Magna founder Frank Stronach is ready to trim back his ties to the Canadian mega-supplier.
The Ontario Securities Commission (OSC) has issued an order requiring Magna International Inc. (TSX: MG.A, NYSE:MGA) to make additional disclosures in order to proceed with its proposed transaction to eliminate the company’s dual class share structure.
The deal would apparently end founder Frank Stronach’s control of the company, but at a steep price to shareholders of the common stock.
Stronach controls more than 54% of Magna shares while owning 1% of its equity.
OSC said the proxy “fails to provide sufficient information concerning the desirability or fairness of the Proposed Transaction and the board of directors of Magna has not made useful recommendations regarding the arrangement in the Circular.”
OSC also said, “it has been alleged that the Proposed Transaction is abusive of Shareholders and the capital markets for a number of reasons, including the estimated 1,800% premium being paid by Magna for the Class B Shares relative to the market price of the Subordinate Voting Shares.”
Then OSC went on to say, “It is clear that the Special Committee (of the Magna Board) was aware and concerned that the premium being paid to the Stronach Trust under the Proposed Transaction is considerably in excess of the premiums paid on other transactions collapsing multiple voting share structures.”
Under a Magna Board approved plan, the Stronach Trust would receive $300 million in cash and 9 million Class A shares for the Class B stock that currently gives the family roughly 66% of voting rights at the Canadian auto parts maker. The deal values Stronach’s payout at $927 million. In New York Class A is trading at about $70 a share.
There is also a change in the ownership of the newly established E-Car company. It would become a joint venture between the Stronach Trust and Magna. Stronach would control the board with only 27% ownership in this potentially lucrative electric vehicle and component business.
The OSC said Magna must provide additional information on how the payment to the Stronach trust was calculated, any potential alternatives considered by Magna’s special committee, the dilution suffered by minority shareholders, and a discussion of the committee’s review and approval process.
“We welcome the Commission’s position that shareholders should decide the outcome of the transaction. We will work to bring the proposed transaction back to our shareholders for consideration in an expeditious manner,” said Vincent J. Galifi, Executive Vice President and Chief Financial Officer of Magna.
Magna has postponed the special meeting of shareholders scheduled for Monday June 28, 2010.
(See also Magna Founder Stronach Surrendering Control )