MAGNA CALLED ‘FINANCIAL SINKHOLE’ BY INVESTOR
By Ray Paulick
A major institutional investor in MI Developments, the Frank Stronach-controlled real estate company that has kept Stronach’s failing racetrack entity Magna Entertainment afloat with bridge loans, has threatened legal action against the MI Developments board of directors, alleging they have “flagrantly breached their fiduciary duties to shareholders.”
Richard Fried, a managing member of the San Francisco-based Farallon Capital Management that owns 8.5% of the Class A shares in MI Developments, protested the board’s most recent extension and expansion of a now $125-million bridge loan and delay of a due date of a separate $100 million loan payment. Fried wrote that Magna Entertainment “has been, is, and will remain a financial sinkhole. Continuing to finance it offers no conceivable benefit to MID’s shareholders.”
“There is no possible justification for the Board to approve loans to a near bankrupt horseracing concern, especially one that is hopelessly entangled with irrational, non-economic, and conflicted parties and has a track record of massive value destruction,” Fried wrote. The letter was filed with the Securities Exchange Commission on Friday, the same day that technology entrepreneur and Thoroughbred owner and breeder Halsey Minor went public with an offer to buy out MI Developments’ loans to Magna Entertainment.
The letter said Farallon concludes that “the (MI Developments) Board is pursuing a value-destroying investment instead of a relatively safe and accretive investment because the Board is ignoring common shareholders’ interests and is only interested in pleasing Frank Stronach, even if his desires conflict with the best interests of MID’s shareholders.”
Farallon also went on record as opposing what it called “an ill-conceived transaction” that would have MI Developments buying out Magna Entertainment, whose stock has lost more than 95% of its equity value. MI Developments already owns a controlling interest in Magna Entertainment, which operates Santa Anita Park (host of the Breeders’ Cup world championships in 2008 and 2009), Gulfstream Park, Lone Star Park, the Maryland Jockey Club tracks Pimlico and Laurel, and Golden Gate Fields.
“We believe the Board’s duties require it to end MID’s support of MEC and focus urgently with management on developing a coherent and fair reorganization plan. You must tell Mr. Stronach that his time for self-serving maneuvers is over. It is time for you to meet your fiduciary duties as directors. If you do not, Farallon will consider all legal tools available to it as a shareholder.”
Magna successfully defended a previous lawsuit by Greenlight Financial alleging that Greenlight and other investors were oppressed by Stronach and the MI Developments board.
Click here for the complete text of the Farallon Capital Management letter.
Copyright © 2008, The Paulick Report
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Tags: Breeders' Cup, cnet, farallon capital management, farfallon, financial sinkhole, Frank Stronach, gulfstream park, Halsey Minor, Horse Racing, laurel, lone star park, Magna, Magna Entertainment, magna entertainment farfallon capital management, Maryland Jockey Club, meca, mi develoments, mi developments, mid, Paulick Report, pimlico, Ray Paulick, richard fried, santa anita park, stronach
October 18th, 2008 at 8:25 pm
Magna is an utter disaster with the ramifications felt in every racing facility it owns. Frank Stronach’s plan of more than a decade ago is a failure for many reasons, but this “play money” scheme is now crashing down on MID. Living in northeast Ohio, I have seen Thistledown go from nine months of racing a few years ago to around 90 dates planned for next year. The mismanagement by Stronach’s puppets from afar has essentially destroyed Thoroughbred racing in this area and I am quite sure the bad news will continue to spread until shareholders say in a loud voice, “Enough….either sell or we will revolt and make things impossible for you (Stronach) to get up in the morning without possible litigation.”
October 19th, 2008 at 12:09 am
We must not forget that Frank gave his best effort in trying to do what he felt was best for racing. It is easy to kick a man when he is down and unlesss who have walked a mile in his shoes be careful of your criticism. He is a successful business man who lived out a dream in trying to help the sport he loved.
Is there not some blame to be placed on industry that is in itself in shambles?
October 19th, 2008 at 12:55 am
Faith this isnt a high school science project. He has failed because he had a flawed plan and fired every top exec who told him so. Stronach is an egotistical old man who wanted to show everyone in the racing “club” how smart he was. Remember when he said that he did not only not need slots he didnt want them? He overpaid for tracks, made bad deals such as the one in Maryland which gives DeFrancis far too much influence over potential slot money, expanded into illogical areas (thistledowns, Michigan, Oregon, etc.) and simply refused to change his “vision” when his execs told him the “vison” was really blurry, choosing instead to get rid of them. The energy drink, the GP shopping mall, the debacle of MD racing, the San Jose debacle, the horse wizards, etc, where does it end?
