MI Developments Provides Facts to Counter Misleading Dissident Proxy Circular
April 20 2005 - 12:41PM
PR Newswire (US)
MI Developments Provides Facts to Counter Misleading Dissident
Proxy Circular AURORA, ON, April 20 /PRNewswire-FirstCall/ -- MI
Developments Inc. (TSX: MIM.SV.A, MIM.MV.B; NYSE: MIM) announced
today that its review of the dissident proxy circular filed by
Greenlight Capital, Inc. found no relevant new information or
analysis but a number of misleading statements and
mischaracterizations. To ensure shareholders have the facts prior
to the Company's Annual and Special meeting on May 4, 2005, when
they will vote on two dissident resolutions, MID today issued a
letter that will be mailed to all shareholders. The letter points
out some of the more significant misleading statements and
mischaracterizations in the dissident proxy circular. It also
contrasts the short-term financial engineering approach of
Greenlight with MID's established commitment to maximizing
long-term shareholder value. In addition, MID has highlighted some
of the more significant inconsistencies in Greenlight's most recent
arguments in support of its proposals. The letter also counters
Greenlight's unfounded claims about the process undertaken by the
Special Committee of independent directors in considering the
dissident resolutions. The full text of the letter to shareholders
is: April 20, 2005 To our Shareholders: As you are aware, at your
May 4 shareholders' meeting, in addition to the election of
directors and reappointment of auditors, you will consider two
resolutions submitted by Greenlight Capital, Inc., a hedge fund
manager based in New York City, that contemplate MID converting
into a REIT or other income-oriented investment vehicle and selling
or spinning off our interest in Magna Entertainment Corp. Late last
week, Greenlight filed a dissident proxy circular. We have
carefully reviewed the dissident circular and, despite its length,
it does not contain any relevant information or analysis that was
not previously provided to us by Greenlight in prior communications
and meetings. Your Board continues to believe that Greenlight's
proposals are not in your best interests and continues to recommend
that you vote AGAINST the Greenlight resolutions. GREENLIGHT'S
CIRCULAR IS MISLEADING -----------------------------------
Greenlight's dissident circular contains many misleading statements
and mischaracterizations, demonstrating the lengths to which
Greenlight is prepared to go in an attempt to obtain support for
their agenda. For example: - Greenlight states that the Special
Committee did not receive any "expert advice" in assessing the
Gulfstream and Meadows project financing provided by us to MEC
subsidiaries in December 2004 and that we treated that transaction
as "a fait accompli unworthy of exacting review by an independent
advisor". In fact, as Greenlight knows and as was clearly disclosed
in our press release and material change report dated December 9,
2004, the Special Committee conducted a detailed review of this
transaction over a three-month period and received expert
independent financial and legal advice from CIBC World Markets Inc.
and Goodmans LLP in analyzing this transaction and concluding that
it was in MID's best interests. MID management also received
financial and legal advice from BMO Nesbitt Burns Inc. and Davies
Ward Phillips & Vineberg LLP. - Greenlight's allegation of a
"history of dubious transactions between the companies" is
unfounded. The only financing that MID has provided to MEC or its
subsidiaries since our spin-off from Magna International has been
the Gulfstream and Meadows project financing. This transaction is
consistent with our stated real estate business strategy of
increasing cash flow from operations, net income and the value of
our real estate assets. - Greenlight's statement that MEC "is being
subsidized by MID at below market rates" is also without merit. The
project financing was structured on an arms' length basis with
appropriate security, consistent with the terms on which a
third-party lender would provide this financing, and provides us
with an attractive return of 10.5% compounded semi-annually once
the facilities are completed. - Greenlight would have you believe
that MEC has never been an integral part of MID and that the
separation of MEC from MID will "restore MID's exclusive focus" on
stable industrial and commercial properties. As Greenlight knows,
and as MID has consistently disclosed, since the time of our
spin-off from Magna International, MID has always been a real
estate company that holds a significant and strategic investment in
MEC "that will potentially provide us with the opportunity to
participate in co-developments or joint ventures should MEC pursue
additional development of excess lands around its racetracks or
undertake other commercial real estate developments, and will also
allow us to share in the future growth of MEC". Greenlight may want
MID to spin off or sell MEC, but it has no basis to allege that
MID's continued investment in MEC or participation in MEC-related
developments is contrary to the reasonable expectations of MID's
shareholders. - Greenlight states that our tax analysis with
