an interesting story....
Quite visionary of Mr. Stronach to look at Russia I believe.
C
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Stronach gambles to get into Russia
GREG KEENAN AND JACQUIE MCNISH
Globe and Mail Update
May 10, 2007 at 9:17 PM EDT
TORONTO — Frank Stronach is surrendering the iron grip on Magna International Inc. that he has held for decades to hook up with a controversial 39-year-old billionaire who he hopes will lead him to riches in Russia.
The first meeting of Oleg Deripaska, Russia's second-richest man, and Mr. Stronach, a 74-year-old grandfather, came last August as the Magna founder and his executives were looking to expand beyond the Detroit auto makers and their shrinking market share.
“I sat down with my guys and I said: ‘Look, Russia will be a great opportunity, let's see if we can get a strategic partner,” Mr. Stronach said.
The partnership was announced Thursday, with the soft-spoken Russian industrialist paying $1.54-billion (U.S.) for 20 million shares in Magna, which will ultimately give him equal voting control with Mr. Stronach, who founded the company in a Toronto garage in 1957. The deal will also make Mr. Stronach, perennially one of Canada's highest-paid executives, even richer with a $150-million payment to his personal consulting firm.
A look at Oleg Deripaska's auto empire
Magna will remain public, but for the first time, Mr. Stronach will share control with an outside investor.
If Russia turns out to be the bonanza Mr. Stronach and his managers expect, their company's centre of gravity will shift to Europe and away from North America.
Europe is already a key pillar for Magna as the home of such crown jewels as the company's assembly plant and engineering and development centre in Graz, Austria, the hometown of Arnold Schwarzenegger.
That's where Mr. Deripaska travelled last August to meet Mr. Stronach and begin the process that would end up with the deal to buy a large chunk of one of the remaining crown jewels of Corporate Canada, a $24-billion global powerhouse that is in the midst of making an audacious bid to buy a stake in Chrysler and transform itself into a full-fledged auto maker.
“We asked a lot of friends who would be a good strategic partner for us in Russia and always the name came up, Oleg Deripaska,” Mr. Stronach said Thursday, sitting beside his new partner in an ante-room at Toronto's Roy Thomson Hall after Magna's annual meeting.
After their initial summer get-together, Mr. Stronach had what he called a long meeting with Russian President Vladimir Putin in November, where the Magna chairman sketched a plan that outlined the creation of 300,000 automotive jobs in Russia over the next 10 years.
By last month, the talks between the two businessmen became quite serious.
Operating under the code name Project Pearl, Mr. Deripaska dispatched a team of his executives to Toronto early in May to huddle with U.S. and Canadian lawyers and negotiate with Mr. Stronach and a special committee of independent Magna directors led by former Ontario premier Mike Harris.
Most of the negotiations took place in the offices of Magna's lawyers Osler Hoskin & Harcourt in downtown Toronto, but sources said Mr. Stronach and Mr. Deripaska privately discussed key issues during phone calls and meetings in Russia, Austria and Toronto in recent weeks before the deal was signed on Wednesday.
The agreement, which requires approval of Magna's class A and B shareholders, changes the landscape at North America's third-largest auto parts company by creating a holding company that will control Magna. The Stronach Trust and Mr. Deripaska's Russian Machines will own an equal share of the holding company and each will appoint six directors.
The deal is necessary because Magna sees Russia as the most promising emerging market – with a growing middle class, growing income levels and a surging market over all – and its partner in that country must also have a strong stake in Magna's success, Mr. Stronach and other company executives insisted Thursday.
“It is essential if you go in new regions to have a good partner,” he said.
The growth opportunity involves Russia, Ukraine and all nations of the Commonwealth of Independent States and it's not just vehicle assembly, noted Mr. Deripaska, who controls GAZ, Russia's second-largest vehicle manufacturer. There is a market for first-class component manufacturing, which generates the bulk of Magna's revenue, although it does assemble vehicles for Chrysler, BMW AG and other customers at its Graz operation.
Mr. Stronach publicly insisted for years that he had no intention of selling his controlling interest in the auto parts company, which employs 83,000 people worldwide and about 20,000 in Canada. But people close to the discussions said the Austrian-born businessman had a change of heart when it became apparent that Mr. Deripaska was prepared to pay heavily to share control of Magna with Mr. Stronach.
“Stronach has a huge demand for cash and this transaction feeds that need,” said one person involved in the negotiations.
Under terms of the agreement, Mr. Stronach will receive $150-million in management fees up front and will continue to earn the lucrative annual stipend that provides him with 3 per cent of Magna's pretax profit. Over the long term, Mr. Stronach will see his share of Magna dividend payments increase substantially.
Currently, Mr. Stronach earns nearly $700,000 annually in dividends from his 726,000 class B multiple-voting shares, which will be rolled into the new holding company. He could see his annual income rise to about $8-million annually according to people familiar with the agreement, because Mr. Deripaska has agreed to place his planned stake of 20 million Magna shares into that company as well.
“The silver lining in this deal for Stronach is the dividend stream,” said one person familiar with the deal.
Magna's class A share price jumped more than 7 per cent in trading on the Toronto Stock Exchange. But some analysts attributed the jump to first-quarter financial results that showed a sharp rebound in profitability from a slump in fourth-quarter profit. |
