

6 Pages Posted: 24 Sep 2012 Last revised: 14 Nov 2012

Date Written: October 28, 2012

Abstract

In a series of articles, Henry Hu and I developed and defined the concept of empty voting. TELUS Corp. has separate classes of voting and nonvoting shares. It proposes to combine them, with a zero premium for voting shares. Mason Capital has taken a (long voting shares, short nonvoting shares) position, is thus long the value of TELUS voting rights, and is campaigning for a share-swap plan which assigns a reasonable value to those rights. TELUS has claimed that Mason is engaging in “empty voting”, and has persuaded a British Columbia court of this (TELUS is incorporated in BC).

I discuss here some aspects of this dispute. For a vote which involves the value of voting rights: (i) Mason has an economic interest in this outcome, and thus is not an empty voter; (ii) many other TELUS shareholders are empty voters, because they have negative or near- zero economic interest in TELUS votes; (iii) TELUS management is conflicted, because they hold mostly nonvoting shares; (iv) voting rights are valuable, and the market premium accorded to TELUS voting shares is a reasonable estimate of their value; in contrast, zero is not a reasonable value; (v) by valuing voting rights at zero, the TELUS board is likely violating its fiduciary duty to treat both share classes fairly; and (vi) if the TELUS voting shareholders reject the zero-premium share-swap, it would likely be a further breach of fiduciary duty for TELUS not to propose a swap on terms which assign a reasonable value to votes.

Keywords: equity decoupling, empty voting, value of voting rights

JEL Classification: :G18, G32, G34, K22

Suggested Citation

Black, Bernard S., Equity Decoupling and Empty Voting: The Telus Zero-Premium Share Swap (October 28, 2012). as published in M&A Lawyer, October 2012, at 1, 4-8; Northwestern Law & Econ Research Paper No. 12-16. Available at SSRN: https://ssrn.com/abstract=2150345 or http://dx.doi.org/10.2139/ssrn.2150345

Bernard S. Black (Contact Author)

Northwestern University - Pritzker School of Law ( email )

375 E. Chicago Ave
Chicago, IL 60611
United States
312-503-2784 (Phone)

Northwestern University - Kellogg School of Management

2001 Sheridan Road
Evanston, IL 60208
United States
847-491-5049 (Phone)

European Corporate Governance Institute (ECGI)

Brussels
Belgium

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