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  Magna not a Contra play

BENJ GALLANDER and BEN STADELMANN

Friday, June 6, 2003

We're about to admit something about ourselves that many people already know: the Contra Guys are cheap. We don't drive fat, expensive cars, we don't stay in deluxe hotel rooms, and we certainly don't like paying too much for stocks. But enough about us.

When we seek out companies that exemplify our practice of paying less for more, we search for telltale signs. One of them is the response we get when we request a firm's last four annual reports.

Occasionally they arrive on our doorstep shipped by FedEx or Purolator. That makes us wonder: "Why are you guys spending all this extra money to get this to us? Is this how you work all the time, spending where it ain't necessary?"

Of course, in the grander scheme of things, many people consider this petty change. A more significant indicator is management salaries.

Frank Stronach, the chairman of automotive supplier Magna International, received about $58 million for his last year of work for the corporation.

Some people see that as exorbitant. Well, we ran the numbers. His stipend works out to something over $1.1 million a week, or just under $28,000 an hour based on a 40-hour week.

But as the top dog in the firm, Frank probably puts in longer hours. Let's assume that he eats, drinks and thinks the company, consciously and subconsciously, 24 hours a day, seven days a week, 366 days a year -- we'll even give him the benefit of a February 29 every year. That works out to $6,603 an hour, or about $110 and five pennies a minute. Isn't he worth that?

Being contrarians, our essence is to be a tad subversive. We're considering getting the knapsacks together and roaming to the next Magna annual general meeting just so we can meet Mr. Stronach, shake his hand, and engage him in conversation for about 10 minutes each. That would cost Magna a couple thousand beans.

Heck, just shaking his hand with some deep, meaningful eye contact could be worth about 100 clams of corporate time. (Hey, doing the "five-finger-palm" with someone who makes a million bucks plus -- weekly -- isn't something that happens to us every day. Maybe some of that wealth would rub our way!)

Nepotism is another red flag when we are sniffing out a buy. Now, we are not for one moment concluding that Frank's daughter Belinda is not eminently qualified for her $9 million-a-year position as president and CEO.

And far be it from us to suggest that she got the job because she is daddy's daughter.

But yes, one may well wonder how high Ms. Stronach would have risen in the company if she were merely a highly motivated wannabe who needed to pass an interview process. Questions, questions, but so little in the way of conclusive answers. Draw your own, if it suits.

Would we invest in Magna? Not on your life. It is our policy to avoid corporations where the interests of management and shareholders do not seem to be strictly aligned.

Plus, with more cars sitting on U.S. car lots waiting for an owner than at any time in history, Magna's business could tank. With the stock currently cruising at around $92, Magna could prove a mighty attractive play for short sellers. We are surprised more are not revving their engines.


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