TORONTO -- A plan to restructure major chunks of Frank Stronach's empire will come down to whether he or opponents of the deal can sway holders of about 25 per cent of the shares of MI Developments Inc.
The battle lines were drawn clearly yesterday at MI Developments' annual meeting in Toronto, where Mr. Stronach urged shareholders to approve the plan and New York hedge fund and long-time critic Greenlight Capital Inc. said it should be defeated because it benefits the auto parts magnate personally.
At the moment, the complex plan to re-engineer MI Developments and its controlling stake in Magna Entertainment Corp. has the support of 53 per cent of the real estate company's class A shareholders. It is opposed by Greenlight and another large MI Developments shareholder that combined hold 22 per cent. If the proposal is to go ahead, it must be approved by 66 per cent of the class A shareholders at a special meeting expected to be held later this month.
The proposal involves MI Developments unloading its 59-per-cent stake in MEC by selling it for $25-million (U.S.) to a limited partnership controlled by Mr. Stronach. MI Developments would also transfer $150-million in cash, $247-million of debt owed to it by MEC and undeveloped real estate assets in Aurora, Ont.
A restructured MI Developments would be owned 80 per cent by its existing shareholders. Mr. Stronach and his auto parts company, Magna International Inc., would each hold 10 per cent.
"Should this proposal, which requires a two-thirds majority, not be approved by the shareholders then, I repeat, [MI] must consider other options to give MEC an opportunity to become a viable company," Mr. Stronach told shareholders.
Asked after the meeting whether the alternatives included a Chapter 11 bankruptcy filing by MEC, he said he could not discuss other options for the debt-laden and money-losing racetrack and gambling company. MEC reported earlier this week that its first-quarter financial results were the worst since it became a public company earlier this decade.
Vinit Sethi, director of research for Greenlight, slammed the proposal for benefiting Mr. Stronach personally. It's "a multihundred-million-dollar payoff for Mr. Stronach," Mr. Sethi said. "Why are you paying $25-million for a package of assets that's worth $450-million and taking 50 per cent of that?" he asked the MI Developments chairman.
Mr. Stronach told reporters after the meeting that MEC needs the cash "to be a viable company and to finish its mandate."
That mandate includes massive redevelopments of racetracks in Florida and California designed to turn them into destinations and attract new customers to horse racing.
MEC is struggling to sell several of its tracks and its excess real estate in an effort to reduce $500-million in debt.
Greenlight, which has already sued MI Developments, its board of directors and Mr. Stronach, presented a proposal of its own yesterday calling on the MI Developments board to take several actions to boost the company's share price. The hedge fund wants MI Developments to cut all ties with MEC.
Greenlight won the support of an overwhelming majority of the class A shareholders, but Mr. Stronach used his control of the company's class B multiple voting shares to defeat the proposal.
MI DEVELOPMENTS (MIM.A)
Close: $27.14 (Cdn.), down 60¢
MAGNA ENT. (MEC.A)
Close: 41¢, up 1½ ¢
© The Globe and Mail
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