Magna chairman and founder Frank Stronach takes a call at the company's Aurora, Ont., headquarters.J.P. MOCZULSKI
Frank Stronach says he's well aware that many MI Developments shareholders "are not that crazy" about horse racing and gambling - and his offer to buy their shares represents their best chance to get back some of their investment.
"I'm saying, 'Look, you're the shareholders. If you don't like it, you've got a chance to get out, but if you want to ride along with me that's fine.' It's quite simple," said Mr. Stronach, chairman of the real estate and racetrack company and the subject of long-standing and vociferous complaints from minority shareholders.
The future of the company lies in its racetrack and gambling operations, not the industrial properties that constitute a significant chunk of MI's assets today, Mr. Stronach said in a telephone interview from Europe, the first public comments he has made since Oct. 1, when he offered to buy out minority shareholders for $13 (U.S.) a share.
A privatization of MI Developments would mark another step in a restructuring of the empire in auto parts, real estate and horse racing that the 78-year-old entrepreneur has built over decades since he founded auto parts maker Magna International Inc. in a Toronto garage in 1957.
Already this year, he has sold his multiple-voting shares in Magna - surrendering control of the auto parts giant - for $300-million in cash and $560-million worth of common shares. While he remains chairman of Magna, he is spending more time developing an electric-vehicle joint venture for which he was given control as part of the buyout deal.
The proposed buyout of MI Developments shareholders will cost him about $600-million and comes after almost a decade of battles with hedge funds and other institutional shareholders - mainly over the company's investment in and loans to Magna Entertainment Corp., which owned racetracks in the United States and Europe and tumbled into Chapter 11 bankruptcy protection last year.
MI Developments retained ownership of some of those tracks in return for forgiving Magna Entertainment debt as part of a restructuring deal.
The other side of MI Developments' business, leasing industrial property to Magna and other tenants, is likely to decline, Mr. Stronach said, because of the continuing restructuring of the global auto parts industry.
"I don't see an upside," he said. "There will be a great consolidation."
It will take a few years to make racetracks profitable, he acknowledged, pointing to the vast increase in money wagered on lotteries in the past decade and the long slide in money bet on horses.
That decline continues this year, despite the economic recovery. Figures from the U.S. Jockey Club show Americans wagered $8.96-billion on races in the first nine months of 2010, compared with $9.66-billion in the same period of 2009. Mr. Stronach once talked about the possibility that Magna Entertainment alone could generate $12-billion in annual revenue.
"A lottery player lays out $1 to win a dream - a lifestyle change," Mr. Stronach said. Betting on horses, "people don't want to lay out $1 to win $5, it's not life-changing."
So at its tracks in Florida, California and Maryland, MI Developments would consider offering punters a chance to win $10-million, perhaps once a week, he said.
Winnings of that size are rare - if not impossible - for bettors. The Dubai World Cup, for example, offers purses of $10-million, but that is to the owners of the horses in the race, not people betting on them.