Basic Element subsidiary Russian Machines is investing $US1.54bn in Canadian autoparts maker Magna to help it in the Russian and other automotive markets, the two companies announced late on Wednesday.
Under the terms of the transaction agreement entered into by Magna, the Stronach Trust and Russian Machines, Russian Machines would invest the $1.54bin to indirectly acquire 20m Class A subordinate voting shares of Magna.
A new Canadian holding company (“Newco“), would hold the respective holdings in Magna of the Stronach Trust, Russian Machines, and principals who are also members of Magna’s executive management.
Magna would continue to be a Canadian-based company whose shares are listed on the Toronto and New York Stock Exchanges.
Subject to acceptance and approval by the Toronto Stock Exchange, the 20m shares would be issued for $US76.83 each, the average closing price on the New York Stock Exchange over the 20 trading days ended 20 April, the last trading day prior to the receipt of the proposal letter from Russian Machines.
Following completion of the transaction, each of the Stronach Trust and Russian Machines will be entitled to nominate six board members including at least four independent directors.
Magna’s co-CEOs will also be nominated to serve as directors on the 14-member board.
Basic Element is one of the largest, privately held industrial conglomerates in Russia, and is held by Oleg Deripaska.
Russian Machines also holds an interest in GAZ Group which is Russia’s second-largest automotive company.
Magna chairman Frank Stronach said: “Our partnership will accelerate Magna’s growth in Russia and surrounding countries, markets that we see as holding significant opportunities for us.”
Separately, the Toronto-based Globe and Mail newspaper said that Stronach had said in a telephone interview: “You just can’t walk up to somebody and say, will you be my partner. I sat down with my guys and I said look, Russia will be a big opportunity, let’s see if we can get a strategic partner.”
The paper said that Stronach, prior to the announcement, quashed rumours on Wednesday (and that have been floating around for months) that he was preparing to sell the whole company to Russian interests.
“There would never be a sale,” he told The Globe and Mail on Wednesday night.
He reportedly said he was concerned about the North American-based automakers and their continued decline in market share.
The paper noted that the Russian investment move will increase Magna’s financial liquidity as it hooks up with Canadian investor Onex in what is expected to be a holding company that would own Chrysler.
If the Magna proposal is successful, DaimlerChrysler would retain a share in the automaker, Stronach told the Globe and Mail.
The Deripaska investment is not related to the Chrysler situation, Stronach reportedly said, noting that Magna has sufficient cash on hand for the Chrysler transaction – it does not need to take on debt.