Big fund to vote against Stronach's Russian deal

In whatmay be a largely symbolic protest, the Ontario Teachers' Pension Planvows to vote on Tuesday against Magna International founder Frank Stronach's plan to sell a chunk ofthe companyto a Russian billionaire.

The fundargues thatthedealis bad forthose who ownMagna's single-vote Class A shares, asdistinct from the 500-voteClass B supersharesthrough which Stronach has long controlled the auto parts maker.

The $1.54-billion US dealwould give Oleg Deripaska, an industrialist with close ties to Russian President Vladimir Putin, power to nominate six members of an expanded, 14-memberMagna board of directors.

AStronach family trust would have power to nominate another six.The company's two top executives would also get seats on the board.

Teachers, one of Canada's biggest pension funds, callsthat arrangementa change of control with no payoffforholders of Class A shares,which represent majority ownership of the company.

Teachers' holds 383,921 Class A shares, giving it less than 0.1 per cent of the voting powerat a special shareholders meetingscheduled for9:30 a.m.ET Tuesday in the former Toronto Stock Exchange building on Bay Street. The Stronach trust has 55 per cent of the votes.

Whenthe pension fund's managers get worked up about a proposal, they post their views on the fund's website andstate theirintentto vote for or against it. Theysay other shareholders should make up their own minds, however.

Magna's proposed deal is with a company called Russian Machines, a wholly owned subsidiary of Basic Element, a Moscow conglomerate controlled by Deripaska.

Russian Machines would get 20 million freshly printed Magna ClassA shares at $76.83 US each,about13 per cent less than Monday's Toronto Stock Exchange opening price of $92.63 Cdn.

"I think Russia is a very important market for us, …so we would like to have a Russian investor,"Stronach said in May.

As Teachers' sees it, thedealrepresents "a de facto change of control of Magna" because "Russian Machines will control 50 per cent of the director appointments while owning only 20 per cent of the equity."

This would happen "without any consideration being given to the Class A shareholders who represent the majority of the equity capital of the company," it says.

The value of control of Magna is shown bythe company's offer, as part of the Russian deal,to repurchasemany ofits 500-vote Class B shares for $114 Canadiana share,thefund says. (The voting rights of the remaining Class B shares would be reduced somewhat to 300 votes each.)

In a slap at fees Stronach collects from Magna, the fund complains that the plan "contemplates the continuation of a high level of consulting fees" that are not justified by results.

"This is disturbing because Magna's share price has underperformed its peers over the past10 years, and it has also underperformed broader markets," it says.

"It is not clear that the consulting arrangement has created any value for Class A shareholders."