Equity Decoupling and Empty Voting: The Telus Zero-Premium Share Swap
Bernard S. Black
Northwestern University - Pritzker School of Law; Northwestern University - Kellogg School of Management; European Corporate Governance Institute (ECGI)
October 28, 2012
as published in M&A Lawyer, October 2012, at 1, 4-8
Northwestern Law & Econ Research Paper No. 12-16
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.
Number of Pages in PDF File: 6
Keywords: equity decoupling, empty voting, value of voting rights
JEL Classification: :G18, G32, G34, K22
Date posted: September 24, 2012 ; Last revised: November 14, 2012