Pension plans to appeal Magna ruling

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The country's major pension funds are appealing an Ontario court ruling that blessed Magna controversial plan to buy out founder Frank Stronach's controlling shares for $863-million in cash and stock.

The Aurora, Ont.-based auto parts giant said in a statement Wednesday it would "vigorously defend" the deal with its chairman, which would eliminate the company's dual-class share structure, long believed to be a drag on the value of the company's common shares. The pension funds have condemned the deal and its price tag as unfair and a bad precedent for other companies looking to end similar share structures.

The fight's next phase could come to a head quickly, as Magna's lawyers were seeking a hearing before the Ontario Divisional Court as early as next week. The push is to beat an Aug. 31 deadline set by Mr. Stronach, at which point he can withdraw the deal if it has not been approved.

The Canada Pension Plan Investment Board, the Ontario Teachers' Pension Plan and the British Columbia Investment Management Corp. all confirmed on Wednesday they would appeal the Ontario Superior Court ruling, issued Tuesday, that approved the deal.

The B.C. pension fund said in a statement that it "remains of the view that the arrangement is unfair and unreasonable, and disproportionately favours the Stronach Trust at the expense" of Magna's other shareholders.

The deal's opponents agree that eliminating the dual-class structure - which allows Mr. Stronach to control Magna through his multiple-voting shares despite owning less than 1 per cent of its equity - would be good for the company. But they balk at the cost, which works out to $863-million, or a 1,800-per-cent premium for Mr. Stronach's multiple-voting shares based on the price of the common shares before the deal was announced.

Under the deal, Magna would give Mr. Stronach $300-million in cash and nine million new common shares in return for his multiple voting shares. Mr. Stronach would also get an estimated $120-million in consulting fees over four years and remain chairman.

Lawyers for the pension funds argued at the hearings that the deal was inherently unfair, as concrete benefits flowed to Mr. Stronach immediately, but common shareholders would only benefit if the promised sustained increase in Magna's share price actually materialized.

One Bay Street lawyer with knowledge of the case said the judgment left ample room for an appeal since it shies away from issuing a firm ruling on the financial merits of the deal itself - something the pension funds argued the judge had to do.

"It's extremely well written and very well thought out, but it seems to me the court has definitely left open and indeed highlighted a possible appeal route," said Joe Groia, who acted for the Canadian Foundation for Advancement of Investor Rights when the case was before the Ontario Securities Commission. "It's like waving a red flag in front of an appellate lawyer."

In his ruling, Mr. Justice Herman Wilton-Siegel declares the deal "fair and balanced," citing a shareholder vote backing the deal, the fact that Magna's stock rose the day it was announced and the fact that shareholders who disapprove are free to sell their holdings.

But the judge makes clear he was not ruling on the deal's financial details, saying that the court "is unable to make its own factual determination regarding the financial costs and benefits of the proposed Arrangement in the manner urged upon the Court by the Opposing Shareholders."