by Frank Angst

Struggling racetrack owner Magna Entertainment Corp. will ask stockholders to approve a reverse stock split at the company’s Annual and Special Meeting of Stockholders on May 6 in Toronto.

In the last year, Magna Entertainment stock has plummeted. After selling for more than $3.50 a share in April 2007, the stock was selling for just $.35 a share early Tuesday. In February, NASDAQ informed Magna Entertainment that the exchange would no longer list the company’s Class A stock if it did not return to a value of at least $1 a share by August.

At the annual meeting, the board of directors will propose approval to allow the reverse stock split at a rate of between one-for-ten and one-for-twenty before May 6, 2009.

Meanwhile, parent company MI Developments Inc. appears ready to sell its controlling equity investment in Magna Entertainment. Stockholders in that company—in which Magna Entertainment Chairman Frank Stronach is controlling shareholder as well as founder and chairman—have suggested that its association with Magna Entertainment has hurt its stock price. MI Developments holds about 96% of Magna Entertainment’s voting power in terms of stock and a 59% total equity interest in the racetrack owner.

Under a plan that a company release says has Stronach’s approval, all of MI Developments’ loans to Magna Entertainment and its subsidiaries would be transferred to a new limited partnership controlled by the Stronach Group. The loans include a bridge loan and two project financing facilities and $150-million. The Stronach Group will control the limited partnership through a 51% ownership interest.

MI Developments, primarily a real estate company that owns, leases, and manages property for Magna International and its subsidiaries, will be prohibited from entering into any future transactions with Magna Entertainment or the limited partnership without the unanimous consent of the new company’s board.

Also as part of the reorganization proposal, MI Developments Class A and Class B stockholders would exchange their existing shares for $15.50 in cash and shares of a new public company that would be owned approximately 80% by former public shareholders, 10% by an entity affiliated with Stronach, and 10% by Magna International Inc.

MI Developments’ multiple voting share structure would be eliminated with all of the new company’s common shares carrying one vote per share and being equal in all respects except for board nomination rights. The Stronach Group would still nominate five of the nine board members.

Frank Angst is senior staff writer of Thoroughbred Times