Source: The Canadian Press

An Ontario court is expected to rule Tuesday on Magna International’s controversial plan to pay a hefty premium for founder Frank Stronach to give up his voting control of the company.

Justice Herman Wilton-Siegel held two days of hearings on the matter last week and has indicated he’ll release his decision Tuesday morning, Stronach’s lawyer Peter Howard said Monday.

The plan, which would see Stronach receive about $1 billion in cash and shares to give up his family’s control of the auto parts giant, was already approved by about three-quarters of Magna’s shareholders at a special meeting in late July.

Although those shareholders opposed to the transaction are in the minority, it has been a vocal minority.

Major institutional investors — including the Canada Pension Plan Investment Board, the Ontario Teachers’ Pension Plan, OMERS, Alberta Investment Management Corp. and British Columbia Investment Management Corp. — have said they’re wary of the plan because of the 1,800% premium it proposes to pay Stronach and the dilution of their shares that will result.

They argued the proposal would create a dangerous precedent that could damage Canada’s capital markets if other companies with dual-class share structures followed suit.

The group opposed the Magna plan at hearings by the Ontario Securities Commission and again in the Ontario Superior Court.

It is likely the court’s decision will be appealed either way. However, time is running out, as the terms of the deal allow Magna or Stronach’s family trust to walk away if it’s not approved by the end of the month.

The deal will see Stronach receive US$300 million in cash, nine million class A shares and control over a joint venture that will develop components for electric vehicles. He will also receive an estimated $120 million in consulting fees over several years that will be gradually phased out by 2014, bringing the total value of the deal to more than $1 billion.

In exchange, Stronach would give up his special class of shares that gives him voting control over the company. The Stronach Trust would continue to own a minority stake in Magna through the class A shares it receives.

Shareholders who support the deal say it will unlock a significant amount of value in Magna’s stock, which has traded lower than its peers because of the company’s dual-class share structure. Dual-class structures tend to scare away some investors because they don’t give common shareholders control over how the company is run.

Shares in Magna (TSX:MG.A) lost added six cents to $79.64 in Monday trading on the Toronto Stock Exchange. The company’s stock price has gained more than 23% since the deal was first announced in early May.

IE