Court Upholds Magna’s Billion Dollar Decision

Is an uninformed shareholder vote enough to sustain a decision that will affect all of Ontario? Frank Stronach and his board of directors seem to think so.
A recent ruling by the Ontario Superior Court was published by Jeff Gray and Greg Keenan on the Globe and Mail website.  The ruling effectively ended the dual-class share structure for Magna and bestowed nearly a billion dollars to the Stronach family.
Dual class share structures (offering separate shares for simple, multiple, and non-voting rights) have been under scrutiny, and are often accused of deterring investors because of the control it gives to business owners.  The concern of Magna’s shareholders has been the 66% controlling interest that the Stronach family has had, despite owning less than 1% of the equity.  Pension fund lawyers argued in court that the judge was required to look beyond the positive shareholder vote.  Issues of concern were a lack of information provided by Magna executives to shareholders, as well as possible negative repercussions the decision could have on capital markets.
Although an eighteen-hundred percent premium can turn some heads, executive compensation has always been astonishing.
Putting aside the media hype, it is worth noting the following:

  • The publicity garnered by this case will influence shareholder sensitivity in future corporate buyouts.  Be mindful of the attention you may attract by providing too little information to shareholders.  This could result in stakeholders questioning the fiduciary obligation of your board of directors, as it did in this case.
  • Shareholders should carefully weigh the pros and cons of paying an exorbitant price for a buyout.  Ensure that you have access to the information needed to make an educated decision on the value gained; try not to make an emotionally-charged decision based on a mentality of “them” vs. “us”.