OSC halts vote on Magna plan

Date: Monday, June 28, 2010
Author: Investment Executive

The Ontario Securities Commission has given a yellow light to a plan to buy voting control of auto-parts giant Magna International (TSX:MG.A) away from founder Frank Stronach.

In a decision released late Thursday, the commission said shareholders should be allowed to vote on the plan, but was troubled that the information circular provided to them did not have enough information about the deal.

“In our view, the circular does not provide sufficient disclosure to Shareholders to permit them to make an informed decision,” the ruling said. “(It) does not contain certain information that is material to shareholders in the circumstances.”

The decision scuttled plans for Magna to put the deal to shareholders on Monday as planned. It was not immediately clear when a vote could be held, but Magna still has until Aug. 31 until the proposal expires.

The deal proposed by Magna would see founder Frank Stronach receive US$300 million in cash, nine million common shares and control over a joint venture that will develop components for electric vehicles. In exchange, he would give up his special class of shares that gives him and his family voting control over the company. Magna would also phase out millions of dollars in consulting fees Stronach currently receives each year.

Based on Thursday’s share price, the deal is valued at about $970 million -- an “unprecedented” premium, according to the Ontario Securities Commission.

The OSC appointed an independent panel to hear the issue this week after the regulator called the proposal “contrary to the public interest and harmful to the integrity of the Ontario capital markets.” The OSC said Magna needs to provide shareholders with several pieces of information before they can make an informed decision, including an opinion on the fairness of the deal and information on how the company arrived at the amount to be paid to Stronach.

Shareholders who support the deal say it will unlock a significant amount of value in Magna’s stock, which has traded lower than its peers because of the company’s dual-class share structure. Dual-class structures tend to scare away some investors because they don’t give common shareholders control over how the company is run.

The Stronach Trust, consisting of Stronach and his family, indirectly owns all the 726,829 outstanding class B shares in the company. Each of the super-voting shares has 300 votes, giving the family-controlled trust about 66 per cent of the voting rights at Canada’s largest auto parts company.

Magna said a solid majority -- 57.4% -- of its total outstanding shares had already been voted in favour of the proposal as of Wednesday night.

Shares in Magna added 56 cents to $73 in Thursday trading on the Toronto Stock Exchange.