Former Ontario premier Mike HarrisRene Johnston/The Canadian Press
Mike Harris, lead director of Magna Int'l is scheduled to testify Wednesday at a hearing into a plan to buy out the controlling stake held by chairman Frank Stronach, as the question of why the board did not obtain a fairness opinion on the deal emerges as a crucial issue.
Mr. Harris, who is chairman of the special committee of Magna's board of directors that examined the deal, but made no recommendation for or against it, will be called as a witness at the Ontario Securities Commission hearing into the matter.
The staff of the OSC wants Magna to disclose more information about the deal and provide a formal valuation that will allow common shareholders to be fully informed about the $863-million deal to eliminate Mr. Stronach's multiple-voting shares in return for payments to him of $300-million in cash and nine million common shares.
In an e-mail to The Globe and Mail last week, Mr. Harris said the committee's advisers, CIBC World Markets Inc., informed the committee that it would prepare a fairness opinion.
"At that time, CIBC advised Magna and the special committee that CIBC would not be prepared to opine as to financial fairness, having regard to the terms of the proposal, the terms of precedent transactions and the inherent uncertainty with respect to quantifying the effects of the proposal on the trading multiple of the Class A shares, relative to Magna's industry peers," Mr. Harris said.
A second Magna shareholder, hedge fund Mason Capital Management LLC, which is in favour of the deal, has sought intervenor status at the hearing and argues in a filing that Ontario law does not require a fairness opinion.
A fairness opinion might not be possible, Mason noted.
"This reality should not dictate a stalemate in which subordinate shareholders are denied even the possibility of considering the transaction," it said.
Mason added that in the case of Magna and others involving controlling shareholders, such shareholders are not required to give up control and may be prepared to continue with the status quo.
Mr. Stronach said that is what will happen if shareholders turn down the deal.
Several large institutional shareholders have criticized the deal as being too rich for Mr. Stronach, who will remain as chairman of Magna but will step down from the nominating committee of the board of directors.
Advocates of improved corporate governance are also opposing the deal, in part because they fear it will set a precedent for the buyout of other controlling stakes held in dual-class share situations.
The deal also calls for a joint venture that will take over the assets associated with Magna's electric vehicle business. Mr. Stronach will be chairman of that company and have the right to nominate three of the five-member board.