03/29/2011 10:32AM

Stronach-MI Developments swap approved

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Shareholders of MI Developments on Tuesday overwhelmingly approved a plan that will allow its chairman and chief executive, Frank Stronach, to swap his supervoting shares for all of the company’s racing and gambling assets, including Santa Anita Park and Gulfstream Park.

Although the deal must still clear several regulatory hurdles, the approval puts Stronach one step closer to exercising total control of the racing properties, free from the criticism of shareholders of MI Developments and its dissolved subsidiary, Magna Entertainment, but at the risk of staking his own personal fortune on the performance of the assets.

According to MI Developments, the deal was approved at a meeting on Tuesday morning in Toronto by nearly 100 percent of the votes cast by qualified shareholders in three of the four voting blocs and by 86 percent of the voters in a fourth class. With the approval, the deal will be sent to an Ontario Superior Court of Justice for a “fairness review” on March 31. If the court approves the deal, it could close by June 30.

Under the deal, Stronach would give up control of MI Developments by swapping his supervoting stock and $20 million in cash for the racing and gambling assets. Although the stock represents 1 percent of the nominal equity value of the company – or approximately $12.8 million – the shares control 57 percent of the voting power. Stronach, 78, will also be required to step down as chairman and chief executive.

In exchange, Stronach will receive Santa Anita and Golden Gate Fields in California; Gulfstream and an attached casino in Florida; the Palm Meadows training center in Florida; a 50 percent stake in Laurel Park and Pimlico Race Course in Maryland; Portland Meadows in Oregon; the XpressBet account-wagering company; the bet-processing company AmTote; and a half-share in the horserace broadcasting network HRTV.

Those assets were valued at between $585 million and $730 million by a firm that evaluated the deal for the company. However, the assets have lost hundreds of millions of dollars while on the books of MI Developments and its subsidiary, Magna Entertainment, which was dissolved in April of last year through the transfer of its remaining assets to MI Developments. Shareholders had been highly critical of the performance of the properties for dragging down the financial results of the company, which derives the brunt of its profits from rents collected on properties owned by another company Stronach founded, Magna International.

According to MI Developments’s financial documents, the racing assets lost $76.7 million while on the books for eight months in 2010. Stronach’s personal fortune is estimated at hundreds of millions of dollars.

The swap deal will prohibit MI Developments or any of its subsidiaries from offering any aid or doing any business with the racing assets, limiting Stronach’s ability to tap credit markets due to the poor financial performance of the properties over their histories.

Early in March, MI Developments announced that Greg Avioli, the chief executive of Breeders’ Cup since 2006, would take over as chief executive of its racing and gaming division. Avioli is expected to move on to the company set up by Stronach after the deal closes.

The swap deal was first announced in December. On Tuesday, stock in MI Developments closed at $28.66, up 83 cents, or 2.98 percent.