respect to the impact of increased leverage is "suspect". The fact
of the matter is that Greenlight clearly does not understand our
tax position, which we find surprising as the strategies we use are
used by a number of Canadian multinationals. As a result of our
international tax planning strategies, given that the proceeds from
our C$265 million debt offering will be used outside Canada, no
material additional cash taxes will result from returns generated
from the investment of such proceeds. Further, we believe that
interest paid on additional leverage that we incur in the future
will be sufficient to shelter income earned on our Canadian real
estate portfolio. - While Greenlight's counsel indicated that
Greenlight was not inclined to meet with the legal and financial
advisors to the Special Committee unless members of the Special
Committee were also present, neither the Special Committee nor its
advisors ever suggested that Greenlight could not be present at the
meeting that took place on February 17, 2005 between Greenlight's
advisors and our advisors. Certain other misleading statements and
mischaracterizations in Greenlight's dissident circular are
highlighted below. GREENLIGHT LOOKING FOR A QUICK FIX
---------------------------------- It is clear that there is a
fundamental philosophical difference between your Board and
Greenlight. We have the responsibility as prudent managers of a
growth-oriented company to operate our business to "maximize the
return on our shareholders' equity over the long term." This
strategy was clearly laid out in our spin-off prospectus and is
quoted by Greenlight in their dissident circular. Greenlight's
focus on immediate market price impact makes it clear that they are
looking for short-term price appreciation through quick-fix
financial engineering. We recognize that there is a gap between our
share price and our net asset value (NAV), which results primarily
from the lack of leverage in our capital structure. The real issue
is timing and how the gap will be closed. Your Board's additional
recommendations will address this gap over a reasonable period by
increasing return on equity through increasing leverage to fund our
real estate business growth, increasing dividends, and repurchasing
our shares as appropriate opportunities arise. We have already
started down this path by issuing C$265 million of debentures in
December 2004. In addition, we have determined that the annual
dividend payable to shareholders for 2005 will be increased to
$0.60 per share, a 67% increase over the 2004 dividend of $0.36 per
share. Your Board's additional recommendations balance the goals of
increasing return on equity, managing our business prudently and
maintaining financial flexibility to pursue attractive growth
opportunities. IT IS NOT IN YOUR BEST INTERESTS FOR MID TO BECOME A
REIT --------------------------------------------------------- - A
REIT structure does not provide any material tax savings or other
benefits. As discussed above, we are already tax efficient and no
material tax savings or other benefits will be provided by a REIT
structure. Our current structure also provides permanent tax
savings and not deferrals as alleged by Greenlight. - The real
issue is leverage and cash distributions. Greenlight's underlying
goal for the REIT conversion is to turn MID into an income-oriented
investment vehicle and, either legally or through newly-created
market expectations, cause MID to increase leverage and cash
distributions. In the Board's view, given MID's real estate
operating characteristics and portfolio attributes, it is not in
your best interests or consistent with our articulated strategy for
MID to be subject to the legal or market constraints of a REIT
structure where there is no material incremental tax benefit from
such a structure. In addition, the Board concluded, and Greenlight
concedes, that a REIT structure is not required to increase
leverage and cash distributions, and your Board has made additional
recommendations that address these issues. - MID is valued
comparably with REITs on a trading multiple basis. In coming to
this conclusion, the Special Committee's financial advisor
identified what it believed in its professional judgment were
Canadian and US REITs that had operating and portfolio
characteristics that were most comparable to MID's characteristics
(although none have the international scope of MID). The US REITs
identified by CIBC World Markets included all five REITs that were
identified by Greenlight's financial advisor at the February 17
meeting. If Greenlight believed that the US "industrial REITs"
referred to in their dissident circular and that trade at
significantly higher multiples were appropriate comparables, they
should have included them in the list of comparables provided at
the February 17 meeting. We do not believe that, in any event, the
US "industrial REITs" referred to by Greenlight are appropriate
comparables today. It is also not typical to give credit for the
value of non-income producing assets in an FFO multiple analysis as
suggested by Greenlight; none of the Canadian analysts that follow
MID includes the value of these assets in its FFO analysis of MID.
