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Canada's top securities regulator has ruled that Magna International Inc.'s (MGA) proposal to eliminate its dual-class share isn't abusive, but said its circular must be amended to add more information before the plan can be put to a shareholder vote.
In its ruling released late Thursday, an Ontario Securities Commission tribunal said "the circular does not provide sufficient disclosure to shareholders to permit them to make an informed decision and does not contain certain information that is material to shareholders in the circumstances."
The regulator said Magna must provide several pieces of information before the "extraordinary transaction can proceed," including how the payment to the Stronach trust was calculated, potential alternatives considered by Magna's special committee, the dilution suffered by minority shareholders, and a detailed discussion of the committee's review and approval process.
The shareholder vote was scheduled for Monday but will now be delayed.
The Ontario Securities Commission held hearings into Magna's proposal to eliminate its dual-class share structure Wednesday and part of Thursday after OSC staff alleged the deal was abusive and contrary to the public interest.
Magna officials couldn't immediately be reached for comment.
The proposal by Magna, the Canadian auto-parts giant, would end founder Frank Stronach's voting control of the company by purchasing all the Class B shares held in the Stronach Trust in exchange for 9 million new Class A shares and $300 million in cash for a total value of about $863 million. In addition, a new E-Car joint venture would be formed between the Stronach Trust and Magna, in which Stronach would control the board but only have about 27% ownership.
The terms of the deal infuriated the likes of Ontario Teachers Pension Plan and CPP Investment Board, who said it was unfair and would set a dangerous precedent if allowed. But their ownership interest was minute compared to some, such as institutional shareholder Goodman & Co., which argued shareholders should decide if the proposal is fair.
During the OSC hearing, OSC staff counsel agreed that a vote should take place, but only an "informed" vote, meaning the company's circular should be rewritten to further explain the deal's valuation, costs to shareholders, how the deal came together, and an assessment of fairness.
Magna's side countered that its disclosure was "more than" sufficient for shareholders to make a reasonable decision, and noted that the latest vote count showed enough shareholders already support the transaction to get it approved.
-By Andy Georgiades; Dow Jones Newswires; 416-306-2031;