April 28, 2014 / 6:34 PM / in 3 years

Martinrea dissidents propose asset sales, cost cutting, new CEO

TORONTO (Reuters) - The fight for control of auto parts maker Martinrea International Inc (MRE.TO) gathered speed on Monday, as a dissident slate of directors pitched a plan including asset sales and cost cutting along with picking a former Magna International Inc (MG.TO) executive as the new chief executive.

Rea Holdings, a Toronto-based holding company controlled by former Martinrea executive Nat Rea, is urging investors to replace the bulk of Martinrea’s eight-member board at its June 19 annual meeting with five new nominees, including one-time Magna executive vice chairman Manfred Gingl.

Vaughan, Ontario-based Martinrea, which manufactures a range of auto parts for North American, European and Asian carmakers, such as engine blocks and fuel tanks, was not immediately available for comment on the proxy battle.

Rea, whose holding company owns 100,000 Martinrea shares, or 0.1 percent of the total, argued in an online presentation that the current board lacks independence and industry experience and the company suffers from an overly heavy debt load, operational issues and financial control failures.

Shares of Martinrea have underperformed rivals over the last three years, at a time when North America’s auto sector rebounded as the economy improved. Martinrea’s stock has increased 28 percent, compared with 158 percent for Linamar Corp (LNR.TO), 132 percent at Magna and 120 percent at Exco Technologies (XTC.TO), according to Thomson Reuters data.

The remedy includes independent board representation, balance sheet repairs and improved operational and financial controls, the dissident slate said.

To pay down some of the C$435 million ($394.5 million) in “unsustainable” debt, non-core assets should be sold, the plan suggests, and cost cutting should be accelerated, with cuts to head office and administration expenses. Efficiencies will also help drive earnings growth, it said.

“Our nominees will consolidate operations were possible, rationalize overhead inefficiencies and accelerate cost reductions,” the presentation said.

To improve financial controls, Martinrea requires an internal audit group that is independent of management and reports directly to the board, the group said. Compensation should also be aligned with performance, it said.

Analysts have said that the company, which has most of its operations in North America but wants to expand in Europe, looks to have put the worst behind it. They noted that a forensic audit by consultants PricewaterhouseCoopers, brought in by Martinrea as a response to allegations in a Rea lawsuit, has failed to undercover any major wrongdoing.

Last September Rea and Rea Holdings brought a lawsuit against some Martinrea officials and directors alleging that they breached their fiduciary duties regarding some payments to suppliers and customers. The company has rejected the allegations and counter-sued.

Rea sold his auto parts company, Rea International, in 2002 to what is now Martinrea. He has been critical of the company’s leadership for some time and said “his employment was terminated” in 2012.

Rea Holdings’ nominees are: Rea himself, Gingl, currently chief executive of electric bicycle maker BionX International Corp; Sandra Levy, Magna’s former director of human resources; Roland Nimmo, Magna’s former head of internal audit; and Paul Smith, the chair of VIA Rail Canada.

Shares of Martinrea were down 26 Canadian cents, or 2.3 percent, at C$11 on the Toronto Stock Exchange on Monday afternoon. That is a 43.5 percent drop from the stock’s peak in 2007.

($1 = 1.1027 Canadian Dollars)

Editing by Bernard Orr

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