TORONTO (Reuters) - A group of institutional shareholders opposed to Magna International's controversial share restructuring plan will have a limited say at a hearing to decide whether the auto parts maker's plan will go ahead, an Ontario regulator said on Friday.
The Ontario Securities Commission will decide at a hearing beginning on Wednesday if Magna can proceed, as is, with its plan to pay its founder Frank Stronach nearly $900 million in cash and newly issued stock to give up his supra-voting shares, through which he controls the company.
If approved by regulators and a majority of shareholders, the move would end Magna's dual-class share structure.
Analysts have long said that structure is a big reason why Magna, the world's No. 3 auto parts maker, trades at a sizable discount to its peers.
The OSC called the hearing after several shareholders complained that while they applaud the move to a "one share, one vote" structure, the payout to Stronach and the dilution of equity would be unreasonably high.
On Friday the OSC said a group of heavy-hitting investors that together own over 4 percent of Magna could address certain issues at the hearing together with the OSC staff, but could not lead evidence or cross-examine witnesses.
The group, which their lawyer said represents the "don't hold your nose and vote yes camp," is made up of Ontario Teachers Pension Plan, Ontario Municipal Employees Retirement System, Canada Pension Plan Investment Board, British Columbia Investment Management Corporation, Alberta Investment Management Corporation, and Letko, Brosseau & Associates Inc.
They want Magna to provide shareholders with a statement of fairness on the deal by a financial adviser, and they want Magna's board to give a recommendation -- something it has so far refused to do.
Magna's fourth-largest stake holder, Goodman & Co, with about 3.9 percent of shares, was also granted limited standing, but it will make a case in favor of the deal.
Analysts raised their price targets for Magna after the proposal was announced in May and the stock surged as much as 23 percent in response.
Much of that value has unwound in recent weeks, though, as opposition mounted. The lawyer for Goodman said his client would take a financial hit if the deal fell through.
FAIR Canada, an investor rights advocacy group, was denied any standing in the hearings, because it was not seen as having a direct interest in the matter.
The OSC said in its complaint that Magna's conduct in the deal "was contrary to the public interest and harmful to the integrity of the Ontario capital markets."
It also said Magna failed to provide enough information to shareholders on the background to, and fairness of, the deal.
Shareholders are set to vote on the matter on June 28. Magna said on Wednesday that more than 24 percent of its shares outstanding had pre-voted, with more than 99 percent in favor.
Stronach owns just 0.6 percent of the equity in Magna, which he founded in a Toronto garage in the late 1950s and built into a global company with a market cap of over $7.5 billion.
But the 77-year-old, Austrian-born Canadian still has an iron grip on the company because his stake is in Class B supra-voting shares, which carry 300 votes per share, as opposed to one vote per Class A share.
If the plan succeeds, the Class B shares would be wiped out and Stronach would be paid $300 million in cash, plus about 7.5 percent of Magna's Class A shares. That would make him the company's No. 1 shareholder.
Stronach would remain chairman of Magna, plus he would control a joint venture between Magna and the Stronach Trust to make electric and hybrid vehicles for other customers.
He would also still be given the "consulting fees" he collects from the company for another four years.
In 2007, those fees were $37.8 million, in 2008 they were $8.2 million. In 2009 he received no fees because Magna recorded a loss due to the downturn in the auto sector.
Magna's shares ended down 0.76 percent at C$68.83 on the Toronto Stock Exchange on Friday.