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Thursday, March 06, 2008

Stronach Shell Game

- In case you were worried about Magna Entertainment's plight, be assured that its racetracks are "fundamentally large, strategic blocks of land in large urban centers."

"Notwithstanding the current U.S. real estate market, they remain extremely valuable, particularly as zoning efforts continue to be pursued.” [Thoroughbred Times]
So says John Simonetti, the CEO of MI Developments, the majority owner (and also a member of the Magna Int'l family), in terms of stock and voting power, of Magna Entertainment (MEC). He acknowledged in a conference call on Wednesday that MEC will be unable to repay some $150 million worth of debt due on May 31 (just a portion of the company's total debt of around $247 million). And, as far as those asset sales that we keep hearing about:
"Given the state of the overall U.S. economy, MEC could not have picked a worse time over the past two years to try to sell significant blocks of real estate." [Toronto Star]
MEC's troubles, along with a drop in business from Magna International, the MagnaDaddy of them all, are dragging MI Developments down with it. However, that company does at least remain profitable, a word you won't find in any of MEC's recent filings. Despite the trials of MEC, MID reported a profit for 2007, though at $39.5 million, it was 34% lower than the $59.9 million realized in 2006. Year-over-year revenue increased 7.6% to $794.6 million. [Bloodhorse]

Yet, Simonetti also said that the company may lend even more money to the embattled racetrack company. Gee, that sounds like a good investment. But the fact is that, voting power and common stock ownership aside, Frank Stronach is the controlling investor in all three of these companies, despite having only a minor equity stake in the subsidies. Don't ask me how....but he is the Creator of his Universe, after all. And that makes me snicker when I see headlines like Parent may not help fund Magna (subsequently changed to MI Developments mulls additional help for Magna Entertainment). It all smacks of an elaborate shell game to me. Do you really think that Frank is going to let his baby go belly up as long as he's ultimately calling all the shots? And about those pesky shareholders? If Frank could persuade them to stake Magna International's future on an alliance with a shady billionaire from the modern-day czardom that is Vladimir Putin's Russia, I'm sure that another bailout or two for his racing company won't be a major obstacle.


Anonymous said...

I don't see how Magna will ever "right the ship" with their race track and wagering empire which crumbles from within. Maryland slots won't come anytime soon and even where they have slots, like Gulfstream, is that really making a difference?

MEC will eventually get delisted from the stock exchange. Even if more money is injected it will only be a temporary fix and any sane stakeholder in Magna will cut bait at some point.

In theory it was nice that a dedicated horse owner and breeder wanted to own tracks but you can hold on so long that you smoother it.

By comparison, Bert (and wife Diana, the J&J heiress) Firestone has been as equally successful with runners and owned Calder and Gulfstream in the 1990's. Although they moved on with their fortune in tact and not having ruined that great track.

Anonymous said...

The only hope for these tracks is a continued deterioration of the realty market.

Once again, Frank has missed the boat, these holding value as developmental projects has taken quite a hit.