Frank StronachFRANK GUNN
A billion-dollar share buyout for Magna International Inc. founder Frank Stronach is unfair and delivers only speculative benefits to the firm's other shareholders, the deal's critics told a Toronto court on Thursday.
The Aurora, Ont.-based auto-parts giant faced off with the country's largest pension funds on Thursday in a fairness hearing before Mr. Justice Herman Wilton-Siegel of the Ontario Superior Court, who must decide whether to approve the deal.
The Canada Pension Plan Investment Board and other major pension funds have called the deal and its large price tag unreasonable and abusive. They warn it sets a bad precedent for other public companies seeking to get rid of similar dual-class share structures.
The plan, approved by 75 per cent of Magna shareholders who voted last month, would see the company buy back and retire Mr. Stronach's multiple voting Class B shares, which have allowed him to control the company despite owning less than 1 per cent of its equity.
The deal was sold as way to eliminate the discount in Magna's Class A share price that resulted from Mr. Stronach's control.
Acting for the CPPIB, lawyer Benjamin Zarnett told the court the deal must be deemed unfair because despite its huge cost, it fails to deliver any tangible guaranteed benefit for Magna's other shareholders - except for the promise of a higher share price once the deal is done.
"All the speculation, all the risk, all the uncertainty ... is all on the Class A shares," Mr. Zarnett told the courtroom, packed with dozens of Bay Street lawyers. "That's not proportional. That's not balanced, and that's not fair."
He also argued that the judge had to look beyond the shareholder vote, which, when the abstentions were taken into account, showed only 60 per cent of shareholders in support.
Earlier Thursday, Magna lawyer Mark Gelowitz told the court that the vote, which came after the Ontario Securities Commission ordered Magna to release more information about the deal, sent a "powerful message."
He pointed out that the deal's opponents had not swayed Magna shareholders, despite their best efforts.
"Through a vigorous public relations campaign, they tried to convince shareholders to vote down the deal," Mr. Gelowitz said. "And they failed."
Mr. Gelowitz also pointed out that the holdings in Magna of the deal's most vocal opponents were "miniscule," citing the fact that the Ontario Teachers' Pension Plan bought just one share so it could protest the deal.
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. The price tag, pegged at $863-million, represents a premium of 1,800 per cent for his Class B shares, based on the common share price the day before the deal was announced in May.
Mr. Stronach will also get $120-million in consulting fees over four years, and will remain chairman.
The hearing was scheduled to continue Friday.
Jeff Gray