Magna International Inc.’s Class A shares rose the most in six months in Toronto after it said stockholders will vote on a plan to end founder Frank Stronach’s control of the largest North American auto-parts maker.
The Stronach Trust would receive $863 million in cash and Class A shares for the Class B stock that now gives the family about 66 percent of voting rights at the Aurora, Ontario-based company, Magna said in a statement today. The vote will be at a special meeting in June or July, the company said.
Stronach, 77, has controlled Magna since the late 1970s and said in the statement that that provided an “entrepreneurial framework” for the company’s growth. Magna stock now trades at values below its peers because investors avoid companies with “multiple share structures,” Chief Financial Officer Vincent Galifi said in the statement.
“It’s called ‘the Frank factor,’ and that’s one of the reasons Magna doesn’t get the value it deserves,” said Dennis DesRosiers of DesRosiers Automotive Consultants Inc. in Richmond Hill, Ontario. “The equity markets don’t like the control the family has and he has a proven history of hairbrained ideas.”
The share price has been held down by moves such as a failed attempt to acquire Chrysler LLC in 2007, DesRosiers said.
The proposal, developed by a committee of independent directors, calls for the Stronach Trust to get 9 million new Class A shares, or a 7.4 percent stake, and $300 million in cash. Magna also would establish a joint venture with the Stronach group to develop electric vehicles and end a consulting arrangement with Frank Stronach.
‘Lot of Soul-Searching’
“We have to change” to be more competitive, Stronach said today at Magna’s annual meeting in Markham, Ontario. The plan “took a lot of reflection, a lot of soul-searching,” he said.
Hardy Rohn, a shareholder from Schomberg, Ontario, said at the meeting that he supports the change. “It’s possible now someone else could get control,” he said. “It’s always the fair way to everybody.”
Gary Benninger, chairman and chief executive officer of wind-turbine developer Envertech Inc. and a Magna shareholder, said he hasn’t decided whether he backs the proposal.
“There is some risk” with the one-share, one-vote structure that would result, Benninger said. “You can’t keep everybody happy.”
‘Significant Share Value’
Co-CEOs Don Walker and Siegfried Wolf said in the statement that “the proposed transaction, if approved by shareholders, has the potential to unlock significant share value for Magna shareholders.”
Magna’s Class A shares rose C$8.99, or 14 percent, to C$73.26, at 4:10 p.m. in Toronto Stock Exchange trading. That was the biggest daily percentage gain since Nov. 6, according to data compiled by Bloomberg. Earlier, they climbed as much as 23 percent, the most intraday since March 1991.
Standard & Poor’s equity analyst Efraim Levy cut his rating on the shares to “buy” from “strong buy,” citing the rise in value.
The company’s board and Stronach didn’t make a recommendation to shareholders on the proposal, which also would require court and Toronto Stock Exchange approvals.
Stronach said in the statement that “while I am content to maintain the status quo, I understand the potential benefits of management’s proposal.”
The Austrian native came to Canada in 1954 and opened a one-man tool-and-die shop in Toronto in 1957. He founded Magna in 1969 and built it into a company with annual revenue of as much as $26.1 billion, in 2007. Sales last year were $17.4 billion, a 27 percent drop from 2008 as the global economic slump reduced auto production.
Chrysler, Opel Bids
In 2007, Magna lost out to Cerberus Capital Management LP in the bidding for Chrysler.
Later that year, Stronach reached an agreement to cede a large share of Magna to Russian billionaire Oleg Deripaska in return for $1.54 billion and access to the then-booming Russian auto market. The arrangement fell apart when Deripaska in October 2009 was forced to give up his stake in Magna as creditors called in loans amid the worldwide credit crunch.
Magna last year offered to buy Opel from General Motors Co., which decided to keep the European division.
Stronach also owns horse farms in Kentucky, Florida and Ontario and estates including two 18-hole golf courses, outside Toronto and Oberwaltersdorf, Austria.