Source: The Canadian Press

An Ontario court has dismissed an appeal by some Magna International shareholders of a controversial $1-billion plan to buy out founder Frank Stronach’s voting control of the company.

A panel of judges at the Ontario Superior Court found Monday that an earlier ruling that approved the plan was correct and said the auto parts giant can go ahead with the transaction.

“We are disappointed with the outcome, but accept today’s ruling by the Divisional Court of the Ontario Superior Court of Justice and will not appeal that decision,” said the Canada Pension Plan Investment Board, one of the shareholders that had appealed the ruling.

“As an ongoing shareholder of Magna, we intend to engage with the company on its governance structure and practices under the revised ownership arrangement,” the pension fund added.

This means the plan should be finalized shortly, as Magna (TSX:MG.A) and Stronach have the right to walk away from the deal if it isn’t concluded by Tuesday.

The plan raised the ire of some investors for the premium it will pay Stronach to give up his special class of voting shares.

He will receive US$300 million in cash and nine million class A shares, as well as control over a joint venture that will develop components for electric vehicles and an estimated $120 million in consulting fees — a total payout of more than $1.1 billion based on Monday’s closing share price.

In exchange, Stronach will give up the special class of voting shares that give him and his family control over the company.

The opposed shareholders said the huge payout — a premium of about 1,800% when the deal was first announced — would set a bad precedent and would dilute the value of their shares.

But the court agreed with Justice Herman Wilton-Siegel’s earlier ruling that the transaction is “fair and reasonable” to Magna’s shareholders, in large part because those shareholders appear to have reached the same conclusion when they approved it at a vote held in July.

“The reasonable inference from the favourable vote of the class A shareholders is that they concluded that there was a reasonable possibility that the potential benefits to them exceeded the certain costs of the transaction,” Monday’s ruling said.

The ruling also pointed to the rise in Magna’s share price since the deal was first announced — an increase of about 23% — as a sign that the benefits of the plan to shareholders would outweigh the premium being paid to Stronach.

“Thus, it is not arguable that the proposed arrangement is inherently unfair,” it says.

The opposed shareholders — including the Canada Pension Plan Investment Board, Ontario Teachers’ Pension Plan, Ontario Municipal Employees Retirement System, Alberta Investment Management Corp. and British Columbia Investment Management Corp. — have been fighting the deal since it was announced in early May.

Shareholders who support the plan say it will boost Magna’s share price, which has historically traded at a lower multiple than its peers. Dual-class structures tend to scare away some investors because they don’t give common shareholders control over how the company is run.

The Stronach Trust, consisting of Stronach and his family, indirectly owns all of the 726,829 outstanding class B shares in the company. Each of the super-voting shares has 300 votes, giving the family-controlled trust about 66% of the voting rights at Magna with less than 1% of the equity.

Shares in Magna fell $2.17 or 2.7% to C$79.61 in Monday trading on the Toronto Stock Exchange.