Wednesday, July 14, 2010

To pay or not to pay... that is the question

What's everyone getting their shirt in a knot over?

Oh, it's just Magna International

Actually, I shouldn't say that, nobody is really getting their shirts in a knot over Magna International, it's just some institutional investors that are unhappy over a plan to restructure Magna in order to remove it's family owned controllers from the helm.

So let's see if we have this right... Magna International was founded by Frank Stronach in 1957, and during the subsequent decades with Frank at the helm, grew through various mergers and acquisitions to become one of the most important suppliers to the auto industry in North America. In 1962, the company went public on the Toronto Stock Exchange with what one would assume was the same share structure as it currently holds, including dual class shares, after which it grew rapidly under the guidance of the man who started it all.

Now, the Ontario Teachers, the CPP Investment Board, and the APP investment board all have their shirts in a knot over a corporate structure that existed at the time when they invested their money into the corporation, especially at a time when the company's Board of Directors is seeking to reorganize the corporate structure and pay the founder of the company to go away.

Do I have that right? Shirts in a knot over a corporate structure that existed when they originally invested. Hmmm yes, seems like it.

The fact of the matter is (and I'm going to be a pretty unabashed free marketeer here) that some people use other people's money to expand and fail, others use other people's money to expand and succeed. That money can come from banks and investors in the form of loans and guarantees, or it can come from investors in the form of equity, but regardless of how it came, Frank Stronach took that money and expanded his business from $70,000 in sales the first year to a multi-billion dollar multinational powerhouse within the span of 50 years. With all due respect to the institutional investors, Mr. Stronach deserves every penny of premium that he is paid to walk away from his company, and then some, and to be quite frank, if those investors don't like it, then they can sell their stakes in the company and walk away.

It's a free country.

1 comment:

  1. I don't have anything to add, but I would still like to note how much I agree.