The industry is hardly in shambles. Maybe a few of these tracks closing will wind up being a good thing in the long run. Blame the industry for the Stronach experience? That is a good one.
October 19th, 2008 at 1:21 pm
You’re right Wesly, this isn’t a high school science project and it’s a good thing. There are few in the racing industry that are smart enough to attempt a high school science project without blowing themselves up. I agree with what you say about Mr. Stronach–he needs to get out–but so do many other “old men” that can’t get the job done. Horse racing will not make a comeback until all of the stakeholders can come together. I heard an interview not long ago in which the person being interviewed was asked about the secret of NASCAR’s success. The answer: All of the stakeholders concluded that if the industry was successful, there would be enough money to go around–so they stopped bickering over every penny. The horse racing industry could learn something from that. And, oh yeah, if the industry isn’t in shambles, it’s as close as you can get. It’s really pathetic that such a grand sport has to rely on welfare from something as moronic as a video game.
October 20th, 2008 at 1:57 am
Newbie here, but must agree with Robert and take issue with Wesley. Am not short on opinions, as am a MECA shareholder, former race industry employee, and a long time race fan.
Robert - you are so right on the NASCAR point. The divisive nature of so many small groups in the industry is messing it up for all. The degree of bickering is amazing. Group A decides it isn’t getting enough of revenue stream B, so decides to cut off simulcast C’s feed on line, but one can still play that track if they go to physical location D. Does anyone in the game understand economics 101 anymore? Was there no one in group A that figured that a part of something is better than all of nothing? Hello purse shrinkage!
To continue on Robert’s point briefly - the industry in CA was at the end of a magical time when I left it in the early 80’s. CA had a great growth and future potential in racing and breeding. I was shocked back then as to how poorly it was being managed. Fast forward a quarter of a century (it’s in the blood - can’t stay away) and to my dismay, the same people who were making imbecilic decisions when I left are still in charge!
Wesley - you need to take a look at industry numbers before stating that it is not in shambles. What do you base this off of? Handles are down, sales prices are down, mares bred are down (which may be OK in the long run), and I broke in the middle of this writing to take a call from a pal in AZ that reported that the last ATBA sale had a rough 60% buy back/no bid level. Is this what you call healthy?
Frank - what can I say? Am a very frustrated shareholder. Do I think that the stock is better than it appears - yes. Do I think Frank (who is partial to dirt tracks) capitulates at times - yes. Do I think that the CHRB is absolutely capricious in mandating synthetic tracks in CA before any investigation and due diligence - yes. Did Frank capitulate to keep racing dates - probably. One never knows how long it may be before we see the return of sandy loam (where DID it all go?) after finding that the kneejerk reaction to a surface`change by the CHRB was all for naught. Anyone checking on the mortality rates not being significantly different? Congrats to CA on being a great state that will no longer see the likes of great horses that will only run on dirt. If running on shredded trash was a good idea - I’m sure that Whittingham would have come up with it. decades ago.
Back to CA racing for a closing point - as I could go on forever. Let’s talk gambling. The industry that we dearly love is - in it’’s heart - gambling. I was one of the odballs way back when that thought that bringing the lottery to CA was a huge mistake. One of the reasons that the track had better numbers then was that the gamblers were there - not horse lovers, or handicappers, or horsemen. We had the gamblers captive. Once lotteries and racinos proliferated - the ponies were bound to lose. Many more than not wanted to gamble - not handicap.The fact that slots and lotteries are popular show that most gamblers do not enjoy the thinking process - which is what the game of handicapping is about. How sad is it that failing tracks get saved in some instances by slots? Many misunderstand the audience if they think that the fans of the horse.brought these tracks back. Check your coincidence meter.
OK - I’ll relinquish the soapbox for now, and appreciate the bandwidth for venting. First time here and the article struck a nerve - Thanks!
November 6th, 2008 at 12:34 pm
I am a first poster here (so dont flame me too bad)
I work at a company where people bet on video games and can make a living at it. Even if he is as terrible as some posters say the economic downturn hasnt helped anyone. I know our company has seen gaming customers decline over the last few months.
November 26th, 2008 at 5:33 pm
[...] least two institutional shareholders in MID, Farallon Capital Management and Greenlight Capital, have suggested possible legal action for breach of fiduciary responsibilty [...]
December 13th, 2008 at 8:00 pm
[...] demands from Einhorn come two weeks after a similar letter was written to the MI Developments board by a managing member of the Farallon…, threatening legal action and alleging breach of fiduciary [...]