Canada: Ontario Court Approves Magna’s Plan of Arrangement

Copyright 2010, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Corporate Governance, August 2010

On August 17, 2010, the Ontario Superior Court of Justice (the Court) approved Magna International Inc.'s (Magna) proposed arrangement that would eliminate its multiple voting share structure (the Proposed Arrangement). The Proposed Arrangement, that would pay the Stronach Trust an estimated 1,800% premium in exchange for the elimination of all the Class B multiple voting shares (Class B Shares) held by the Stronach Trust, was met with considerable controversy when it was first announced.

Under the Business Corporations Act (Ontario), court approval is required for an arrangement. To provide such approval, the court must be satisfied the arrangement is "fair and reasonable". The Court held that a shareholder vote can reasonably be used as a proxy for the fairness and reasonableness of a plan of arrangement, particularly if the voting shareholders are, themselves, the party most directly affected by the proposed plan. The Court also held that, depending on the circumstances, the absence of the traditional indicia of fairness, such as a fairness opinion, a recommendation from the board of directors to the shareholders, and rights of dissent and appraisal, does not necessarily preclude a court from approving a plan of arrangement.


The current Magna multiple voting share structure was created in 1978 by a shareholder vote. The structure gives the Class A subordinate voting shareholders (Class A Shares) one vote per share, while the Class B shareholders receive 300 votes per share. Importantly, the Class B Shares contain no "coat-tail" or "sunset" protections for holders of Class A Shares. (A "coat-tail" provision ensures that, subject to certain exceptions, an offer on the same terms must be made for the non-multiple voting shares if an offer is made for the multiple voting shares.) Under the multiple voting share structure, the Stronach Trust—the indirect owner of all of the outstanding Class B Shares—holds 66% of Magna's voting rights, while owning only 0.6% of Magna's total equity. Mr. Frank Stronach, the founder and Chairman of Magna, and certain members of his immediate family, are the trustees and potential beneficiaries of the Stronach Trust.

In March 2010, Frank Stronach was asked by management of Magna whether he was interested in eliminating Magna's multiple voting share structure and discussions between them ensued. In April 2010, management informed Magna's board of directors (the Board) of the discussions. The Board established a special committee of independent directors of Magna (the Special Committee) to review and consider the proposed transaction.

The Special Committee conducted further negotiations with Mr. Stronach, on behalf of the Stronach Trust, during which Mr. Stronach indicated that he was satisfied with the status quo, resulting in a final "take it or leave it" offer. According to the terms of Mr. Stronach's final proposal to the Special Committee, in exchange for selling the Stronach Trust's Class B shares to Magna for cancellation, the Stronach Trust would receive the following:

  • nine million newly issued Class A Shares and US$300-million in cash;
  • a five-year fixed non-renewable consulting agreement with Magna entitling Mr. Stronach to 2.75% of Magna's pre-tax profits in 2011, declining by 0.25% every year thereafter; and
  • a 26.67% equity interest in, and 73.33% of the voting rights of, an electric car partnership (the e-car partnership) formed between Magna and the Stronach Trust valued at US$300-million, conditional upon the Stronach Trust contributing US$80-million to the e-car partnership (the Proposed Transaction).

On May 5, 2010, the Board, acting on the recommendations of the Special Committee, determined that it would:

  • present the Proposed Transaction for consideration by the disinterested shareholders, the required approval of which to be a simple majority of the votes cast by disinterested shareholders at a special meeting;
  • structure the Proposed Transaction as a plan of arrangement which would be subject to court approval; and
  • make no recommendation to shareholders on how to vote.

The Board did not obtain a fairness opinion from its financial advisor, CIBC World Markets (CIBC), regarding the Proposed Transaction. CIBC indicated that it was unable to provide a fairness opinion because the amount of dilution associated with the Proposed Transaction was unprecedented and the potential benefit to shareholders depended on a future increase in the trading multiple of Magna's shares, which was not predictable.

The OSC Hearing

The Ontario Securities Commission (the Commission) held a hearing on June 23 and June 24, 2010, to review the Proposed Transaction (the Hearing). At the Hearing, Staff of the Commission alleged that the Proposed Transaction was abusive and contrary to the public interest because:

  • the process the Board followed in reviewing and negotiating the Proposed Transaction was flawed; and
  • the disclosure included in the information circular was inadequate because the Board did not provide a recommendation to shareholders.

