Canada: Appeal of Magna's Plan of Arrangement Dismissed by Ontario Divisional Court

Copyright 2010, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Corporate Governance, September 2010

On August 26, 2010, the Ontario Divisional Court upheld the decision of Justice Wilton-Siegel of the Ontario Superior Court of Justice (the Application Judge), approving Magna International Inc.'s (Magna) arrangement to eliminate its multiple voting share structure (the Arrangement). Under the Business Corporations Act (Ontario), court approval is required for an arrangement which means the court must find the arrangement is "fair and reasonable".

The Arrangement, under which the Stronach Trust is paid an estimated 1,800% premium in exchange for the elimination of the Class B multiple voting shares (Class B Shares) held by it, was met with considerable controversy when it was announced.

The Divisional Court released its decision (the Decision) on August 30, 2010. The Divisional Court rejected the arguments made by certain Magna shareholders – the Ontario Teachers' Pension Plan Board, the Canadian Pension Plan Board, and OMERS (the Opposing Shareholders) – that the Application Judge erred in arriving at the conclusion that the Arrangement was fair and reasonable. The Divisional Court found no error in the reasoning or findings of the Application Judge and agreed that the Arrangement was properly approved.

The Opposing Shareholders subsequently announced that they would not appeal the Divisional Court's Decision. The Arrangement was completed on August 31, 2010.

The precedential value of the Magna decisions may be limited given the unique circumstances. Plans of arrangement will likely continue to be widely used for different types of business transactions, and fairness opinions will likely continue to be obtained for a variety of purposes in such transactions.


The Magna multiple voting share structure was created in 1978 by a shareholder vote. The structure gave the Class A subordinate voting shareholders (Class A Shares) one vote per share, while the Class B shareholders received 300 votes per share. The Class B Shares contained no "coat-tail" or "sunset" protections for Class A Shareholders. (A "coat-tail" provision provides 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.) The Stronach Trust, through its indirect ownership of the outstanding Class B Shares, held 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 family, are the trustees and potential beneficiaries of the Stronach Trust.

Following discussions with a Special Committee of the Board of Magna, Mr. Stronach indicated he would be agreeable to selling the Stronach Trust's Class B shares to Magna for cancellation in exchange for:

  • 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 thereafter; and
  • a 26.67% equity interest in and 73.33% of the voting rights of an electric car partnership between Magna and the Stronach Trust valued at US$300- million, conditional upon the Stronach Trust contributing US$80‑million to the partnership.

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

  • present the proposed transaction for consideration by disinterested shareholders, the required approval for which would be a simple majority of the votes cast by disinterested shareholders at a 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 dilution associated with the 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 Decision

The Ontario Securities Commission (the Commission) held a hearing on June 23 and June 24, 2010, to review the proposed transaction (the Hearing).

The Commission issued an expedited decision on June 24, 2010. The Commission ruled that the proposed transaction was neither abusive of the Magna shareholders nor the capital markets. The Commission found that the disclosure provided in the initial information circular prepared by Magna was inadequate and 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 discussion of the Commission decision.

The Amended Circular and Shareholder Vote

On July 9, 2010, Magna mailed an amended information circular, including the additional disclosure mandated by the Commission, to its shareholders. At a special meeting on July 28, 2010, the Class A shareholders approved the Arrangement by a 3 to 1 margin.

Decision of the Application Judge

Magna sought an order from the Superior Court approving the Arrangement pursuant to the Business Corporations Act (Ontario).

The Application Judge, in his consideration of the Arrangement, applied the 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.

In his decision, the Application Judge focused on whether the costs and benefits of the Arrangement to the Class A shareholders were fairly balanced. He rejected the Opposing Shareholders' submission that a Morgan Stanley opinion provided by the Opposing Shareholders conclusively demonstrated that the Arrangement was objectively unfair because of the unprecedented size of the premium paid to the Stronach Trust. The Application Judge 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.

The Application Judge considered the significance 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, factors recognized as traditional indicia of fairness and reasonableness. However, the Application Judge held that, in these circumstances, the absence of these 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;
  • 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; and
  • the absence of rights of dissent and appraisal was not a negative factor because:

    1. the Class A Shares were not being acquired on a compulsory basis and
    2. the Class A shareholders had the option of selling their shares in the market at an increased price.

