Magna emerges from shadows as deal for GM Europe unfolds

May 30, 2009

GM Europe Russelheim

Few people around Europe will have heard of Magna until this week. Now the venture capital giant emerges from the shadows in a proposed bid for GM Europe

The jobs of auto-workers in England and Germany are regional concerns as a deal is thrashed out to rescue GM-Europe from insolvency.

On Friday [May 29th, 2009] a deal was nearing completion after the customary last-moment surprises

Magna is close to signing a memorandum of understanding with parent company General Motors after gaining the advantage [over Fiat] in the race to acquire its European divison by offering to plug a short-term funding gap.

Lord Mandelson said he would seek an meeting as soon as possible with Magna to secure “cast iron guarentees” about the future of Vauxhall’s 5,000 jobs in the UK. He has already met Magna bosses face-to-face to secure assurances they will maintain production in the UK, but accepts jobs will be lost because of GM Europe’s excess capacity.

The global dimension of regional problems

The complexity of such deals unfolds as the public learns of key players around the world. In England, the story is how to protect jobs on Merseyside and Luton plants.

In Germany, according to the usually well-informed Der Speigel

The future of troubled carmaker Opel has become a key political issue in Germany as election campaigning begins. Many politicians favor a proposal by the Austrian-Canadian auto parts supplier Magna, but the plan involves massive risks …

The regional struggles have themselves been heavily influenced by decisions in America over the future of the extremely ailing parent company General Motors which is widely reported to be days away from filing for Chapter 11 bankruptcy.

GM, which has lost nearly $90 billion since 2005, is expected to file bankruptcy in U.S. District Court in New York, where rival Chrysler LLC is undergoing a court-ordered restructuring. President Barack Obama also plans to address the nation Monday on GM’s planned court restructuring.

Clearly, deadlines in Europe are connected with an Obama rescue plan in the States. His political strtegy itself is struggling to deal with political opposition.

Back to Magna

LWD has kept an eye on the happenings at Magna International since 2007.

Our earlier interest focused on the attempt by Magna to take over Chrysler, and the potential influence of Magna’s backing from Russian billionaire Oleg Deripaska.

So the global reach of the story being discussed in pubs in Luton and Liverpool now can be seen to extend to America and Russia.

What happens next?

Watch out for more interest in Magna’s rather unusual corporate governance arrangements.

Mr Stronach emigrated to Canada in the 1950s, and built up a successful auto-business. One of its interesting features is its Governance structure. According to the company web-site,

In 1971 Mr. Stronach introduced his management philosophy, known as Fair Enterprise, to Magna. Fair Enterprise is based on a business Charter of Rights that predetermines the annual percentage of profits shared between employees, management, investors and society, and makes every employee a shareholder in Magna. These rights are enshrined in a governing Corporate Constitution

These considerations may not have been as important as the financial arrangements being brokered at preseent, but may well find favour among the European players in this complex matter.