Posts Tagged ‘laurel’

By Ray Paulick

Shares in Magna Entertainment (MECA), the debt-ridden racetrack operating company controlled by Frank Stronach, plunged by 56% in Tuesday’s trading on the NASDAQ exchange. Closing at $1.75 per share (down from $4.00) under extremely heavy trading (more than 30 times higher than the daily average), MECA was NASDAQ’s biggest percentage loser on a day when the Dow and NASDAQ each gained between 5%-6%. 

MECA stock has plummeted by 91% in the last 52 weeks, and its market capitalization has shriveled to less than $10 million.

Magna Entertainment has listed debt of $571 million. The company recently announced 30-day extensions on a loan maturity date from a Canadian bank and an $80-million bridge loan from its affiliated real estate company, MI Developments, that will be due Oct. 15 and Oct. 31, respectively, along with a $100-million payment due MI Developments Oct. 31. Major shareholders in MI Developments have fought extensions of the bridge loan and repayment. On Monday, John Barnett resigned from the board of MI Developments. The company’s CEO, John Simonetti, stepped down in August and was replaced by Dennis Mills, a longtime Stronach ally.

The current bank and credit crisis only heightens the gravity of Magna’s poor financial health.

Magna Entertainment operates, among other tracks, Santa Anita Park in Southern California, the site of the 2008 and ’09 Breeders’ Cup world championships. The Oak Tree Racing Association, a separate non-profit entity that leases the Santa Anita racetrack from Magna, is the organization with which Breeders’ Cup has contracted to host the championships. Any financial failings or potential bankruptcy by Magna Entertainment will not affect the Breeders’ Cup, according to Greg Avioli, president and CEO of Breeders’ Cup Ltd.

“Because of Oak Tree’s contractual structure, they are fully protected from any possible Magna bankruptcy in terms of their ability to operate the meet in their standard fashion,” Avioli said. “(Oak Tree Racing Association) is a separate legal entity. They have a lease on the facility, and that lease would be maintained.”

Avioli did say that the Breeders’ Cup developed contingency plans to move the championships to Hollywood Park, but not because of Magna’s financial situation. “We had contingencies in place in the event that there might be problems with the new track,” he said, in reference to the new Pro-Ride synthetic surface recently installed at Santa Anita. According to published reports, horsemen and jockeys generally seem satisfied that the new surface is safe and formful after one week of racing during the Oak Tree meeting.

The pending due dates on loans are not the only question marks concerning Magna Entertainment. A California judge ruled this week that a shopping mall development planned for a section of Santa Anita’s parking lot cannot go forward. In Maryland, where Magna owns Laurel and Pimlico racetracks, a referendum is coming up in November on slot machines.

“The stock only trades on option values,” one market analyst observed, “and the option value is declining because the potential options for the company are quickly disappearing.”

Copyright © 2008, The Paulick Report

Sign up for our Email Flashes to get the latest news, analysis and commentary from Ray Paulick

By Ray Paulick

While CNET founder Halsey Minor continues his efforts to purchase Hialeah Park from current owner John Brunetti, he also has contacted financially troubled Magna Entertainment about the possible sale of Santa Anita Park near Los Angeles and the company’s two Maryland Jockey Club tracks, Pimlico and Laurel. But after speaking with Magna’s chief financial officer, Blake Tohana, Minor doesn’t think Magna is a serious seller, despite recent comments by company chairman Frank Stronach during a conference call to discuss second quarter financial results.

“I had the most baffling conversation in my life with a CFO, particularly one whose job depends on asset sales,” Minor said in an email to the Paulick Report, which he also copied to Tohana. “Basically, nothing is for sale. Maybe they have some time shares for you. (Tohana) said Frank misspoke when he said he was considering selling a majority interest in Santa Anita. Now it is back to a minority interest.

“You can only buy (the Maryland tracks) if you have a gaming license. (Tohana) did not specify what that meant or why it was important. …  This is despite the fact that Magna is not guaranteed any slot franchises in the current legislation, and they would need to post a $50-million bond which they don’t have to get one. At the very least if he had been on his toes he should have asked to borrow the money.

