Tuesday, April 17, 2007

Frank Stronach

Business Week magazine did a story on Frank Stronach and the various Magna companies in its April 16, 2007 edition. We horse racing types pay little attention to the fact that Frank Stronach is the founder and Chairman of a major auto parts manufacturer. Mr. Stronach has been receiving a lot of attention lately as a leading candidate to buy Chrysler. Here are some of the facts from the article:

- On February 26, 2007, Magna International (the parent company) cut its dividend in half. During the the 9 prior months, Magna International bought two golf courses from Magna Entertainment Corp. (the horse racing and other entertainment subsidiary also run by Stronach) for $84 million. This was more expenditure than what was saved by cutting the dividend. This did not sit well with certain large shareholders.

- Effective this May, 4 of the 12 Magna Board members are resigning for the reason rumored to be that they are tired of trying to keep Stronach from straying away from the core auto parts business and making moves that upset shareholders.

- Stronach is also Chairman of MI Development, which owns many of Magna's factories and offices. This is a separate public company but Frank is the controlling shareholder. MI Development has collected $425 million in rent payments from Magna since 2003, and you-know-who gets the lion's share of the profits while bypassing the Magna International shareholders.

- Stronach has paid himself $168 million from Magna International since 2002, an average of $34 miilion per year. I read somewhere else that he does not receive a salary from Magna Entertainment because the horse racing operations are a "labor of love".

Now, I respect that Frank Stronach created a company in his garage 50 years ago that is now a $25 billion enterprise. I respect even more that the company is very profitable, making $528 million last year. He is a visionary and a remarkable businessman. However.... as the Chairman of several public companies, he has to act more responsibly and in the best interest of the shareholders. He only owns 5% of the stock but retains 67% of the voting rights. He is using these companies to further his personal interests and this is a Sarbanes-Oxley nightmare. At 74 years old, I would think that he would head down to Adena Springs and enjoy life with the horses. That's what I would do, but that is probably why I didn't create a major company.

Magna has all the makings of another Enron. I will not own stock in the company, nor do I want them anywhere near the New York racing franchise. Pimlico is falling apart and Gulfstream seems to be a disaster. Please Mr. Stronach, please don't buy Chrysler. That company has enough to overcome without you being one of the impediments.

2 comments:

Handride said...

See, I would love for him to buy Chrysler, because he'd do w/ partners. And those partners would not let him get away w/ the kind of shenanigans he currently employs. I speculate if he gets chrysler he spins off MAgna Entertainmnet.

QQ said...

You all might be interested in
Magna Cum Laude: How Frank Stronach Became Canada's Best-Paid Man
by Wayne Lilley. It covers the whole, strange, Stronach story.

 

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