Don’t believe the headlines. Frank Stronach hasn’t suddenly renounced his belief in dual-share structures. Sit down with the guy for a intimate chat and it is crystal clear why the 77-year-old chairman of Magna International supports a proposal that could cost him control of the $20-billion auto parts company he founded in a Toronto garage decades ago. Simply put, retreating from his empire’s mothership allows him to focus on regrouping at MI Developments, the real estate company spun out of Magna to help finance the now-bankrupt Magna Entertainment horse track and gaming venture in 2003.
Stronach freely admits he’s “a little bit” tired of fighting multiple fronts against institutional investors and dissenting executives. He also thinks Magna has “drifted” from the early entrepreneurial preaching of his corporate church, which promotes his one-cook-in-the-kitchen capitalist philosophy. So Stronach is willing to move the pulpit to Magna’s dual-share landlord – where executives still have a healthy taste for his brand of leadership. And that’s a good thing, because this country will never see another businessman as fun to follow as Franz Strohsack.
For years, the Austrian native enraged corporate governance activists by using multiple-voting shares to maintain his grip on Magna, despite holding less than one per cent of its equity. Now, just months after leading a controversial (and unsuccessful) bid to acquire control of Opel, GM’s European operations – which would have put Magna in a competitive position with its own customers – Stronach has at least a few investors howling over the cost of equality.
“I hope I didn’t surprise a lot of people,” he joked after announcing the new structure proposal at the company’s annual general meeting in early May. Nobody was surprised – they were stunned. Stephen Jarislowsky, co-founder of the Canadian Coalition of Good Governance, was floored first by Stronach’s offer to give up control and then by the terms of surrender. To move to a traditional share structure, Magna must hand the Stronach family US$300 million plus nine million common shares, worth about US$675 million. Magna will also have to keep paying Stronach’s multimillion-dollar consulting fees until 2014 and invest in a semi-private electric car partnership that he will control via board appointments.
Company officials imply Magna’s main man has been thinking about this deal for some time. And it certainly sounds like something he’d dream up. But it was a management idea, which is why the price is so high.
As loyal soldiers, Magna’s management may have regrets. But anyone who follows the company closely knows CFO Vincent Galifi won’t miss having to justify the chairman’s super-voting power to investors who own more of the company than Stronach. And Don Walker, Magna’s co-CEO (and Stronach’s former son-in-law), would clearly welcome not having the chairman in a position to contradict his version of operational plans, which happened during the Opel bid.
As for Stronach, he was still struggling with the proposal when it was announced. On the morning of Magna’s AGM, he spent so much time staring at himself in the mirror, “reflecting and soul searching,” that he lost track of time and rushed to face investors without a tie. But Stronach says he no longer has time to fight everyone, and that’s why management could meet his price.
Before his days run out, Stronach wants to prove that the Magna culture as he sees it can produce an electric car company the size of his auto parts empire without dealing with bureaucracy or seeking approval from special committees. “I can’t get anything done with so many chains around,” he says. And since the new venture will need plants, there is a potential new revenue stream for MID, which is still into gaming and racetrack development since it picked up MEC’s most-prized assets during the Chapter 11 fire sale.
“I still feel racetracks have a great future,” Stronach says, “but you need free enterprise. Government officials need to let us open up the store when we can get the most customers. And they need to let us sell what we think customers want. If that doesn’t happen, we’ll focus on developing real estate.”
Clearly, all is well in Stronachland. Shareholders can pay a fortune to transform Magna into a corporate democracy with Stronach still in the chairman’s seat or they can leave the company in his iron grip.
“Either way,” Stronach says, “I can’t lose.”