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Tuesday, April 01, 2008

Frank Buys Tracks From Frank

- Trying to decipher this deal with Magna Entertainment. It's a complex affair, with MI Developments (Magna's real estate business) selling the 59% stake in Magna Entertainment, whose more than $300 million in losses over the past three years have dragged MI down with it, to a new entity controlled by Frank; the old MI Developments would become a new MI Developments capitalized with a $1 billion loan guarantee from Magna International (the auto parts company that gave birth to this all) which has to be approved by that company's board.

But essentially, Frank is buying Magna Entertainment from himself. Though he owns only a small equity stake in MI Developments, he ultimately controls it. How does he do that? Well, for example, the new MI Developments, though it will be 80% owned by current shareholders, will have a nine-member board of directors consisting of five directors nominated by Stronach and four nominated by Magna International...which is owned by Frank. [Forbes] So I guess that's how.

MI Developments CEO John Simonetti said that the proposal has the support of a majority of shareholders. However, one major shareholder, David Einhorn of Greenlight Capital, isn't happy. He described the reorganization as a "windfall" for Stronach.

"Mr. Stronach and MI Developments have effectively put a gun to the head of the company's shareholders and convinced a majority to support an outrageous multi-hundred million dollar payoff to make Mr. Stronach stop." [Toronto Star]
Einhorn wasn't specific, but perhaps he's referring to the fact that, though the new Stronach entity will "buy" Magna Entertainment from MI for $25 million, MI will then transfer $150 million in cash, and all of its $247 million in loans to MEC to the new entity, majority owned by Frank, which will own the racetracks. Don't ask me. MI shareholders will own a minority 49% share, so in theory, they will be able to capitalize on any possible rebound of the racetracks. But that of course is very theoretical.

However, it seems to me that Frank is putting his (and other people's) money where his mouth is, and I certainly wish him well. He obviously loves the game, and I've always thought he means well in his own sometimes bumbling ways. And besides, how you can hate a guy with such authentic Austrian energy? (Crank it up!)

1 Comment:

Glimmerglass said...

Frank is certainly buying MECA for cheap as his bid shows no premium over the current market cap.

For shareholders it is a fraction of the money paid for the tracks, pumped in for upkeep and expansions. However they're better to rid themselves of what the Canadian press called his "hobbyhorse" pun intended.

Magna Entertainment likely will be delisted off NASDQ within 2008 anyhow with its traded value below what is required.

A flashback to one of Frank's purchases: NYT 7/709 "Gulfstream Park Has Sale Agreement"

Purchased for $95 million nine years ago and with his tinkering hasn't effectively made a cent since ... amazing!

By comaprison Sheik Mo buy's the Aussie operation of a leading race outfit there for the equivalent of ~ $450M USD last month. Maybe Mo would like to buy the Maryland Jockey Club, et al?