Struggling Magna Entertainment To Spin Off From Parent Co.
Magna Entertainment Corp. (MEC) "will be spun off" from parent company MI Developments and was "issued additional loans under a proposal that MI Developments's shareholders will be asked to approve early in 2009," according to Matt Hegarty of DAILY RACING FORM. The plan "seeks to satisfy shareholders of MI Developments who have criticized the performance of the company because of the financial drag" created by MEC, which has lost $400M over the past four years. If the plan is approved, and MEC "satisfies all the conditions under the proposal, MI Developments would be completely divested" of MEC, which owns several U.S. thoroughbred tracks, including Laurel Park, Santa Anita Park and Gulfstream Park. Under the proposed deal, MEC would receive a loan of $50M from MI to "build a temporary Casino at Laurel if its pursuit of the license is successful." But aside from the loans, it is "unclear how the proposal will benefit" MEC in the long-run. At best, the proposal gives MEC "additional time to pursue sales of its racetracks and the Maryland slot-machine license, but it would sever ties with the company that has provided financial lifelines as Magna has struggled to make ends meet." Also, as part of the deal MEC would be "required to sell several non-racing real-estate properties in Florida and California to MI Developments at 'fair market value'" (DAILYRACINGFORM.com, 11/26).
FRANK-LY SPEAKING: The GLOBE & MAIL's Lori McLeod noted a "key aspect of the plan is an agreement that MI can't invest any new funds or enter new transactions with MEC without approval of the majority of its minority shareholders." MI will "spin off its stake in MEC to investors, who will have the option of hanging on to the shares or selling them." Both MI and MEC "will remain publicly traded." A "giveback" of the proposed deal is that MEC Chair Frank Stronach "not only maintains control, but will purchase an additional 5[%] equity interest, with warrants to acquire" 5% more. Stronach also will "put in his own capital to raise his stake in MEC" (GLOBE & MAIL, 11/27). MI Developments interim CEO Dennis Mills said of the plan, "This is a major effort by Frank to try to make peace with the minority MI shareholders. It is a constructive solution. We call it 'the art of the doable' and every element has been presented to us by various MI shareholders, including MEC's spinoff, a bigger dividend, a share buyback and a forbearance agreement that restricts future transactions with MEC" (TORONTO STAR, 11/27).
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