Frank StronachFRANK GUNN
An Ontario Superior Court judge has blessed Magna $863-million buyout of founder Frank Stronach's controlling shares, rejecting arguments from the country's largest pension funds that the deal is unfair.
Mr. Justice Herman Wilton-Siegel ruled that the deal is "fair and balanced," citing a shareholder vote in favour of the deal, the fact that Magna's stock rose the day the deal was announced and the fact that shareholders who disapprove are free to sell their holdings.
A shareholder vote in favour of the deal "can reasonably be regarded as a proxy for the fairness and reasonableness of the proposed arrangement," Judge Wilton-Siegel wrote in a 41-page decision released Tuesday. "Both the evidence and common sense compel the conclusion that the outcome of the shareholder vote should be regarded as a determination by the class A shareholders that the proposed arrangement was sufficiently fair and reasonable to be acceptable to them."
The Canada Pension Plan Investment Board and the Ontario Teachers' Pension Plan were among those fighting the deal, first announced in May, warning that its price tag set a bad precedent for other companies with dual-class stock structures.
They agreed that eliminating the dual-class structure - which allowed Mr. Stronach to control Magna through his multiple voting shares despite owning less than 1 per cent of its equity - was good for the company. But they balked at the unprecedented cost, which worked out to 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 will give Mr. Stronach $300-million in cash and nine million new common shares in return for his multiple voting shares, for an estimated total of $863-million. Mr. Stronach will also get an estimated $120-million in consulting fees over four years and remain chairman.
Lawyers for the pension funds argued in court that the deal was inherently unfair, as concrete benefits flowed to Mr. Stronach immediately, but common shareholders would only receive a benefit if the sustained increase in Magna's share price expected from the deal actually materialized. They also argued that the law required the judge to look beyond the mere fact of a positive shareholder vote.
Judge Wilton-Siegel said in his ruling that the court was not equipped to determine whether the share price increase, relative to Magna's peer companies, had in fact occurred. But he wrote he was satisfied from the boost Magna's stock received that "there is a belief in the market that there is a reasonable possibility" of a sustained increase in Magna's share price.
Magna welcomed the decision.
"Today's decision by the Superior Court affirms our position that the claims of the dissident minority shareholders are without merit," Magna chief financial officer Vincent Galifi said in a statement. "We believe that our shareholders, who by a large majority voted to support the proposed transaction, will be very pleased that the court respected and upheld their vote."
Magna said in the statement that it did not know whether any of the pension funds that challenged the deal would appeal the decision. An appeal must usually be filed within 30 days.
Deborah Allen, a spokeswoman for Teachers, said no decision had been made whether to appeal.
"While we're disappointed with today's result, we certainly respect the court's decision," Ms. Allan said in an e-mail. "As for the possibility of an appeal, our team's reviewing the ruling, so there's no decision in that regard."
Jeff Gray