The Application Judge 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 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 Application Judge was unable to make a factual determination regarding the financial costs and benefits of the Arrangement, he ruled Magna satisfied the BCE test based on the three indicia set out above and accordingly approved the Arrangement.

Please see our August 2010 Blakes Bulletin: Ontario Court Approves Magna's Plan of Arrangement for a discussion of the arguments made by the Opposing Shareholders and Magna to the Superior Court and the Application Judge's decision.

The Divisional Court's Decision

The Opposing Shareholders appealed the Application Judge's order approving the proposed arrangement. The appeal was heard on an expedited basis as the Stronach Trust had the right to terminate the proposed transaction if the necessary approvals were not secured by August 31, 2010.

The Divisional Court dismissed the Opposing Shareholders' appeal, ruling that there were no errors in the Application Judge's reasoning or findings and found that the Arrangement was properly approved.

The Divisional Court focused its attention on the Application Judge's determination of whether the Arrangement was fair and reasonable.

In determining whether the Arrangement was fair and reasonable, the Divisional Court applied the two-pronged BCE test. The first branch of the two-pronged test requires the court to be satisfied that the burden imposed by the arrangement on security holders is justified by the corporation's interests. The Divisional Court ruled that the Application Judge correctly applied the test and agreed that the "valid business purpose" inquiry requires only the demonstration of the prospect of clearly identified benefits to the corporation that have a reasonable prospect of being realized.

In addressing the second branch of the two-pronged test, namely, whether the objections of the security holders whose legal rights were affected through the Arrangement were being resolved in a fair and balanced way, the Divisional Court held that a court could properly find that the Arrangement was fair and reasonable, notwithstanding the court's inability to make an exact determination as to the relative financial costs and benefits. The Divisional Court ruled that it is sufficient that there be credible evidence that shareholders could reasonably conclude that the perceived benefits equal or outweigh the costs of the arrangement and that the Application Judge properly determined there was such credible evidence presented to the shareholders before the vote.

The Divisional Court also held that the Application Judge appropriately gave the vote considerable weight and that he conducted a sufficiently detailed examination of additional factors to determine that the Arrangement was not inherently unfair or unreasonable, including:

  • the absence of the indicia of fairness mentioned in BCE, and reasons why their absence did not impact the fairness of the Arrangement;
  • the market reaction to the Arrangement; and
  • the recommendations of market participants.

Accordingly, the Divisional Court found that the Arrangement had been properly approved by the Application Judge.

Subsequent Developments

The Opposing Shareholders announced they would not appeal the Divisional Court's decision. The Arrangement was completed on August 31, 2010.

Implications of Magna Decisions

The direct precedential value of the decisions of the OSC, the Application Judge and the Divisional Court in respect of Magna's proposed arrangement may be limited, given the unique circumstances. There are a relatively small number of Canadian public companies with dual class structures that do not also have a "coat-tail" provision. (Dual class structures without a "coat-tail" provision have not been permitted under TSX rules for sometime, leaving only a small number of "grand-fathered" companies such as Magna with dual class structures without a "coat-tail" provision.) The use of plans of arrangement to effect different types of business transactions, which was already widespread given the flexibility of structuring which is permitted under plans of arrangement, will likely continue to be common given the Application Judge's and Divisional Court's reasoning in finding the Arrangement to be fair and reasonable. Although no fairness opinion was provided in this case given the unique circumstances, it can be expected that fairness opinions will continue to be obtained by issuers in appropriate circumstances, both as part of the exercise of due care by directors in approving transactions and, as recognized in this case, as such opinions are an indicia of fairness in connection with plans of arrangement.

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
27 Oct 2016, Seminar, Toronto, Canada

Please join members of the Blakes Commercial Real Estate group as they discuss five key provisions of a commercial real estate purchase agreement that are often the subject of much negotiation but are sometimes misunderstood.

1 Nov 2016, Seminar, Toronto, Canada

What is the emotional culture of your organization?

Every organization and workplace has an emotional culture that can have an impact on everything from employee performance to customer or client satisfaction.

3 Nov 2016, Seminar, Toronto, Canada

Join leading lawyers from the Blakes Pensions, Benefits & Executive Compensation group as they discuss recent updates and legal developments in pension and employee benefits law as well as strategies to identify and minimize common risks.

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
Check to state you have read and
agree to our Terms and Conditions

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.

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 by clicking here .

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.


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.