Stronach set to loosen Magna grip

Auto parts giant Magna International outlined a proposal Thursday that could see the Stronach family cede control of the firmby converting their voting shares into common stock.

Magna'sproposalwould give shareholdersa chance to voteto eliminate the dual-class share structure through which Magna founder and chairman Frank Stronach and his family have controlledthe Aurora, Ont.-basedcompanysince the late 1970s.

Under the plan, the Stronach trust's 726,829 voting B shares would be converted into nine million regular A shares, plus $300 million USin cash. If approved, the total value of the transaction would be $863 million US.

The deal would effectively end the method by which Stronach has been able to control the company he founded for decades, despite only owning less than 10 per cent of the equity. Currently, every B share carries 300 votes, giving the Stronach trust two-thirds voting control of the company.

"While I am content to maintain the status quo, I understand the potential benefits of management's proposal, particularly the opportunity to establish a strong foundation for the future while preserving Magna's unique corporate culture," Stronach said in a statement.

Though Stronach has long supported dual-share structures for their ability to help entrepreneurs raise capital without having their vision for the company restrained, the format has long rankled investors.

'I'm very relaxed, very happy and either way I can't lose.' Magna's Frank Stronach

Stronach is frequently criticized for making himself among the highest-paid executives in Canada, despite a share price that has languished for long periods.

Hehas also been accused of allowing hispersonal interest in horse racing and gaming to lead him to make several high-profile investments in assets in those industries, mostof which have ended disastrously for Magna shareholders.

Despite the negligible positive impact on Magna's share price,investors have long bristled at the high consulting fees Stronachreceives from those publicly traded entities.

"If shareholders approve the transaction, Magna will be a one-share, one-vote company no longer controlled by the Stronach Trust," Magna co-chief executive Don Walker said.

Many 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, Walker said.

Walker said the consulting fees paid by Magna toStronach and related entitieswould be phased out by the end of 2014.

"During this time, Magna will continue to benefit from Frank's leadership, vision and relationships across the global automotive industry," Walker said.

Magna shares soared on the news, up nearly 20 per cent on the TSX shortly after opening. That's the largest one-day advance in nearly two decades.

Electric car pitch

A key part of the plan would also see Magna and the Stronach trust link up in a joint venture to design and manufacture electric vehicles. Magna will put up $220 million for three-quarters of the business, while Stronach would contribute $80 million for the rest and the right to appoint three of five board members.

"The electric car is the future," Stronach said. "If we do this, and I focus on the electric car, we will make a lot of money," he said.

Stronach said he is fine with the status quo, but recognizes that a good company has to be open to change.

"We have to change," he said,"even within our company. This is the reason I worked withmanagement andthe board to come up with strategy to keep us competitive."

"Either way, I'm very relaxed, very happy and either way I can't lose," he said.

Separately, the company also announced it had restored its scheduled dividend payment, which was shelved during the financial crisis when major Magna customers went bust. But Stronach resisted calls to increase the dividend, saying, "I've never seen a company go broke if they have money left in the bank."

The company also released quarterly results Thursday, posting $223 million in profit on $5.5 billion in revenue during the quarter. That's well above the $200-million loss on $3.6 billion in revenue during the same period last year.