Greenlight Capital Objects to Outrageous Multi-Hundred Million Dollar Payoff to Frank Stronach and Coercive Proposal to Reorgani
April 02 2008 - 8:45AM
PR Newswire (US)
NEW YORK, April 2, 2008 /PRNewswire/ -- Greenlight Capital is
vehemently opposed to the proposed reorganization of MI
Developments Inc. (NYSE:MIM) that was announced on Monday (the
"Proposal"). Greenlight has been a major shareholder of MI
Developments ("MID") since its spin-off in August 2003, holding
more than 10% of the outstanding shares. Since the spin-off, MID
has failed to execute a business plan to create value for
shareholders over any reasonable time frame. Instead, Frank
Stronach and his hand-picked board of directors (the "Board") have
continued to pour MID money into the failing horse racing business
and refused to implement the Board's own proposals for long-term
shareholder value-creation. MID has depressed its own share price
by implementing value-destroying actions. Now, Mr. Stronach and MID
have effectively put a gun-to-the-head of MID shareholders and
claim to have indications of support of institutional shareholders
holding more than 50% of MID's Class A shares for the Proposal
which includes an outrageous payoff to make Mr. Stronach stop his
coercive tactics. Under the Proposal, Mr. Stronach will receive 10%
of the stock of reorganized MID for free. MID will give up another
10% of the stock of reorganized MID to Magna International
("Magna"). In addition, MID will sell its controlling interest in
Magna Entertainment Corp. ("MEC") for $25 million to Mr. Stronach.
For the payment of an additional $25 million, Mr. Stronach will
receive a 51% direct interest (and an additional 4.9% indirect
interest) in a new partnership ("the LP") that will hold
approximately $247 million of debt owed by MEC to MID, plus MID's
development lands in Aurora, Ontario (valued at $50 million), plus
$150 million of cash contributed by MID. So, in exchange for $25
million, Mr. Stronach will receive interests with an initial value
of over $225 million plus 10% of reorganized MID. Overall, this
transaction will result in a permanent value reduction to the
existing MID shareholders of at least $10 per share (compared to
what MID is worth if it acted in its shareholders' interests) and
has the potential for likely additional value destruction (a) of up
to $5 per share stemming from the LP, through which Mr. Stronach is
effectively receiving the ability to fund MEC as he wishes, (b)
from the damage to MID from the new "Leasing Framework" that will
be used to re-negotiate the leases between MID and Magna, and (c)
from Proposal fees and other transaction adjustments that will be
detailed in the final documentation. Greenlight opposes making such
an outrageous payoff to Mr. Stronach in order to permit MID to act
in its own best interest without his further interference. "Mr.
Stronach's proposal includes implementing many of the Board
recommendations from 2005 and implicitly acknowledges that the
solutions Greenlight suggested, including disposing of MEC,
returning excess capital to shareholders, and operating a focused
real estate investment vehicle, are optimal for MID. However, MID
only seems to be willing to implement these solutions if they are
accompanied by an outrageous multi-hundred million dollar payoff to
Mr. Stronach," said David Einhorn, President of Greenlight Capital.
MID has a long history of self-dealing under Mr. Stronach. In 2004,
MID proposed acquiring the remainder of MEC. In response to
lawsuits, vigorous shareholder disapproval and dissent within its
own management, MID withdrew the proposed privatization. Since that
time, MID has funneled $250 million to support its failing
investment in MEC. In May 2005, Greenlight proposed that MID divest
itself of its interest in MEC. The overwhelming number of MID's
public shareholders (92% of the publicly-held Class A shares that
were voted) agreed with Greenlight. Mr. Stronach defeated the
proposal through his super-voting shares. While recommending
against Greenlight's 2005 proposals, the Board proposed its own
plan for increasing shareholder value. The Board's proposals
included steadily increasing MID's financial leverage, regularly
increasing dividends, opportunistically repurchasing MID shares and
rationalizing MID's relationship with MEC. The Board's proposals
were nothing more than lip service. Since adopting it, MID has
failed to implement its own plan. MID has failed to increase its
financial leverage, other than to advance additional funding to
MEC. MID has failed to increase its dividend even once. MID has
failed to win new business from Magna or pursue any other
real-estate strategy with third parties. In Mr. Stronach's
affidavit in a legal proceeding brought by Greenlight designed to
remedy Mr. Stronach's and MID's oppressive behavior, Mr. Stronach
threatened that Magna might withhold doing additional business with
MID because Greenlight and other MID shareholders had pressed for
change. Mr. Stronach stated: "Based on my extensive knowledge of
Magna and its business managers, if MID changes as Greenlight would
have it do, it is my expectation that they would not continue to
deal with MID or certainly to do so on a much reduced scale. That
is not something I am causing or would cause. It is not something I
could prevent and stay true to the principles and philosophy that
have made Magna the success that it is." Even though MID did not
implement Greenlight's proposed changes, Magna has retaliated, just
as Mr. Stronach threatened in his affidavit. But now, as long as
Mr. Stronach receives a payoff, there's a promise of a strong
working relationship between MID and Magna. In Monday's press
release, MID's CEO, John Simonetti noted, "Over the last three
years, disagreements with certain of MID's shareholders have
impacted our relationship with Magna International and, as a
result, impaired our ability to grow our core real estate
business." It has never been explained and there is no reasonable
explanation as to why separating MID from MEC should impact MID's
relationship with Magna, except for Mr. Stronach's threatened and
implemented retaliation. Rather than engage in a value destroying
transaction, the Board can and should simply implement the steps
that create value on its own. If it were inclined to do the right
thing, the Board could return MID's excess capital to shareholders,
increase annual distributions and dispose of MEC, without a
shareholder vote and even over Mr. Stronach's objection. Clearly
the Board can implement these steps in a more commercially
reasonable manner without surrendering to Mr. Stronach hundreds of
millions of dollars of value. The independent committee of MID
directors evaluating the Proposal should approach third parties
about acquiring control of MEC. The reason for MID's value
destruction and the Board's inaction over the past few years is now
obvious: Mr. Stronach has been trying to either extract a large
payoff or make MID vulnerable to a discounted coercive "going
private" transaction by Mr. Stronach or one of his affiliates. If
MID shareholders don't go along with the unfair reorganization,
then Mr. Stronach or another Stronach controlled entity will either
attempt to buy MID at an artificially low valuation or sacrifice
MID's remaining value in an ongoing charade of propping-up MEC,
while at the same time directing Magna to withhold new business for
MID. MID's own press release makes it clear that consummating the
reorganization will "offer a new opportunity to re-establish a
strong working relationship with Magna International." The threat
is very clear: If the deal is approved, and Stronach is paid, then
the oppression and intentional destruction of shareholder value
will stop. If Greenlight and other shareholders do not agree to an
outrageous payoff for Mr. Stronach, there will be no meaningful
return of capital to shareholders, no change in MID's dividend
policy, the embargo on new business from Magna will continue, as
will the ongoing funding of MEC at all costs. This is a very
coercive transaction. Greenlight intends to vote all of its shares
against the proposed reorganization as it currently stands, and
urges all other MID shareholders to vote against the proposed
reorganization. DATASOURCE: Greenlight Capital CONTACT: Steve
Bruce, Mary Beth Grover, or Monica Everett, all of Abernathy
MacGregor for Greenlight Capital, +1-212-371-5999
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