Donnelly Embarks On Magna Merger
While the outcome was never in any real doubt, since Donnelly family members who controlled about 89 percent of the voting shares had already pledged to back the $415 million stock-and-debt deal with Magna International Inc., last week’s shareholders meeting that formally blessed the merger came with mixed emotions.
In one vein, the overwhelming approval of the merger brings down the curtain on what was one of Holland’s and West Michigan’s corporate icons, joining the likes of FMB Corp., Old Kent Bank and Prince Corp. that have been acquired in recent years by larger interests.
Yet in an increasingly and fiercely competitive automotive supply industry, becoming part of the much-larger Magna International opens up new possibilities for Donnelly, Chairman and Chief Executive Officer Dwane Baumgardner said.
“We’re starting a new chapter,” Baumgardner said following the Sept. 30 meeting in Holland, “an important new chapter.”
Executives will spend the next three months transitioning Donnelly Corp. into Magna Donnelly Corp., a new, wholly owned subsidiary of Magna International that is now responsible for the Aurora, Ontario-based auto supplier’s mirror unit. Donnelly is rolling its mirror operations into the new Holland-based Magna Donnelly to create the world’s largest producer of automotive mirrors, with $1.2 billion in annual revenues.
Baumgardner, who will lead Magna Donnelly, wants the transition to wrap up by the first of the year and the new corporate structure going into place in early 2003.
“From my viewpoint, the transition period needs to be fairly short,” Baumgardner said. “This can be a model in how two fairly large organizations come together fairly smoothly.”
The transition period will focus on “making sure the organizational structure is implemented that we’re going to have going forward,” he said.
That means identifying and eliminating redundancies, which will lead to the cutting of some front-office and executive positions in sales, engineering and marketing.
“There’s a certainty that will happen,” Baumgardner said. “Until we come together, we won’t have a clear picture as to what it is.”
Going untouched are the 2,000 production positions in West Michigan, Baumgardner said. Worldwide, Donnelly employs more than 6,000 people.
One shareholder attending last week’s annual meeting raised concerns about how the Magna-Donnelly merger would affect the company’s local workforce.
“This could have a major effect on employment in West Michigan,” said shareholder John Fikse of Grand Haven.
Baumgardner, while recognizing the merger has caused anxiety locally among Donnelly’s workforce and in the community, responded that rather than cuts in production positions and the relocation of work to other Magna facilities, the marriage with Magna will bring additional work to Holland and West Michigan. Partnering with Magna, a company that employs more than 67,000 people worldwide and posted 2001 revenues of $11 billion, provides Donnelly a chance to immediately penetrate new markets and have its products installed on many more vehicle models, he said.
“It’d be hard to find a more ideal company to merge with,” Baumgardner said. “I believe very strongly we’re going to see some very positive things for the area and the fears people have will not materialize.”
“Time will tell that this will be good for the area,” he said.
More than 89 percent of shareholders’ voting power was cast in support of the merger, which was completed the following day, Oct. 1. Donnelly shareholders will receive 0.459 shares of Magna International class A common stock for each of their shares.
Donnelly Corp., founded in 1905 as a maker of residential mirrors and the No. 2 global producer of automotive mirrors at the time of the merger, has a strong future ahead, Baumgardner said last June when the merger was announced. The company was targeting a 10 percent annual growth rate in revenues, and earnings growth of 15 percent a year, after undertaking a major restructuring in the last year to cut costs and boost profitability levels that had lagged behind competitors for several years.
In quarterly reports this year, Donnelly had begun to see the dividends of those efforts, with increased earnings and margins.
The potential of a Magna-Donnelly merger began when the two companies began discussions late last year about doing more business together. Donnelly has long been a supplier of mirrors to Magna and wanted to increase sales to the company.
By February, those discussions had evolved into merger talks, according to a proxy Donnelly filed last month with the U.S. Securities and Exchange Commission. Magna offered $28 per share for the company in May, far exceeding the $22 per share offered earlier that month from an unnamed group that wanted to mount a leveraged buyout of Donnelly, according to the proxy.
Donnelly directors rejected the leveraged buyout offer as too low and proceeded to work out a merger agreement with Magna that was finalized and announced on June 24.
Executives and industry analysts have praised the merger as beneficial for both companies. It provides Magna with greater technical expertise and high-tech electronic features that consumers want, and Donnelly with a larger partner with which it can grow in a rough business.
“This is a very good fit because of what we’re all bringing to the table,” said Moira Donnelly, the granddaughter of founder Bernard Donnelly Sr. and who works in organizational development and training at the company. “All we can do is build on each other’s strength.”
The acquisition of Donnelly also is recognition of the realities of the industry, which for years has been immersed in a wave of consolidations that squeezed out many smaller players. Donnelly, which recorded 2001 sales of $847.9 million, has talked with other companies about mergers in the past but they never came to fruition.
Yet some kind of merger seemed inevitable and the Magna deal, executives say, was simply too good to pass up, both in financial terms and what they see as the compatibility of corporate cultures and product mixes.
“We knew it was coming long before it ever happened,” Moira Donnelly said. “It’s a natural evolution.”