“You need to call him and hear this for yourself,” Minor suggested. “You would think you were talking to the CFO of Microsoft sitting on a pile of cash, given the attitude. Self-effacing, Blake is not. Not a good quality in a salesman. Without an investment bank, nothing sells if my experience is any guide.”

Minor said Tohana had no idea who he was when he called (“which is odd because I am the only person in America acquiring tracks right now and they claim they are selling them”) and eventually hung up on him. “I will go on record as saying these assets are going to be sold by banks,” Minor continued. “Banks don’t necessarily have good bedside manners, either, but they have good prices.”

Tohana responded to Minor with a terse email of his own, which he also copied to the Paulick Report, saying that Minor had “misrepresented” their telephone conversation. “Further, your manner of communicating to me via email and telephone was inconsiderate, rude and misinformed,” Tohana wrote. “In doing my job, I have always carried myself with dignity and professionalism. I think that view would be shared by anyone who has dealt with me during my career.”

Tohana went on to say that MEC has sold more than $400 million in assets “without investment bankers,” adding, “We will continue to pursue other asset sales and joint venture transactions as we have previously publicly disclosed. However, I do not have to take your personal insults just because you purport to have an interest in Santa Anita Park and the Maryland Jockey Club.”

Tohana also seemed irritated that Minor had called him to discuss the possible sale of the tracks during a family vacation, a comment that seemed to heighten Minor’s disdain for Magna’s CFO.

“I find interesting that you are on vacation at all and that you feel so offended I have bothered you on your vacation,” Minor wrote Tohana in a follow-up email. “My company is not imploding and yet I am fully engaged working to clean up some of your mess while here in Hawaii (on a vacation) with my family.

“Blake, you are condescending and that is no way to be with a company whose market value is less than many of our farms, whose massive debt is unserviceable and where you work in the service of the company that has literally blighted our industry.

“Enjoy your vacation, Blake, because when you get back things will only have gotten worse, not better, and you pissed off a potentially valuable ally royally. And if you haven’t noticed, you didn’t have many to start with.

“I believe results in life speak volumes, and I believe this applies equally to my career as it does to your company. Neither failure or success is an accident. A quick check would reveal that I have created billions in value, even exceeding your leader’s car parts business, while your outfit has not only destroyed massive amounts of shareholder value, but possibly the Thoroughbred business with it.”

When reached by the Paulick Report, Tohana said Minor was not “respectful” during their conversation. Tohana said he was fully aware of who Minor was when he received a call from him. “I had heard of the guy,” Tohana said, “but I wasn’t happy with some of the things he has said about our chairman (Stronach).”

Tohana has been Magna Entertainment’s CFO for more than five years, outlasting many of the executives who have come and gone in a revolving door atmosphere. He joined the company in July 2003 after serving in a number of executive positions at Fireworks Entertainment, a Toronto, Canada-based concern that produces and distributes television programs and movies.

“I’m quite a reasonable person,” Tohana told the Paulick Report. “I’m pretty straight up. Look, it’s not a secret (that we’ve had a great deal of executive turnover). This company hasn’t performed very well.”

Tohana insists Magna is “continuing to sell” some properties but said Stronach’s comments about possibly selling a majority interest in Santa Anita were “misreported.” He also said there remains the possibility that MI Developments, the real estate operating company that holds a controlling interest in Magna Entertainment, could be reorganized to relieve the debt-ridden racetrack company’s financial pressures. MI Developments recently extended by one month a bridge loan in excess of $100-million owed by Magna Entertainment and due at the end of August. Dennis Mills, a former member of Canada’s parliament and one-time vice chairman of Magna Entertainment, was recently named interim CEO of MI Developments following the departure of John Simonetti.

In the meantime, Minor continues to work on a business and operating plan for Hialeah. He has had a second meeting with Brunetti in Del Mar, Calif., and said Brunetti is working with his team on developing a business plan. “That’s a tremendous benefit,” Minor said, “and it shows that John really wants to help get Hialeah reopened.” Minor said the architects he would use to renovate Hialeah Park have inspected the long-shuttered track to get a better estimate of what the price tag would be to return it to its former condition.

Copyright © 2008, The Paulick Report

Support the Paulick Report. Make a donation today.

Visit the Paulick Report for all the latest news throughout the racing world. 

Sign up for our Email Flashes to get the latest news, analysis and commentary from Ray Paulick