03/29/2009 11:00PM

Objections filed to Magna auction plan


Churchill Downs Inc. and Greenlight Capital, a large minority shareholder in the parent company of bankrupt Magna Entertainment Corp., have filed objections to proposals associated with the sale of Magna's racing assets, according to recent court filings.

The objections seek to block Magna Entertainment from selling its racing assets to the parent company, MI Developments, or other bidders. The objections have been filed in advance of a hearing Friday in U.S. bankruptcy court in Delaware, where Magna Entertainment filed for bankruptcy on March 5.

Magna has asked the court to allow MI Developments to submit a stalking-horse bid for a bundle of its properties, including Gulfstream Park, Golden Gate Fields, Lone Star Park, the bet-processing company AmTote, and the account-wagering company XpressBet. Under the proposal, MI Developments would acquire the properties for $195 million, but other entities would be able to bid for the entire bundle or specific properties in an auction managed by the company.

Greenlight filed two objections to the auction process last Friday. Greenlight contends that the process outlined by Magna would "chill bidding and raise issues regarding the debtors' ability, if not willingness, to discharge their fiduciary obligation to maximize value for creditors and other stakeholders."

The objections by Greenlight mirror criticisms by racing officials and other companies that the Magna bankruptcy filing is designed to transfer the assets of Magna to MI Developments at the expense of the companies' shareholders. Both companies are controlled by Frank Stronach, who founded Magna in 1998.

Magna Entertainment, which has lost in excess of $500 million over the past five years, owes MI Developments $372 million, according to financial statements, and is the company's largest creditor.

In its objections, Greenlight said that it supported any proposal that would result in the disposition of Magna's assets to satisfy the companies' creditors, but that the procedures under the stalking-horse bid give too much power to Magna and MI Developments to dismiss competing bids. The process "guarantees that MID . . . will be the successful bidder" for the assets, Greenlight said in the objections.

Churchill Downs Inc. filed an objection to the sale of the 50 percent stakes in two companies it co-owns with Magna Entertainment: HorseRacing TV, a television channel, and TrackNet, a simulcast-marketing partnership.

Magna is seeking to sell the 50 percent stakes through an open auction process, along with three other racetracks, Santa Anita, Laurel, and Pimlico. The motion to approve the auction process is also going before the court on Friday.

In its objection, Churchill said that a joint operating agreement allows it to void any sale of its stakes in the two companies, and that the language in the motion filed by Magna is unclear.