Frank Stronach: the man behind the auto parts empire as he expands into Europe

Stronach: man behind the auto parts giant Magna

TORONTO — Frank Stronach, the Canadian owner of auto parts maker Magna International Inc., once referred to himself as “king” at one of his shareholder meetings. He’s now added another property to his business empire: General Motors Corp.’s Opel unit.

After the second round of high-level talks in Berlin in as many days, Germany’s finance minister said Saturday that a plan was approved for Magna to move ahead with Opel’s rescue.

The Magna-Opel deal comes as no surprise to those who have followed Stronach’s career.

“Frank’s looking to put a cap on his career, build Frank up, build his legacy up. Frank’s an egomaniac, so whenever Magna does something, you have to wonder, what’s in it for Frank,” said Wayne Lilley, author of “Magna Cum Laude,” an unauthorized biography of Stronach. “As someone who is always looking to expand his empire, this Opel deal falls right into place.”

The German government and several state governments will provide a 1.5 euros billion ($2.1 billion) bridge loan for the deal, part of which will be available immediately. Parliamentary committees in two German states must still approve the financing. That is expected Sunday.

Under the agreement, Magna, Canada’s largest auto parts maker, will take a 20 percent stake in Opel, and the Russian-owned Sberbank will take a 35 percent stake, giving their consortium a majority. GM will retain a 35 percent holding, while the remaining 10 percent will go to Opel employees.

Magna did not immediately respond to calls for comment.

Acquiring Opel is a major strategic move for Magna, which has been hurt by the troubles in the North American auto market, especially at its Detroit Three customers — GM, Ford Motor Co. and Chrysler LLC — which are closing plants and slicing vehicle output.

For Stronach, the acquisition of Opel is the biggest deal in his company’s history and cements his legacy as one of Canada’s most globally ambitious executives.

The deal provides Magna with a major vehicle-assembly capacity to cash in on the lucrative Russian car market, which could soon become the biggest in Europe.

The acquisition also takes Stronach back to his European roots.

The son of a staunch Communist, Stronach, 76, grew up a poor boy eating suppers of cornmeal. He moved to Canada from war-torn Austria in 1954 with about $40 in his pocket. Three years after immigrating, he started a tool-and-die business, Multimatic Investments Ltd., which expanded into the production of automotive components.

By 1959, Stronach and business partner Burt Pabst acquired their first auto parts contract: 300,000 sun visor brackets for General Motors. Ten years later, Multimatic merged with Magna Electronics Corp. Ltd., and subsequently became Magna International Inc., of which Stronach is chairman.

More than 40 years later, Magna International is a global automotive empire with 326 manufacturing plants, engineering centers and sales offices across North America, South America, Asia and Europe that employ about 82,000 people, according to Magna’s Web site. Last year Magna reported a profit of $71 million on sales of $23.7 billion.

According to Canadian Business magazine’s latest ranking of Canada’s wealthiest people, Stronach has a net worth of $723 million Canadian dollars ($661 million).

“Frank is a smart man,” said Lilley. “He may have a big ego, but he grew his auto parts company by being very astute and, in some ways, cheap. He doesn’t believe in unions and believes that every employee should own a part of the company. That business acumen has taken him very far.”

Stronach has also ranged into worlds far from the auto parts industry: horse racing and real estate. Magna Entertainment was spun off from Magna International in 2000 to become what the company has described as North America’s No. 1 owner and operator of horse racetracks. MEC operates or manages seven thoroughbred racetracks: Santa Anita Park, Gulfstream Park, Pimlico Race Course, Laurel Park, Golden Gate Fields, Thistledown and Portland Meadows.

However, Magna Entertainment filed for bankruptcy in March as ticket sales and wagers fell in the recession.

Stronach also is one of the top owners and breeders in thoroughbred racing, winning Eclipse Awards as breeder of the year. Among his top horses were 2004 Horse of the Year Ghostzapper, 2000 Preakness winner Red Bullet, 2000 2-year-old male champion Macho Uno and 1998 Breeders’ Cup Classic winner Awesome Again.

In both Magna International and Magna Entertainment, Stronach has almost total control of the public companies because of his blocks of super-voting shares. A review of their filings with the U.S. Securities and Exchange Commission also shows that he has aggressively transferred assets among his various companies to keep his bet on the future of horse racing alive.

Stronach referred to himself as a “king” at one shareholder meeting and was compared to Cuba’s Fidel Castro at another during a shareholder revolt, said Lilley.

Last year, Stronach made his first attempts to enter into the auto manufacturing sector by putting forth a bid to buy Chrysler before Cerberus Capital Management LP trumped him with a 5.5 euros billion offer.

Stronach also announced last year that he was sharing control of Magna International Inc. with Oleg Deripaska, the Russian oligarch, who invested $1.54 billion in Magna to help expand his car-making business, OAO GAZ, in Russia. The deal fell through when Deripaska announced that he was forced to cede his 18 percent stake in the auto parts company to bankers who helped fund the initial investment.

Stronach remained determined to get into the Russian auto market.

“He puts in $300 million and he becomes a partner in Opel, with GM, the U.S. government and autoworkers. That’s not a bad deal. Magna’s forte is bringing companies back from bankruptcy and selling new ideas, so hopefully Frank will be able to turn this company around too and sell it as a new and improved GM to the rest of the world,” said Lilley.

A Canadian auto industry analyst said the Opel deal gives Magna a strong opportunity to expand into Russia, a market where foreign car sales surged in 2007 and 2008 before oil prices fell and the Russian economy slowed down.

“The potential in Russia is definitely there for Magna,” said Carlos Gomes, an economist and auto industry specialist with Scotiabank.

“If you look at sales through the first half of 2008 before you had the collapse in oil prices and the global recession, sales in Russia were actually increasing at such a pace that it was likely to surpass Germany as the largest market in Europe.”

“When oil prices collapsed sales just tanked. But the reality is that the potential is there going forward,” Gomes said.