Magna founder Frank Stronach is ready to trim back his ties to the Canadian mega-supplier.
Magna International Inc. one of the world’s largest automotive suppliers, has disclosed that founder Frank Stronach is volunteering to surrender his control over the company, one of several moves generating a strongly positive response from both shareholders and industry analysts.
The Canadian automotive supplier said it has entered into an agreement with the Stronach Trust under which holders of Magna’s Class A subordinate voting shares would be given the opportunity to decide whether to eliminate the dual class of share through which Magna’s founder, Frank Stronach, and his family have controlled Magna since the late 1970s.
The proposed agreement would also set a termination date and declining fee schedule for the consulting, business development and business services contracts Magna has in place with Austrian immigrant and company founder Stronach, Magna said.
However, the transaction would establish a joint venture with the Stronach group to jointly continue to pursue opportunities in the vehicle electrification business, which Magna has recently expanded.
“We believe the proposed transaction, if approved by shareholders, has the potential to unlock significant share value for Magna shareholders and establish a strong foundation for the company’s continued and long-term success”, said Don Walker and Siegfried Wolf, Co-Chief Executive Officers of Magna in a joint statement.
For his part, Stronach admitted he would be “content to maintain the status quo,” but he acknowledged “the potential benefits of management’s proposal, particularly the opportunity to establish a strong foundation for the future while preserving Magna’s
unique corporate culture.’
The management changes came as Magna became the latest in a growing string of automotive suppliers to punch back into the black after a year of devastating losses and bankruptcy filings. The Canadian company earned $223 million or $1.97 per share, compared to a loss of $200 million or $1.79 per share in the same quarter a year ago.
The turnaround by Magna was driven by a 54% increase in sales during the first quarter of 2010, to $5.5 billion, noted Vincent J. Galifi, Magna executive vice-resident and chief financial officer.
“This higher sales level was a result of increases in our North American, European and Rest of World production sales and complete vehicle assembly sales,” he said.
Operating income also improved in the first quarter, increasing $515 million to $285 million, compared to the operating loss of $230 million sustained in the first quarter of 2009. Significantly, much of the improvement came in Magna’s home markets of Canada and the U.S., where light vehicle production was up 67% compared to the first quarter of 2009 and 3% over the final quarter of the year.
“The key reasons for the increase in North American light vehicle production are the improvement in North American auto sales over the past number of months, combined with low levels of dealer inventories relative to long-term historical averages,” said Galifi, adding that while European production has also been on the rise, economic issues have been leading to a recent slowdown in sales on the Continent.
On a day when much of Wall Street took a beating – largely driven by those problems in Europe – the developments at Magna drove the company’s shares up 11%, to close at $69.94.
Analysts Rod Lache, of Deutsche Bank, declared Magna’s Q1 performance “a strong upside surprise,” adding that he views the supplier’s stock as a “compelling value.”