The Commission's Decision

The Commission issued an expedited decision on June 24, 2010, (the Decision). Full reasons for the Decision are to be provided in due course. In its Decision, the Commission ruled that the Proposed Transaction was neither abusive of the Magna shareholders nor the capital markets. However, the Commission did find that the disclosure provided in the initial information circular was inadequate.

Accordingly, the Commission issued an order preventing the shareholders from voting on the Proposed Transaction until Magna delivered an amended information circular to the shareholders. Please see our July 2010 Blakes Bulletin: OSC Postpones Magna's Multiple Voting Share Elimination Vote Pending Additional Disclosure for a more comprehensive discussion of the Decision.

The Amended Circular and the Shareholder Vote

On July 9, 2010, Magna mailed an amended information circular, which included the additional disclosure mandated by the Commission, to its shareholders. At a special meeting of Magna's shareholders, which was held on July 28, 2010, the Class A shareholders approved the Proposed Transaction by a 3 to 1 margin.


Magna, in accordance with the Board's recommendation, sought an order from the Court approving the Proposed Transaction (the Proposed Arrangement) pursuant to section 182(5) of the Business Corporations Act (Ontario).

The BCE Test for the Approval of an Arrangement

The Court, in its consideration of the Proposed Arrangement, applied the three-part test established in the Supreme Court of Canada's (the SCC) decision in BCE Inc. v. 1976 Debentureholders (BCE). Please see our December 2008 Blakes Bulletin: Supreme Court of Canada Releases Reasons for Decision in BCE for a discussion of the SCC's comments regarding the plan of arrangement process.

The Court applied the three-part test established in BCE for a corporation seeking approval of an arrangement (the BCE Test). According to the BCE Test, the corporation bears the onus of satisfying the court that:

  1. the statutory procedures have been met;
  2. the application has been put forward in good faith; and
  3. the arrangement is fair and reasonable.

The Court's decision on the Magna arrangement primarily concentrated on the third requirement, being whether the Proposed Arrangement was fair and reasonable. The SCC in BCE created a two-pronged framework for determining whether a plan is fair and reasonable. According to the framework, the court must be satisfied that:

  1. the arrangement has valid business purpose; and
  2. the objections of the parties whose legal rights are being arranged are resolved in a fair and balanced way.

The Parties' Arguments

The Opposing Shareholders

Several high-profile institutional investors including the Ontario Teachers' Pension Plan Board, the Canada Pension Plan Investment Board, and OMERS opposed the Proposed Arrangement (the Opposing Shareholders). The Opposing Shareholders provided the Court with an opinion of Morgan Stanley Canada Limited (Morgan Stanley), which reached the following conclusions:

  • the Proposed Arrangement was one that was capable of being subject to a fairness opinion; and
  • the consideration paid by Magna to the Stronach Trust pursuant to the Proposed Arrangement was not fair to the Class A shareholders.

Relying on the Morgan Stanley opinion, among other things, the Opposing Shareholders argued that neither prong of the "fair and reasonable test" was satisfied. With regard to the first prong, the "valid business purpose" requirement, the Opposing Shareholders submitted that Magna failed to demonstrate that the benefits of the Proposed Arrangement, which were unquantifiable and uncertain, would offset the costs, which were fixed and assured. In response to the second prong, the "fair and balanced" analysis, the Opposing Shareholders argued that the Morgan Stanley opinion provided objective evidence that the cost paid by the Class A shareholders was too high and, therefore, the Proposed Arrangement was unfair.

The Supporting Parties

Magna, the special committee of the Board, the Stronach Trust and certain Class A shareholders (the Supporting Parties) argued that the "valid business purpose" requirement was satisfied because the Proposed Arrangement would reduce Magna's cost of capital, improve the marketability of its common shares and improve its corporate governance. An independent report issued by the RiskMetrics Group, an institutional shareholder advisory firm, recommended shareholders approve the transaction on the basis of these claims.

