Magna to Take Auto Parts Subsidiaries Intier, Decoma and Tesma Private

From Canadian Press

TORONTO — Magna International Inc. has made a $1.3-billion bid to take its three publicly traded auto parts subsidiaries private in a move the company says will help it win business from Japanese and South Korean carmakers.

The auto components maker said Monday it has made separate proposals to the boards of its three public subsidiaries, Intier Automotive Inc., Decoma International Inc. and Tesma International Inc., to acquire all the outstanding Class A subordinate voting shares of each subsidiary not owned by Magna.

“As we continue to expand into new markets and further broaden our customer base, we expect to be able to avoid duplicate investments in infrastructure,” Vincent Galifi, Magna’s CFO, said during a conference call with analysts early Monday.

“One Magna identity will also allow us to be better positioned in new markets where the Magna name continues to hold greater recognition, particularly with our Asian customers who prefer one Magna voice.”

Shares of all three Magna subsidiaries soared on the news, each gaining around 20 percent. Decoma shares rose $2.20 to $12.15, while Tesma shares shot up $6.25 to $36. Intier shares were up $5.25 at $30.85.

With the prospect of millions of new shares from the transactions diluting Magna’s capital stock, Magna ‘s class A shares dropped $1.52 at $85.40.

Magna president Mark Hogan, who joined the company in August to fill the post vacated by chairman Frank Stronach’s daughter Belinda, had been with General Motors for three decades, most recently as group vice-president for advanced vehicle development.

“At GM we saw Magna as a great innovator with an entrepreneurial spirit and possessing the broadest product capabilities, what was difficult to understand was how the Magna groups worked together or competed,” Hogan said.

“It was clear to me that Magna needed to get organized more efficiently.”

Each privatization proposal is independent and not conditional on completion of the other transactions, Magna said in a release.

Magna founder Stronach is chairman of Magna International and, through multiple-voting shares held by a family trust, is the controlling shareholder of the Aurora, Ont. company, Canada’s largest auto parts producer.

Stronach has faced criticism for the company’s dual-class share structure which allows him to control the company even though he holds only a small fraction of Magna’s total equity.

All three companies released similar statements saying their boards of directors would review Magna’s proposal and respond “in due course having regard to all applicable legal and regulatory requirements.”

Magna currently owns about 86 percent of the shares of Intier and $218 million in convertible preferred shares and has the right to cast 99 percent of the votes attached to Intier’s outstanding shares. The company also owns 74 percent of the equity interest in Decoma as well as $200 million (CDN) in convertible preferred shares and 97 percent of the voting shares.

Magna owns 44 percent of Tesma and has the right to cast approximately 89 percent of the votes attached to Tesma’s outstanding shares.

Under the Intier proposal, sharesholders would get .3847 of a Class A subordinate voting share of Magna for each class A subordinate voting share of Intier or cash, up to a maximum of $125 million. The proposal has an approximate value of about $250 million.

Under the Decoma proposal, shareholders would receive .1453 of a Class A subordinate voting share of Magna for each subordinate share of Decoma or, a maximum of $150 million in cash. The total deal would be valued at about $300 million.

The Tesma deal would see shareholders receive .4388 of a Class A Subordinate Voting Share of Magna for each of their shares, with a cash payout of up to $350 million of the $700 million deal.

Magna said the total purchase price of $1.3 billion would lead to the issuing of 13.9 million Magna subordinate voting shares if the shareholders elect for all stock payment, or about 7.1 million Magna Class A Subordinate Voting Shares and $625 million in cash, if shareholders take shares and cash.

Magna is a major auto parts company, with 81,000 employees at plants around the world and revenues last year of $15.4 billion and $522 million in annual profits. Intier makes auto interior systems, while Decoma makes exterior trim and lighting systems and Tesma engine, transmission and fueling systems. The Magna group’s customers are primarily the big auto assembly companies such as General Motors, Ford, DaimlerChrysler, Volkswagen and the Japanese automakers.

_______________________________________

Click here to view the rest of today’s headlines.