* Rea to propose five nominees to Martinrea's board
* Martinrea's stock has underperformed peers
* Rea filed lawsuit against Martinrea last year
(Adds background on Nat Rea and on history of dispute, adds
statement by Rea Holdings, analyst comments)
By Nicole Mordant
April 3 A former executive of Martinrea
International Inc intends to ask shareholders to
replace a majority of the directors at the Canadian auto parts
maker, accusing the board of a lack of independence and industry
Rea Holdings, a Toronto-based holding company controlled by
Nat Rea, a former president and deputy chairman of Martinrea,
said on Thursday it intends to propose five nominees for
election to the board, setting the stage for a proxy battle.
Rea, who sold his auto parts company, Rea International, in
2002 to what is now Martinrea, has been critical of the
leadership of the Vaughan, Ontario-based company for some time.
According to Martinrea, "his employment was terminated" in 2012.
Last September Rea and Rea Holdings brought a lawsuit
against some Martinrea officials and directors alleging that
they breached their fiduciary duties regarding some payments to
suppliers and customers. The company has
rejected the allegations and counter-sued.
"The incumbent board and management of Martinrea is deeply
entrenched, with recent additions of individuals chosen to
provide the appearance of board renewal," Rea Holdings said in a
news release on Thursday.
Rea Holdings also said Martinrea's balance sheet is
stretched and accused the company of a "pattern of serious
A representative from Martinrea could not be reached for
Shares of Martinrea have underperformed rivals such as Magna
International Inc and Linamar Corp over the
last two years at a time when the auto sector in North America
has been recovering as the economy improves.
But the company's stock spiked 23 percent this week after
Martinrea said Chief Executive Officer Nick Orlando was stepping
The company, which manufactures items such as fuel and brake
lines for North American, European and Asian carmakers, has
started a search for a new CEO.
Martinrea's stock closed 0.3 percent lower at C$10.76 on
Analysts have said this week that the company, which has
most of its operations in North America but wants to expand in
Europe, looks to have put the worst behind it. They noted that a
forensic audit by consultants PwC, brought in by Martinrea as a
response to the Rea lawsuit allegations, has failed to
undercover any major wrongdoing.
"With the forensic audit and review essentially complete
with no smoking gun or proof of any material or significant
malfeasance, significant board level changes and a soon-to-be
new CEO, we believe key concerns of shareholders have been dealt
with," GMP Securities analysts Justin Wu and Otto Cheung said in
a note to clients.
Rea Holdings' nominees for Martinrea's eight-member board
are: Rea himself, who owns 100,000 shares in the company;
Manfred Gingl, the former CEO of Magna; Sandra Levy, Magna's
former director of human resources; Roland Nimmo, Magna's former
head of internal audit and Paul Smith, the chair of VIA Rail
Martinrea's annual meeting is expected to be held in June.
(Reporting by Nicole Mordant in Vancouver and Euan Rocha in
Toronto; editing by Sofina Mirza-Reid)