If the market has it right, Magna International is soon going to have a single class of shares.
In pre-market trading on Thursday, Magna stock was up 8 per cent on news that founder Frank Stronach is willing to give up the dual share structure that allowed him to control the auto parts company, despite owning a fraction of the equity. The stock is only going to rise if the change in governance is seen as a positive move.
But the more Magna watchers dig into the proposed arrangement, the more eyebrows get raised at Mr. Stronach's audacity.
The Stronach family trust owns less than 1 per cent of Magna's equity, but 66 per cent of votes in the boardroom. Mr. Stronach also has compensation/consulting agreement that pays him 3 per cent of pre-tax profits.
The planned deal will see the compensation plan killed, and the multiple voting stock swapped for single vote shares that hold 7.44 per cent of the equity. In addition, the Stronach family trust gets $300-million (U.S.) in cash and a controlling stake in a planned Magna electric car venture. That is arguably the most promising division of the company.
Andrew Willis