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For Frank Stronach, entrepreneur, the end of an era at Magna

A pedestrian walks by a closed bank where the spray paint on the closed shutters reads: "general strike forever" in Athens

Nikolas Giakoumidis

Stories Report on Business is following today:

Stronach to cede control of Magna

Frank Stronach, the auto parts king renowned for his entrepreneurial spirit and his rags-to-riches life story, is surrendering control of the company he founded decades ago and built into a leading multinational concern.

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Magna International Inc. unveiled a plan this morning that would eliminate the dual-class structure that allowed Mr. Stronach, its 77-year-old chairman, to control the Canadian company with just a small piece of its equity.

Under the deal, valued at $863-million (U.S.), the company would buy the class B multiple voting shares held by Mr. Stronach's trust for $300-million and hand over 9 million new class A shares. That would leave the trust with an equity and voting stake of just 7.44 per cent, Globe and Mail auto writer Greg Keenan reports.

Dual-class share structures have been controversial in Canada because they allow one party to control a company with a small equity stake.

Don Walker and Siegfried Wolf, co-CEOs of the auto parts giant, said in a statement that the proposed move could "unlock significant share value" for its shareholders. For his part, Mr. Stronach said he was content under the status quo, though recognized the potential of the deal. And, as is Mr. Stronach's way, he defended the share structure common among some family-controlled enterprises.

"The ability for an entrepreneur to raise growth capital under a multiple voting share structure has enabled Canada to create a number of world-class companies, like Magna," he said. "For me, that opportunity occurred in the late 1970s, when I gave up a sizable portion of my total equity value as part of a shareholder-approved reorganization in exchange for the control that enabled me to establish the principles, culture and entrepreneurial framework that have been the cornerstone of Magna's impressive growth and success over the years."

There were other goodies this morning for shareholders, as well. Magna announced it will restore the dividend it suspended last year at the height of the recession, when two of its biggest companies filed for bankruptcy protection in the United States. It also posted a turnaround in first-quarter results, rebounding to a profit of $223-million from a loss of $200-million a year earlier. Read the story

Related: Stronach takes control of electric vehicle project

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Moody's warns on Europe's crisis

As markets awaited the results of Britain's election today, and cast an eye forward to a key vote in Germany's parliament tomorrow, Moody's Investor Service warned that the spreading debt crisis in southern Europe could hit banks in Portugal, Spain, Ireland, Italy and the U.K.

A key factor, the ratings agency said in a report, is how the markets view the "likely success or otherwise" of the €110-billion ($150-billion Canadian) bailout of Greece from the EU and the International Monetary Fund.

While the banking systems in those other countries have different challenges, Moody's said, the "contagion risk could dilute these differences and impose very real, common threats on all of them."

Britain's vote today is key because polls predict no clear winner, a factor in how the country attacks its own debt problems. And tomorrow, the German parliament debates its sizable contribution to the Greek bailout, an unpopular move.

"The biggest question was always going to be over whether the bailout proposals would actually receive the necessary pan-euro zone ratification - the Germans continue to remind us that it is not a done deal," said RBC Dominion Securities strategist Simon Ballard. "We remain of the opinion that it is not just cash that the indebted peripherals need, but a structural adjustment to the euro zone itself."

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Mr. Ballard said a restructuring of Greek debt appears likely, with haircuts in the area of 30 per cent, but he added that the more immediate concern for the markets is whether the Greek government can push through the austerity measures tied to the bailout. Investors wonder whether politicians will have the stomach for that given mounting protests by public sector workers who will bear the brunt of the cutbacks. Demonstrations against the measures turned violent yesterday, leaving three people dead.

The pressure on the euro zone as a whole is also building. Today, Nouriel Roubini, the well known economics professor at New York University, warned of the risk of a breakup of the common currency union.

"The breakup, the implosion of the euro cannot be ruled out at this point," he told Italy's daily paper La Repubblica. "The contagion is a real possibility and not only for countries most at risk."

Separately, Bloomberg News reported today that corporate bond sales have all but halted in Europe as investors shun company debt, fearing the bailout will not solve the crisis.

The European Central Bank, under extreme pressure given the crisis, held its benchmark interest rate steady at 1 per cent today, and markets were watching for what central bank chief Jean-Claude Trichet would say later.


Greek crisis could hit European banks, Moody's warns

Europe's fiscal crisis hinges on key votes

Eric Reguly: Why Italy has so far escaped Greece's fate

BCE tops forecasts

BCE Inc. soared past analysts' estimates this morning with a 60-per-cent jump in first-quarter profit to $608-million or 79 cents a share from $377-million or 48 cents a year earlier. Notably, its wireless unit, Bell Mobility, posted record subscriber growth. "With our financial performance this quarter we have delivered a strong start to the year, highlighted by increased earnings growth and free cash flow that doubled year over year," said chief financial officer Siim Vanaselja.

"We note that BCE benefited heavily from its marketing push in conjunction with the Olympics, and wireless remains a less significant segment than wireline [landline]" said Desjardins analyst Maher Yaghi. " "Wireline continues to exhibit an organic decline; however, BCE is undertaking investment to stem overall customer losses by focusing on [internet-protocol television] which could bring back some needed revenue growth."

Mr. Yaghi pointed out that BCE did not boost its dividend, though he believes it may in the second half of the year. Read the story

Air Canada narrows its loss

Air Canada today narrowed its first-quarter loss to $85-million or 31 cents a share from $400-million or $4 a year earlier, while revenue jumped more than 5 per cent to $2.52-billion. Chief executive officer Calin Rovinescu cited the growth in revenue and traffic, adding that "we are encouraged to see some evidence of an economic recovery and that a gradual improvement in business travel demand can be expected over the coming year." Read the story

From today's Report on Business

Sears Canada seeks currency clawback from suppliers

Canada in league of its own when it comes to risky debt

Canada, EU at loggerheads over bank tax

Kinross CEO bullish on West Africa

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More

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