Canadian pension fund opposes Magna International’s plan for eliminating dual-class shares

Pension fund opposes Magna’s new vote structure

TORONTO — Two of Canada’s biggest pension fund managers said Thursday that they will vote against Magna International’s plan to eliminate the company’s dual-class share structure because it would pay the founding Stronach family too much and unfairly dilute shareholder value.

Canada’s largest auto parts maker is seeking shareholder approval for a deal that would see founder and Chairman Frank Stronach and the Stronach Trust trade their class B multiple voting shares for $300 million in cash. Magna would also give Stronach 9 million new class A shares in exchange for his 726,829 multiple-voting shares. The deal values each of his shares at $1,187 Canadian dollars ($1,139).

When Magna announced the new structure plan on May 5, the board said the offer was worth about $863 million. The value was based on the closing price of Magna’s Class A shares of $62.53 that day on the New York Stock Exchange.

The Canada Pension Plan Investment Board, which owns about 1 percent, or one million shares of Magna, said it is opposed to dual-class share structures involving different voting rights and would generally support transactions involving conversion of such share structures into a single class with equal voting shares.

“While in the short term it would meet one of our objectives, which is eliminate dual class share structures, the price that we and other shareholders would be asked to pay, in our view, is excessive,” said David Denison, CPP Investment Board president and CEO.

The Ontario Teachers’ Pension Plan, which owns just 1 share of Magna, said the plan is fundamentally unfair to the company’s subordinate voting shareholders.

“It also raises larger governance questions as to whether the board of directors has fulfilled its duty, as well as the purpose and benefits to shareholders of dual-class share structures,” the fund said in a statement Thursday.

Stronach, along with his family, have controlled the company through a special class of shares that gives them majority voting rights without a majority equity stake. Each of the family’s 750,000 class B shares has 300 votes, giving the family a 66 percent voting interest.

Magna’s new structure proposal is part of an effort to boost the company’s share price.

But the Canadian Pension Plan said it is concerned that Magna’s board of directors did not make any recommendation regarding the proposal to its shareholders.

“This proposal is, in our view, unfair and unreasonable to the holders of subordinate voting shares,” Denison said. “We urge the board to develop a proposal to eliminate their dual-class share structure in an equitable way.”

Magna, which has scheduled a shareholders meeting on the issue for June 28, declined to comment Thursday on the funds’ announcements.

Magna co-CEO Don Walker said in May that the proposal to eliminate the Stronach family’s voting control is meant to address shareholders’ frustrations with what they view as an unreasonably low share price.

Walker has said that the dual-class structure at Magna had been a concern within the investment community for several years.

He said some U.S. investment firms have a practice of avoiding companies with dual-class voting structures, and this may have depressed the market value of all Magna shares, which trade on both the Toronto Stock Exchange and the New York Stock Exchange.

Shares closed Thursday at $69.86 on the NYSE.