Donnelly Sale Was A Family Affair

June 28, 2002
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HOLLAND – The decision on Donnelly’s Corp’s. pending sale to Magna International Inc. ultimately came down to a family decision.

That decision, says the grandson of company founder Bernard P. Donnelly Sr., was a difficult one that took many months to reach, given the family’s history with and influence within the company.

“It was not an easy decision because the roots go back a long way,” said John F. Donnelly, the corporation’s senior vice president of sales and marketing and one of two family members who have active roles with the company as executives.

Despite its status as a publicly held company, Donnelly Corp. has remained largely controlled by members of the founding family, who account for five of the 10 seats on the corporate board of directors and hold 89 percent of the voting shares.

The decision to sell came down to what is best for the company in a fiercely and increasingly competitive automotive supply industry, as well as the strong offer Magna International presented and the quality and culture of Magna.

Magna and Donnelly make a “very complementary creation,” John F. Donnelly said.

“After carefully looking at the company and the type of company it is and the favorable terms, they thought it was a good package,” he said. “This is a great opportunity to build an even stronger company in the product areas we are in.”

Under the merger announced last week, Donnelly Corp. — the No. 2 maker of automotive mirrors in the world — will become a wholly owned subsidiary of Aurora, Ont.-based Magna International, one of the world’s top automotive suppliers. Donnelly Corp. Chairman and CEO Dwane Baumgardner will run the new Holland-based subsidiary, known as Magna Donnelly.

The sale is targeted for completion in September and is contingent on regulatory approval and a two-thirds vote of shareholders of both companies. Magna says 72 percent of Donnelly’s voting shares have already been committed to the deal.

Magna will fold its mirror operations into Magna Donnelly, creating a business unit with annual revenues of $1.2 billion and the world’s largest producer of interior and exterior automotive mirrors.

The merger, valued at $415 million in stock and assumed debt, gives Donnelly a much larger partner with which to grow in an industry where few players are doing well financially at the moment. It also helps place Donnelly products on a greater number of vehicle models.

Donnelly provides Magna increased capacity to expand its automotive mirror business unit and, perhaps more importantly, access to valuable electronic capabilities in order to produce features and products that are increasingly popular with auto-buying consumers. About 4 percent of Magna’s $11 billion in annual revenues come from its mirror unit.

Donnelly’s ability in electronic products — such as auto-dimming mirrors, camera systems that eliminate motorists’ blind spots around the vehicle or to the rear when backing up, and a product that automatically opens a car’s trunk when somebody is trapped inside — were a major lure for Magna.

“They have some of the capabilities we were looking for. That is all very new and marketable stuff,” Magna communications director Robin Gibson said. “They’ve always been on our radar screen, so we pursued them.”

“This company is a great fit for Magna,” Gibson said.

That pursuit and the offer that came from Magna was one that Donnelly executives and directors, who over the years have rejected buyout bids from other suppliers, couldn’t pass up.

Donnelly shareholders will receive a fraction of one Magna share valued at $28 for each Donnelly share they hold. Donnelly’s stock, after trading in the lower teens during 2001, experienced a run up earlier this year to around $20 per share. The company’s shares jumped to nearly $27 per share last Tuesday, the day the merger was announced.

Industry observers generally praised the deal as holding benefits for both companies.

“I love it,” said James Gillette, an auto analyst and vice president of IRN Inc. in Grand Rapids. “It’s going to give a lot more opportunity to the Donnelly folks.”

Gillette sees Magna making Magna Donnelly its “center of excellence” for automotive electronics and mirrors and helping to increase Donnelly’s content on vehicles.

“I just think they’re going to bring a lot of business to Donnelly,” Gillette said. “Magna does not have anywhere near the technical expertise that Donnelly has.”

The Donnelly-Magna merger represents a continuation of consolidation among auto suppliers that has been occurring for years, as corporations seek to generate economies of scale as auto manufacturers dictate lower prices and increased capabilities and responsibilities, said David Cole, director of the Center for Automotive Research in Ann Arbor.

Given all of the business dynamics in the industry right now, having a large partner like Magna is a “very valuable asset right now” for auto suppliers, Cole said.

“They’ve hooked Donnelly to the wagon of a very strong company,” he said. “They’re (Magna) a first-class company.”

While some concerns have been voiced in Holland in the past week about the loss of local ownership of another large employer, neither Gillette nor Cole see production or business leaving the area.

Donnelly employees about 6,000 people worldwide, about half of them in West Michigan at plants in Holland, Grand Haven, Norton Shores and Newaygo.

John F. Donnelly, who has spent most of his life in Holland and is well involved in the community, says the merger “has a lot more positive in it than not.” He personally agreed with the deal because of a “high priority for me to help build a stronger organization.”

Magna is a corporation with a strong entrepreneurial spirit and gives its business units a high level of autonomy, he said.

“If Magna Donnelly achieves its goal, the spin-offs for the community are going to be very positive, and that’s what we’re aiming to achieve,” Donnelly said.           

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