07/12/2004 11:00PM

Stock offer for Magna; HRTV audience grows


A company that controls Magna Entertainment made an offer on Tuesday to buy all the remaining stock shares in Magna Entertainment, the country's largest racing company, and combine it with its own publicly traded real-estate business.

The same day, Magna Entertainment announced that it had reached an agreement with the Dish Network, one of the two biggest satellite television services in the country, to carry Magna's HorseRacing TV as part of the network's basic lineup. The agreement, effective July 15, will make HRTV available to 10 million new viewers, a 10-fold increase from the current number of subscribers.

The company seeking to buy stock in Magna Entertainment is MI Developments, which already owns 62 percent of the equity in Magna Entertainment and has 96.6 percent of the voting rights in the company. MI Developments was formed last year by taking on the real-estate assets of Magna International, the auto-parts company that also formed Magna Entertainment. Frank Stronach is the chairman of all three companies.

Brian Tobin, the chief executive officer of MI Developments, said that Magna's racetrack properties were underutilized, and combining the two companies would allow MI Developments to raise cash more cheaply and to pursue real-estate development projects at tracks that Magna owns, including Gulfstream Park in south Florida and Santa Anita in Southern California.

"Some of the most attractive land in America today is adjacent to or part of Gulfstream Park and Santa Anita, The Meadows, etc.," Tobin said. Later, he added, "There's no thought of doing anything else with these assets other than world-class racing."

Gulfstream Park's grandstand was torn down earlier this year, and construction crews are installing new racing surfaces. The 2005 meet will be run under tents while a new grandstand is built. Also, Magna Entertainment has reached an agreement to develop land adjacent to Gulfstream into a residential and commercial project.

Under terms of the stock offer, each share of Magna Entertainment would be exchanged for $1.05 in cash and 0.2258 shares of MID. The deal would transfer all of Magna Entertainment's assets to MID and end trading in the racing company's shares, although stock owners interested in investing in Magna's racing properties could still buy stock in MID.

Stock in Magna Entertainment closed Tuesday at $6.48, up 72 cents, on heavy volume of 19.3 million shares. Offers of this type typically result in increased volume on the day of the announcement.

Tobin said that MID made the offer because Magna Entertainment is well positioned to take advantage of slot-machine legislation in the states where it operates racetracks.

Magna Entertainment owns or operates 13 racetracks in the U.S., including Gulfstream, Santa Anita, Golden Gate, Lone Star, Pimlico Race Course, and Laurel Park. On July 5, Pennsylvania Gov. Ed Rendell signed legislation that would legalize up to 5,000 slots at the company's Pennsylvania harness track, The Meadows near Pittsburgh, along with 13 other sites in the state.

Slots legislation has been considered in several states where Magna owns or operates tracks, including Maryland, Ohio, and Oklahoma.

John Simonetti, MID's chief financial officer, said that the advantages in the stock deal included a lower cost for paying off debt and easing the ability of the two companies to plan projects at racetrack sites. Because MID was the majority stakeholder in MEC, any projects between the two would have had to be structured to comply with strict rules regarding "related-party transactions" if both were publicly traded and separate, Simonetti said.

Ryan Worst, an analyst with CL King, said that the chief benefit of combining the companies would be cheaper financing. But he said that the racing business could be affected by MID's focus on real-estate development.

"The real-estate business is going to play a much larger role in the combined company," Worst said. "That could be a concern from a racing standpoint."

MID officials said during a conference call Tuesday that they expect the transaction, if approved by shareholders, to close in late September. MID expects to mail out the proposal to shareholders in mid-August.

Magna's agreement with the Dish Network fulfilled a promise to the racing community that was two years in coming. Company officials have said that the channel would be widely distributed ever since the network was launched.

Earlier this year, Magna came under criticism from many racing fans and horse owners after the company pulled its signals from a number of competitors, sharply limiting the number of people who could watch races from Santa Anita and Gulfstream, among other tracks, while betting at home. HRTV's previous distribution was principally limited to cable subscribers in Pennsylvania.

Magna's competitor for televised racing, Television Games Network, is available as part of the basic lineup on the Dish Network as well. TVG is also available on Dish's competitor, DirecTV. The new Magna agreement will allow racing fans with the Dish Network to watch nearly every race that takes place at a high-profile track year-round.