NEWS
Plan calls for Stronach Group to control Magna
Posted: Wednesday, November 26, 2008 2:54 PM
Matt Goins photo
by Frank Angst
Financially troubled Magna Entertainment Corp. has proposed a reorganization plan that will place the racetrack owner under direct control of the Stronach Group.
Currently, MI Developments Inc. is the controlling shareholder in Magna Entertainment. Magna founder and chairman Frank Stronach and his associates make up the Stronach Group.
While Stronach also is the founder and chairman of MI Developments, shareholders in that commercial real estate company have called for changes in its dealings with Magna Entertainment.
Magna reported a third quarter net loss of $48,359,000, bringing its total 2008 losses to $116,073,000 and its six-year losses well past $500-million.
In a November 7 conference call with stockholders and analysts, MI Developments said it was considering options including recapitalization, restructuring, joint ventures, and sales of Magna Entertainment assets.
Citing the poor economy, Magna Entertainment has not carried out its debt reduction plan that includes the sale of Remington Park, Thistledown, and Portland Meadows. It currently is considering the sale or joint ventures in core properties such as Santa Anita Park and Gulfstream Park.
As part of the reorganization plan announcement, Magna said the maturity date of its $40-million senior secured revolving credit facility with a Canadian bank and its $100-million bridge loan from MI Developments used in the reconstruction of Gulfstream Park will be extended to March.
The restructuring also includes MI Developments issuing two loans to Magna Entertainment: one for $50-million that will be used to fund Magna Entertainment’s daily operations and one for $75-million that will be used to fund Magna’s license application for slot machines in Maryland and, if Laurel Park is approved, for the construction of a temporary slots facility.
“We are thrilled with this announcement,” said Maryland Jockey Club President Tom Chuckas. “The full financial commitment from MI Developments will allow the Maryland Jockey Club to have the resources to pursue the [video lottery terminal] application and the strength to make Laurel Park the best possible facility for alternative gaming.”
As of March 10, MI Developments owned—directly or indirectly—4,362,328 shares of Magna’s Class A Subordinate Voting Stock and 58,466,056 shares of Class B Stock, convertible into shares of Class A Subordinate Voting Stock on a one-for-one basis. At that time, the average number of Class A and Class B shares was about 107-million.
If the reorganization is completed, there will be a public float of Magna Entertainment shares. MI Developments cannot invest additional funds in Magna, or enter into new transactions with Magna, without the approval of the minority MI Developments Class A shareholders. That agreement would not allow Stronach, who controls MI Developments through his Class B stock, to reinvest in Magna without approval from Class A stockholders.
Magna acknowledged certain transactions in the plan are subject to approval of MI Developments shareholders and the Ontario Superior Court of Justice. MI Developments shareholders will consider the plan at a meeting in the first quarter of 2009.
The transaction agreement anticipates, among other things, a multi-step series of proposed transactions designed to recapitalize and reposition Magna to enable it to pursue its strategy of horse racing, gaming, and entertainment on a standalone basis.
Frank Angst is a senior staff writer of Thoroughbred Times
