Magna International Inc. chairman Frank StronachINA FASSBENDER
Round one in a legal battle between Magna International Inc. and some of its largest shareholders went to the auto parts company when the Ontario Securities Commission ruled that the investors will have only a limited standing at a hearing into the deal to buy out chairman Frank Stronach's multiple voting shares.
The investors will be able to make arguments and offer opinion at a hearing about the $863-million deal next week, but the staff of the OSC will call witnesses, offer evidence and introduce documents on the issue of whether the proposal is in the public interest, OSC vice-chairman James Turner ruled Friday.
The Canada Pension Plan Investment Board, Alberta Investment Management Corp., British Columbia Investment Management Corp. and other large investors have criticized the payment to Mr. Stronach as excessive and argue it would set a dangerous precedent for other cases in which dual-class share structures are to be eliminated.
The OSC staff said in its notice of hearing that the deal as it is currently structured, is "contrary to the public interest and harmful to the integrity of the Ontario capital markets."
The OSC wants more information about how the plan to pay Mr. Stronach $300-million in cash and nine million common shares for his 726,829 multiple voting shares came together. It also wants the special committee of Magna's board of directors to provide an opinion on whether the deal is fair to common shareholders.
Magna and a lawyer for the Stronach Trust opposed the shareholders' bid to obtain full standing at next week's hearing and Mr. Turner also sided with them in denying any standing to the Canadian Foundation for the Advancement of Investor Rights, which is a corporate governance organization, but owns no shares of Magna.
Large shareholders have been weighing in all week on the deal. Goodman & Co. Investment Counsel Ltd., which is in favour of the deal and believes investors already have enough information to decide, was granted the same limited status to intervene as the investors opposing the deal. It holds about 4 per cent of Magna's common shares.
The forces arrayed against the deal received a boost Friday from giant British fund manager Hermes, which invests on behalf of many large European pension funds and said its clients will vote their Magna Class A shares against the offer. Hermes manages about 1.3 per cent of Magna's shares for investors.
"We've got pretty solid consensus across our clients to oppose this," said Canadian spokesman Bill Mackenzie.
He said European investors agree that the premium being paid to Mr. Stronach is too great and that the deal is too dilutive to shareholders, especially compared with precedents when dual-class share structures have been unwound.
"When you're diluting minority shareholders by over 11 per cent, it represents a new standard in the world of shareholder dilution," Mr. Mackenzie said.
He said there are also longer-term governance concerns about the electric car business, being spun off into a joint venture between the company and Mr. Stronach, which could become a new corporation with dual-class shares controlled by Mr. Stronach. "We're building a whole new problem there, so it doesn't go away with this deal," Mr. Mackenzie said.
With files from reporter Jeff Gray