03/22/2010 11:00PM

Magna cancels Maryland auction

Email

Magna Entertainment Corp. no longer plans to auction its Maryland properties and will instead transfer Laurel Park and Pimlico Race Course to its parent company, according to participants in the auction.

The Maryland tracks were scheduled to go to auction on Thursday, but Magna informed auction participants Tuesday that it would transfer the assets to its parent, MI Developments Corp. Magna submitted the reorganization plan Tuesday to a bankruptcy court, which must approve the new arragnement.

Under the plan, MI Developments, Magna's largest creditor, would also take title to Santa Anita Park and Golden Gate Fields in California, Gulfstream Park and Palm Meadows Training Center in Florida, the bet-processing company AmTote, and the account-wagering company XpressBet, as previously announced in January.

Jeff Seder, the head of Blow Horn Equity, which submitted a bid for the Maryland tracks, said that Magna's lawyers assured him Monday that the auction was scheduled to go forward. But at noon on Tuesday, representatives of Magna's bankruptcy reorganization informed him that MI Developments would take control of Laurel and Pimlico, the site of the Preakness Stakes.

Seder said that MI Developments had valued the property at $51 million under the plan.

"We were going to bid very much higher," Seder said. "I'm bitterly disappointed." Seder said he would consult with his lawyers to consider a legal challenge to the cancellation.

Other bidders included Joe De Francis and his sister Karin, the former owners of the track; the Cordish Cos., a Maryland real-estate developer that plans to build a casino near Laurel; Penn National Gaming Inc.; and two other unidentified bidders.

According to a statement from MI Developments on Tuesday, it will pay the "secured and unsecured claims" of the creditors of the Maryland tracks $23 million to $25 million as part of the plan to transfer the tracks. In addition, Magna's unsecured creditors will receive $14 million in cash from MI Developments related to the transfer. MI Developments had already planned to pay the creditors $75 million in cash and $20 million from the planned sale of Lone Star Park in Texas.

"We are excited about the development opportunities represented by the land owned by MJC," Dennis Mills, the chief executive officer of MI Developments, said in the statement.

Magna officials did not immediately return phone calls on Tuesday.

Details of the asset-transfer plan were announced earlier this year as part of a settlement of a lawsuit filed by Magna's unsecured creditor's committee. Under the plan, the debt Magna owes to MI Developments - approximately $435 million, according to court filings - will be wiped out as a consideration of the value of the racing assets, and Magna will cease to exist.

An official who works with Magna on the marketing of its tracks to potential buyers disputed that bidders for the Maryland tracks had made substantial offers for Laurel and Pimlico in the initial round of bidding. The official pointed to the fact that Magna had not announced the identity of any "stalking-horse bidder" for the tracks in anticipation of the auction, citing "low-ball" offers.

"Every one of the bidders had the opportunity to step up and make a legitimate offer for the tracks, and no one did," the official said.

Although officials involved in the process said that they were not provided with any rationale for the transfer of the assets, MI Developments may be willing to gamble that Laurel Park will be reconsidered for a slot-machine license later this year. Magna is currently challenging the Anne Arundel County council's zoning approval for a casino at Arundel Mills mall that is being developed by Cordish, in the hope that the licensing process for the single casino license in the county will be reopened later this year.

Cordish said in an e-mail message that it is "extremely confident that the license we have been awarded for the Mills will come to fruition."

Settlement made with former owners

Separately, Magna submitted documents to the bankruptcy court on Monday providing details of an agreement it had reached with the Maryland s tracks former owners to settle claims that Magna had potentially cost the former owners millions of dollars by mismanaging the process to obtain a casino license at Laurel earlier this year.

The former owners, which included Joe and Karen De Francis and three other groups, had claimed that a partnership of the former owners and Magna could have received $810 million over 25 years if Magna had complied with a requirement in the licensing process to submit a $27.5 million fee. Magna failed to include the fee, and its bid for a license at Laurel was promptly disqualified.

According to the settlement, the former owners will receive $12 million in total from Magna, to be distributed in accordance with each of the former owners shares in the partnership. In addition, the former owners will also receive $1 million under the agreement to transfer the tracks to MI Developments, according to papers filed with the court.

The bankruptcy judge had earlier ruled that Magna could end the casino profit-sharing agreement that the company and the tracks owners formed in 2002 at the time that Magna purchased a majority share in the tracks. The ruling, however, did not disqualify the claims the former owners had made to a share of the revenue the partnership would have received if Magna had received a slot-machine license.