Controversy over Magna deal nothing new for Stronach

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For a man who has engaged in high-profile battles with institutional investors for much of his corporate life, Frank Stronach seems blasé about their opposition to a deal that is worth $863-million to him.

"You've got very sophisticated institutions," Mr. Stronach said Thursday in his first public comment since some large Magna International shareholders began venting their displeasure over the proposed buyout of his controlling stake in the company. "They've got their own money on the line and they can decide. It's as simple as that."

The controversy over the plan - which would give him $300-million in cash and nine million common shares of Magna in return for the elimination of his multiple voting shares - escalated this week when Ontario Securities Commission staff called it "harmful to the integrity of the Ontario capital markets" and scheduled a hearing on it for next Wednesday. Several large institutional shareholders, including the Canada Pension Plan Investment Board and the provincial asset managers of Alberta and British Columbia, have publicly weighed in against the deal and said they will vote against it.

Such fury is common in Stronach deals, whether they involve Magna, his venture into horse racing through Magna Entertainment Corp., which tumbled into Chapter 11 bankruptcy protection in the United States last year, or even his annual compensation.

Whether the opposition of such shareholders is enough to scuttle the deal is not known yet. But the rhetoric reached a new level Thursday when corporate governance activist and Montreal billionaire Stephen Jarislowsky went beyond criticizing Mr. Stronach, and lashed out at shareholders who plan to vote for the proposal.

"I think that the people who want to [vote in favour]have no real intentions to do anything but make money. … The people who are voting for it are unprincipled people in my book," Mr. Jarislowsky said.

Making money, Mr. Stronach said, is something he has done for investors in Magna and took a shot at one of his favourite targets: hedge funds.

"I worked like crazy. How many times you find a guy which built from scratch a world-class corporation?" said the entrepreneur when asked his reaction to critics who say the deal is too rich. "When you think [about]all the hedge funds, they reap in billions without building anything. I provided 80,000 jobs, I made lots of money for the shareholders, but anyway, it's their choice."

His comments came as Magna released two reports on the deal, one an examination by CIBC World Markets Inc. and the other an evaluation by PricewaterhouseCoopers of the value of Magna's electric vehicle business, which is being spun off into a joint venture between Magna and Mr. Stronach at the same time as the buyout of the multiple voting shares. The OSC has called for more disclosure by Magna of analysis of the fairness of the deal and the negotiations that led to the proposal.

The commission will hold a hearing Friday at which some Magna shareholders will be seeking status to intervene at a full OSC examination of the deal next week.

CIBC, however, said it was not asked to provide a fairness opinion or formal valuation of the transaction, but to analyze previous dual-class share reorganizations, review the performance of Magna shares against those of other auto parts makers and assess the impact of the deal on shareholders.

Magna shares have long traded at a significant discount to those of other auto parts makers because of Mr. Stronach's control. This deal is aimed at eliminating that discount, and the stock has risen about 8 per cent since it was announced on May 6, compared to an increase of 0.6 per cent for the S&P/TSX composite index. The shares of many other auto parts companies, such as Johnson Controls Inc. and Lear Corp., have declined during that period.

But CIBC also warned of "significant negative reaction," from shareholders to a deal that would cause dilution of more than 11 per cent. The bank studied 15 other transactions in which a company abolished its multiple-voting shares, and none had dilution that high.