Finally, the Supporting Parties argued that the Court should place substantial weight on the outcome of the Class A shareholder vote as evidence that the Proposed Transaction was "fair and balanced".

The Court's Decision

The Court, in its decision, ruled that each prong of the "fair and reasonable" test was satisfied and it approved the Proposed Arrangement, based on the following reasoning.

The Court's decision focused primarily on whether the costs and benefits of the Proposed Arrangement to the Class A shareholders were fairly balanced. First, the Court rejected the Opposing Shareholder's submission that the Morgan Stanley opinion conclusively demonstrated that the Proposed Arrangement was objectively unfair because of the unprecedented size of the premium paid to the Stronach Trust. The Court held that each transaction is unique and that the correct approach is a balanced approach that considers the totality of the costs and the benefits borne by the parties.

Second, the Court considered the significance, if any, to attach to the absence of a fairness opinion, a Board recommendation, and rights of dissent and appraisal for the purposes of the "fair and balanced" analysis. The Court noted that each of the factors mentioned above are recognized as traditional indicia of fairness and reasonableness. However, the Court held that, in these specific circumstances, the absence of the indicia was not fatal because:

  • the Opposing Shareholders did not challenge CIBC's position that its practice regarding fairness opinions reflected general practice in Canada. Additionally, the Court noted that the Morgan Stanley fairness opinion was provided on a basis which avoided opining on future market trading multiples and it did not challenge CIBC's rationale for withholding a fairness opinion;
  • the Board could not responsibly make a recommendation to the Class A shareholders in the absence of a fairness opinion and it was not legally required to provide one. Providing a recommendation in these circumstances would have required the Board to predict the likely direction of Magna's future trading multiples, which was something its expert financial advisor wasunable to do. The Court concluded, however, that the Board had satisfied the statutory fiduciary duty it owed to the corporation to act in its best interest because the Board determined that the Proposed Arrangement was advantageous to Magna from a corporate governance and financial perspective; and
  • the absence of rights of dissent and appraisal was not of any negative significance because: (i) the Class A Shares were not being acquired on a compulsory basis and (ii) the Class A shareholders had the option of selling their shares in the market at an increased price. The Court noted that the Class A Shareholders' ability to sell their shares at the increased post-announcement price provided them with an element of protection that is not always available in statutory arrangements.

Finally, the Court considered the weight to be attached to the affirmative vote of the Class A shareholders. It held that, considering the circumstances, the Class A shareholder vote should reasonably be used as a proxy for the fairness and reasonableness of the Proposed Arrangement. The Court considered whether there were any factors that could prevent a court from adopting the conclusion implicit in an affirmative shareholder vote. Four potential factors were identified, specifically: (i) if a significant number of shareholders were unable to reach a decision and did not vote; (ii) the presence of misleading disclosure; (iii) the existence of conflicting economic interests among the shareholders; and (iv) if there was an element of coercion present. The Court found that none of these factors existed.

The Court concluded that it could rely on three indicia of fairness:

  1. the outcome of the Class A shareholder vote, upon which it placed considerable reliance;
  2. the market reaction to the announcement, which provided evidence that the Class A shareholders had a reasonable possibility of realizing a potential gain from the Proposed Arrangement; and
  3. the presence of a liquid trading market into which the Class A shareholders could sell their shares at prices equal to or greater than the pre-announcement price.

As a result, notwithstanding the fact that the Court was unable to make a factual determination regarding the financial costs and benefits of the Proposed Arrangement, the Court ruled Magna satisfied the BCE "fair and balanced" test based on the three indicia set out above and accordingly approved the arrangement.


The Canada Pension Plan Investment Board has announced that it will appeal the Court's decision and other Opposing Parties are expected to join the appeal shortly. Magna has announced that it is seeking to have the appeal heard on an expedited basis because the Stronach Trust has the right to terminate the Proposed Transaction if the necessary approvals are not secured by August 31, 2010

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
13 Dec 2017, Seminar, Toronto, Canada

Class actions across Canada continue to grow in volume and complexity, triggering significant policy and financial implications for businesses in Canada. With the Law Commission of Ontario’s recent announcement that it is reactivating its comprehensive review of class actions in Ontario, we may see important law reform on the horizon to evolve with the changing landscape.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions