The country's largest pension funds kept up their crusade against Magna International Inc.'s proposed billion-dollar buyout for founder Frank Stonach on Thursday, telling a panel of judges to throw out a lower court ruling approving the deal.
The Canada Pension Plan Investment Board (CPPIB) and other major pension funds have opposed the plan and its unprecedented price tag, saying it sets an expensive precedent for other controlling shareholders in companies with dual-class share structures.
The hearing before the Ontario Divisional Court comes just days before an Aug. 31 deadline that would allow Mr. Stronach to cancel the deal to buy back his powerful multiple voting shares, which have long granted him control of Magna despite the fact that he owns less than 1 per cent of its equity.
In the original decision approving the deal, Mr. Justice Herman Wilton-Siegel of the Ontario Superior Court declared the transaction fair and balanced, citing the fact that Magna's common shareholders voted 75 per cent in favour. He also cited the stock market's apparent positive reaction to the plan.
But lawyer Benjamin Zarnett, acting for the CPPIB, argued that the judge was wrong in failing to objectively determine whether the deal's benefits offset its cost.
The decision "could have been the same even if Magna was paying $8-billion for Mr. Stronach's controlling shares, instead of $800-million," Mr. Zarnett said.
He argued the judge misinterpreted the landmark 2008 BCE Supreme Court of Canada decision, which sets out new ground rules for the approval of similar deals. The court is obligated to go beyond the shareholder vote and actually evaluate the terms of the deal, he said, because it is being imposed on a minority of shareholders who disagree.
"This is a purchase of control by Class A shareholders, but not negotiated by them, and, more importantly, crammed down on every one who didn't vote for it," Mr. Zarnett told the court. "... This is forced on people who aren't for it. And that's where the court steps in."
Magna's plan, announced in May, would see Mr. Stronach receive $300-million cash and nine million new Class A shares in Magna, in return for his multiple voting Class B shares. Based in the Class A share price the day before the deal was announced, the price is a 1,800 per cent premium for Mr. Stronach's controlling shares, with a total value of $863-million.
Mr. Stronach would remain chairman, and also receive an estimated $120-million in consulting fees over the next four years.
The Aurora ,Ont.-based Magna, an auto parts giant founded by Mr. Stronach in 1957, has vowed to "vigorously defend" its deal. The hearing was scheduled to take all day Thursday.