Fred Lum/The Globe and Mail
Frank Stronach, whose racetrack and gambling company Magna Entertainment Corp., tumbled into U.S. Chapter 11 bankruptcy protection last year, still believes the industry can make money.
"Although its development has taken longer and had more setbacks than anticipated, we strongly believe that this business is now well-positioned to succeed," Mr. Stronach said in a letter to the board of directors of MI Developments Inc. that accompanied his offer to buy out minority shareholders of the real estate company for $13 (U.S.) a share. "We remain committed to the growth and development of MID's racing and gaming business."
That offer, made after stock markets closed on Friday, sent the shares of MI Developments soaring more 32 per cent Monday, to $14.43 in trading on the Toronto Stock Exchange.
MI Developments said it will set up a special committee of independent directors to assess the offer and prepare a formal valuation.
Mr. Stronach, who is chairman of MI Developments, already controls the company through multiple-voting shares that represent about 60 per cent of the votes. If all 46.1 million common shares and 163,999 multiple voting shares are tendered, the deal is worth $601.6-million, he said in a filing with U.S. securities regulators.
MI Developments, which controlled Magna Entertainment (MEC), was also the major source of financing for the racetrack company as it racked up debts of more than $500-million before being granted Chapter 11 protection in March, 2009.
That led to acrimonious battles with institutional shareholders that are now being offered a takeout price that is 22 per cent higher than the closing price of $10.67 last Friday before the deal was announced, but less than the 52-week high of $14.61 on Oct. 14, 2009.
One large shareholder said its comment on Friday's bid is "not anything suitable for a family publication."
The battles between Mr. Stronach and the minority shareholders over financing racetracks have not been resolved, because in return for giving up on repayment of much of the debt it was owed by MEC, MI Developments picked up several of the racetracks.
Those include Santa Anita Park near Los Angeles; Golden Gate Fields in San Francisco; and two tracks in Maryland, including Pimlico in Baltimore, the home of the Preakness, the second jewel in horse racing's Triple Crown.
Much of the money MEC borrowed from MI Developments went to finance a complete revamp of Gulfstream Park near Miami, including development of a gambling parlour and high-end shopping complex. That fulfills Mr. Stronach's vision that tracks need to offer more than eight or nine horse races a day - and the accompanying wagering - but must become destinations that cater to families.
Taking MI Developments private would enable it to make similar large investments at Santa Anita and other tracks without incurring the wrath of minority shareholders.