Racing magnate Frank Stronach is proposing a complex restructuring that would separate his racetrack company from his real estate development company, leaving unanswered the question of where the money-losing racing operation would get its financing.
Magna Entertainment Corp., which owns Laurel Park and Pimlico Race Course in Maryland, has been lent millions by parent MI Developments Inc. to keep its operations going. Stronach, Magna Entertainment's founder, is also MID's controlling shareholder.
Under Stronach's reorganization proposal, which it announced yesterday, MID would sell its controlling stake in Magna Entertainment for $25 million "to an entity to be identified by the Stronach Group." The reorganized MID "would be prohibited from entering into any future transactions" with Magna Entertainment without unanimous approval of its board of directors.
The real estate company said in a statement that its board has not made a recommendation yet. Neither MID nor Magna Entertainment could be reached for comment yesterday.
Financial interconnections between the two companies have drawn criticism. MID shareholder Greenlight Capital Inc. alleged in a lawsuit that the real estate company had become Magna Entertainment's "banker of last resort."
John Simonetti, MID's chief executive, alluding to long-running shareholder disagreements in a statement yesterday, said the reorganization proposal "has expressions of support from both the Stronach Group and a majority of our public shareholders."
Magna Entertainment lost $114 million last year and $87.4 million in 2006, and has survived on infusions from Stronach personally and his other companies. It is in danger of being delisted from the Nasdaq stock market; its shares closed at 34 cents yesterday, up 2 cents.
Jeff Hooke, an investment consultant who analyzes gaming issues, said the deal could make it harder for Magna Entertainment to get financing. But the company should be able to find a partner for specific deals, such as building a casino operation at Laurel Park if slots are approved by Maryland voters in November, he said.
Hooke believes the reorganization proposal could turn out to be slightly better for the company than the current situation because it would give Stronach more power to act.
"It looks like the company to which the controlling stake in Magna is being dumped, along with the debt, is going to be a limited partnership controlled by Stronach," he said. If approved, "now you've gotten one layer out of the way, so he has more direct control. ... He's one of the most enthusiastic followers of the horse racing industry in the world. He's put a lot of money into this. You would think he'd want to see this company be successful."