A 1999 "forbearance agreement" that prevents Magna International from investing in operations such as Magna Entertainment Corp. won't be renewed next year, Magna chairman Frank Stronach told the Toronto Globe and Mail
Stronach implemented the agreement after controversy erupted about racetrack purchases by MEC and other potential investments. Magna, which produces automotive parts, no longer has a stake in MEC.
"I don't see any reason to enter further in a forbearance agreement," Stronach told the newspaper. "If I see a business opportunity, I'll talk it over with the directors and say, 'Look, this is great,' and then we'll do whatever we think we have to do."
The agreement expires May 31, 2006, but its removal doesn't guarantee Magna will invest money in MEC, which had long-term debt of more than $240 million at the end of 2004, the Globe and Mail
Termination of the agreement would allow Magna to invest in any non-automotive operations up to a value of 20% of its own equity without shareholder approval. Based on 2004 figures, that 20% would equate to about $2 billion.
A clause in Magna's corporate constitution permits investments up to that level, which would be more than $2-billion (U.S.) based on shareholders equity of $11.6-billion as of Dec. 31, 2004.
"I fully understand that if investors want to invest in apples they don't want to buy pears," Stronach said. "That's fine, but we have a business to run."