Manga International

Frank Stronach and Magna

1957: founds company in his garage 1969: lists on Toronto Stock Exchange in reverse merger 1978: creates dual-class structure with Class B receiving 500 votes per share 1992: lists on New York Stock Exchange

Magnas capital structure

Equity
Class A: 111,933,031 shares Class B: 726,829 shares Voting ratio: 300:1, implying enormous wedge of about 65% Dividends equal

Debt:
essentially zero

Evidence that dual-class structure harms the minority shareholders

No leverage, to maximize pre-tax income High executive compensation (3% of pre-tax profits) Installation of daughter as CEO References to private benefits of control
Involvement in national politics Horse racing

Market reactions to prior dual-class unifications

Exhibit 3 lists 14 transactions with strong benefits to minority shareholders:
+ 2.8% (one-day) + 8.2% (ten-day)

How relevant?
Mostly smaller companies All but 4 of 14 had coattail rights May have been anticipated by the market

Laidlaw seems like closest comparable; gain is somewhat smaller than rest of sample

Multiples analysis of comparable auto parts companies

P/E ratios
Magna International 19.5x 6 other companies 17.9x

Enterprise Value / EBITDA

Magna International 4.8 x 6 other companies 6.5 x

Which is more relevant, and why? Is the entire discount attributable to the dualclass structure?

How much value could be created?

$6,094 x ((6.5 4.8) / 4.8) = $2.158 billion or +35% if Manga received a typical valuation With Class A stock at $62.16 per share, the potential gain is $22 per share if split equally on a per-share basis Implies that repurchasing Class B shares for any price up to $2969 per share would be a positive NPV investment for Class A shareholders
$2.158 billion / 726,829 = $2,969 per Class B share

What happened: Part I

Repurchase of the trusts Class B shares announced May 6, 2010 Consideration: $300 million in cash plus $563 million in Class A shares, or $1,187 per share Class A stock price reaction: +12%

What happened: Part II

Some major institutional investors and proxy advisors oppose the deal as overly generous Securities regulator orders supplementary disclosures Dissident shareholders obtain a fairness hearing in Ontario Superior Court, but decision supports the transaction as fair and reasonable. Class A shareholders vote 75% in favor of the deal; stock rises to $81 per share, a net gain of +31%.