11/04/2008 12:00AM

Magna stock rises on slots speculation

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The stock price of troubled racetrack operator Magna Entertainment Corp. surged to $3.97 per share on Tuesday on confidence that Magna would likely benefit from a referendum that would authorize slot machines in Maryland, where Magna owns two tracks.

Magna's share price began slowly rising late in the day on Thursday, when it closed at $1.64. It rose again on Friday to $1.92, and on Monday the share price nearly doubled when it closed at $3.73. It traded as high as $4.71 on Tuesday, the day the referendum was held.

Magna issued a statement on Tuesday during trading that said the company "is not aware of any specific developments to which the recent increase in its stock price would be attributable."

However, early polls in Maryland showed overwhelming support for the slots initiative, which would put Magna in line for one of five casino licenses in the state. Even if the company does not receive a license, the racing industry will receive approximately $140 million a year in subsidies for purses and capital improvements at tracks.

Magna has a market capitalization of $25.1 million at its current stock prices - well below the asset values of its tracks. The passage of the referendum will instantly make its properties in Maryland - Laurel Park and Pimlico Race Course - far more valuable, and investors are likely picking up shares in anticipation of the tracks increasing in value should the referendum pass.

Magna will have several options for the tracks if slot machines are legalized. It could pursue a license for Laurel Park, sell the tracks outright to investors seeking to capitalize on slots, or sell the casino rights at Laurel. The process to select licensees is expected to take at least six months, and a casino is not expected to open in the state for several years.

Magna is saddled with $550 million in debt - $200 million of which came due earlier this year but has not been repaid - and has lost $350 million over the past three years. The company is widely considered to be on the cusp of bankruptcy, though the ability to market the Maryland tracks may provide some leeway.

Separately on Monday night, Magna announced that Lincoln Property Co. and Orion Investment Properties have backed out of a deal to purchase a 500-acre property it owns near Ocala, Fla. The two companies had earlier agreed to buy the property from Magna for $16.5 million in cash.