12/22/2010 4:38PM

Stronach offers to swap shares for racing assets


Frank Stronach, the chairman and controlling shareholder in MI Developments, has offered to swap all of his supervoting shares in the company for all of MI Developments’s racing-related assets, including Santa Anita Park in California and Gulfstream Park in Florida, the company announced Wednesday.

The offer has already been approved by eight of the company’s top 10 shareholders, according to MI Developments. The company has appointed a special committee of independent shareholders to evaluate the offer, and it will seek shareholder and regulator approvals over the next several months, MI Developments said in a release.

The proposal seeks to satisfy the concerns of shareholders who have been highly critical of MI Developments’s direct involvement in the racing industry since the company took over the troubled racing assets previously held by its bankrupt subsidiary, Magna Entertainment Corp., earlier this year. Before taking over the assets, MI Developments had derived the majority of its revenues from rents collected on properties owned by Magna Entertainment and an auto-parts company started by Stronach, Magna International.

The assets include Santa Anita; Gulfstream and its adjacent casino; Northern California’s Golden Gate Fields; a half-interest in Laurel Park and Pimlico Racecourse in Maryland; Oregon’s Portland Meadows; the bet-processing company AmTote; the account-wagering platform XpressBet; and a half-interest in the television broadcast company HorseRacing TV.

Stronach would forfeit his supervoting shares in MI Developments in exchange for the racing assets, the company said. The bloc of shares has allowed Stronach to control 60 percent of the company’s voting rights despite holding only 1 percent of the nominal value of the company’s equity. In addition, Stronach would pay $20 million to the company under the deal – the only cash that would change hands.

By taking on the assets, Stronach would be free of the constraints imposed by the company’s shareholders, who agreed to take on the assets as long as MI Developments did not use any further proceeds to support the properties. But Stronach would also be personally responsible for any losses at the properties, and he will also be limited in his ability to use the capital markets to raise funds by the distressed financial condition of the assets.

According to MI Developments’s financial statements, the racing assets lost $23.8 million in the third quarter, on revenue of $48.4 million. Along with tracks that were sold off as part of Magna Entertainment’s bankruptcy reorganization, the properties lost hundreds of millions of dollars before Magna Entertainment filing for bankruptcy.

Canadian regulators halted trading in shares of MI Developments on Tuesday afternoon after reports surfaced about the possibility of the deal. The shares closed Wednesday at $27.69, up $8.63, or 45.3 percent.As a result of the new deal, an earlier offer by Stronach to buy all of the outstanding shares in MI Developments has been removed from consideration, MI Developments said. Stronach had offered $13 a share for the stock, at a time when the shares were trading for $10.67. The offer had immediately sent the stock price above $14, an indication that investors believed the proposal undervalued the company.