Frank Stronach had strong words of advice for his successors at his last annual meeting as chairman of Magna International Inc. : Debt kills.
"I've never seen a company go broke if they have monies in the bank," Mr. Stronach said Wednesday in the homily he offers annually at shareholder meetings of the auto parts giant he founded more than 50 years ago.
In this year's 20-minute dissertation without notes or a teleprompter, he recalled Magna's brush with financial disaster in 1990 when the company was growing rapidly and piling up debt to match. "Every time I went to a board meeting we were up $100-million."
After going to the brink, then paying off the debt, Mr. Stronach swore off debt at Magna.
It is now a global powerhouse and one of Canada's leading companies after a growth and acquisition spurt that followed the crisis. Shunning debt helped Magna develop a cash hoard that allowed it to weather the 2008-09 auto crisis and permitted Mr. Stronach to depart with $863-million (U.S.) in cash and shares.
His departure as chairman marks the end of an era in Canadian business during which his empire included the auto parts company, MI Developments Inc., which owns the real estate under many of Magna's plants, and Magna Entertainment Corp., a racetrack and gambling company that went into Chapter 11 bankruptcy protection in 2009.
At one time, Mr. Stronach was chairman of all three companies and controlled them all, but he also sold his controlling stake in MI Developments and will no longer be associated with that company when the deal to buy him out closes later this year.
He picked up some of the horse racing assets, including tracks in Florida and California, as part of the agreement and he also heads and controls a joint venture with Magna that is developing electric vehicle technology.
Part of the responsibility for keeping Magna out of debt lies with a new board of directors, he told the meeting at a suburban Toronto hotel, telling them to resist shareholder demands to increase debt.
"You, the directors, you have a responsibility to look after the stakeholders," he said.
A new chairman to replace Mr. Stronach is expected to be named this week. He will remain on the board.
His departure comes after he agreed last year to the $863-million (U.S.) proposal to buy out the multiple-vote shares that he had used to control the company since 1978. In considering the deal, he told the annual meeting he thought about one possibility; "Could I manage Magna from the grave? I came to the conclusion that's very difficult to do."
And so it is left to Don Walker, the company's chief executive officer and a 24-year company veteran, as well as other managers, to sustain the unique Magna corporate culture that includes profit sharing and stock ownership for employees, an employee charter of rights and generally small factories that are individual profit centres and encourage managers to be entrepreneurial.
Mr. Walker told reporters after the meeting that there won't be major changes on his watch.
"I lean on the side of Frank," he said. "I don't think we should be going into heavy debt. We're in a cyclical industry; we don't need to."
After a first-quarter profit of $322-million or $1.30 a share, Magna has net cash of $1.4-billion and some of that could be used to finance acquisitions, but they have must add a new technology or new customers or help Magna expand in growing regions of the world.
"We are looking at acquisitions, so if we have really good use of the cash on our balance sheet to put it to work, I'd be comfortable in spending it," he said. "We're not going to spend money for the sake of spending it."
The first-quarter results included a new outlook that calls for a better year than Magna expected when it released its original outlook in January.
Sales are now expected to range between $27.1-billion and $28.5-billion this year, versus $24.8-billion to $26.3-billion in the earlier outlook.
That's based in part on higher vehicle production levels in Magna's two major markets of North American and Western Europe.