SCENARIOS-Judge to rule on Magna’s Stronach payout next week

* Judge will rule late Monday, early Tuesday

* Share up 3.7 percent at C$79.58 in Toronto

TORONTO, Aug 13 (BestGrowthStock) – A Canadian judge will rule
early next week on the fate of a plan by Magna International
(MGa.TO: ) to pay founder Frank Stronach about $1 billion in
exchange for giving up control of the auto parts maker.

During two days of hearings in a Toronto courtroom, Justice
Herman Wilton-Siegel heard arguments from both sides, with
Magna asking him to uphold a shareholder vote in favor of the
deal that would collapse Magna’s dual-class structure and give
Stronach the big payout.

“The people with skin in the game have voted in favor of
this transaction,” a lawyer for Magna told the judge in summing
up his arguments on Friday.

About three-quarters of Magna’s subordinate shareholders
approved the deal in July, but three prominent pension plans
and other institutional investors opposed it, calling the
payoff to Stronach “unreasonable” and “fundamentally unfair”,
and one that set a bad precedent.

Lawyers argued the deal had obvious and immediate benefits
for Stronach — who started the company from scratch after
coming from Austria as a young man with just a few dollars in
his pocket — but held no clear long-term advantage or
guarantees for shareholders.

“Under this deal, the Stronach Trust gets a sure thing,
while the class A shareholders get just a hope,” said one of
the lawyers opposed to the deal.

Just days before an originally scheduled vote in late June,
the proposal was challenged by the Ontario Securities
Commission. The regulator concluded that Magna could go ahead
with a vote, but ruled it must first supply shareholders with
more information so they could make a fully informed decision.

Following are three scenarios that analysts say could
emerge from the ruling, which is expected after markets close
on Monday or before they open on Tuesday.


The ruling stands and 77-year-old Stronach gives up his
controlling, class B shares, in return for 300 million new
class A shares, $300 million in cash, control of a new electric
car parts joint venture between Stronach and Magna, and another
four years of lucrative consulting fees.

Shares rise with the improved corporate governance the plan
implies and the end to the dual-share structure.


The judge could suggest a new plan be drawn up by the
parties that would lower the payout to Stronach.

In courtroom discussions, lawyers representing pension
funds and other institutional investors said the proposed
payout was excessive and far beyond other precedents.

They argued that a special committee of the board of Magna
had been unable to testify to its long-term benefits to the

Pushed by the judge, lawyers said they might consider a
lower payment that is supported by the special committee.

Magna shares would likely rise as the market reacts to
confirmation of improved corporate governance.


The judge scuttles the deal and the status quo remains in
place. This final scenario is the least likely and would
probably see Magna shares take a sharp tumble as the unpopular
dual-share system continues.

While the issuance of the new stock to Stronach under the
plan would dilute the company’s shares by 11.4 percent, Magna
contends it would unlock significant value in the stock, which
has traded at a discount to its peers because of investor
aversion to the dual-class structure and concerns over
Stronach’s control.

The day Magna announced the plan in early May, several
analysts raised their price targets for the company, and the
shares gained 14 percent.

Magna shares closed up 3.7 percent at C$79.58 on Friday.
(Reporting by Pav Jordan; editing by Rob Wilson)

SCENARIOS-Judge to rule on Magna’s Stronach payout next week