IT IS NOT IN YOUR BEST INTERESTS TO SPIN-OFF OR SELL MEC AT THIS
TIME
---------------------------------------------------------------------
- Now is not the time to spin-off or sell MEC. Greenlight ignores
the impact of MEC's current financial situation on the value that
MID shareholders would receive on a spin-off or sale of MEC at this
time. Although we believe that MEC is poised for growth, it has
short-term liquidity and financial issues that we cannot ignore and
that impact the current value of our investment in MEC. These
issues make this an inopportune time to spin-off or sell MEC. Your
Board believes that if the steps that MEC is taking to address
these issues are successful, MID and its shareholders will realize
greater overall value from MID's investment in MEC. - A spin-off of
MEC without a substantial capital infusion would jeopardize value.
MEC will require substantial capital to fund its strategic plan. We
believe that a spin-off of MEC without a substantial capital
infusion would impair MEC's ability to successfully execute its
strategic plan and jeopardize the value that MID shareholders would
otherwise receive from MEC. Greenlight has acknowledged that a
capital infusion is necessary, but their financial analysis ignores
this obvious point and they have provided no analysis of how much
capital MEC would require, how those requirements would be funded,
or the impact of that funding on the value of MID's investment in
MEC. The Special Committee, with the assistance of its independent
financial advisor, did this analysis and concluded that MID should
not make a capital infusion into MEC of the magnitude required for
a spin-off at this time. Deferring any capitalization of MEC
provides MID with greater flexibility to determine whether, when
and how to invest in, or otherwise fund MEC. If MEC were able to
obtain third party funding on favourable terms, which it is
currently exploring, MID's future financing of MEC would be
significantly less than the capital infusion required to spin-off
MEC at this time. - We have assessed and will continue to assess
any investment or funding of MEC by looking at MID's best
interests. Your Board's recommendations do not, as alleged by
Greenlight, mean that MID should fund MEC in an "open ended" manner
or assume that "what is good for MEC must be good for MID". Rather,
your Board believes that it is in the interests of MID for MEC to
be given the opportunity to solve its current financial
difficulties and pursue third party financing alternatives, and
expressly recommended that MID should be prepared to consider
providing funds to MEC to address any short-term liquidity concerns
in order to minimize the possible adverse impact on MID's
investment in MEC of unfavourable third party financings that could
detract from the value of MID's investment in MEC. This does not
mean, as suggested by Greenlight, that the Board is recommending
that MID provide financing to MEC at "below market rates" or on
terms that are unfavourable to MID. Moreover, your Board
recommended steps for the maximization of the value of MID's
existing investment in MEC and ensuring appropriate returns to MID
on any additional investment in MEC by MID. Greenlight's allegation
that "the desire to stem value depletion in MEC seems to drive
MID's decision making (and that of the Special Committee) without
sufficient inquiry" as to expected returns from alternative
investments is also unfounded and ignores history. In reviewing the
project financing and determining that it was in MID's best
interests, the Special Committee discussed alternative transactions
through which the reconstruction of Gulfstream and The Meadows
might be financed. SPECIAL COMMITTEE PROCESS
------------------------- The Special Committee of independent
directors carefully analyzed and considered Greenlight's proposals
over a two-month period with the benefit of extensive advice from
its independent financial and legal advisors. The thorough
evaluation process followed by the Special Committee and your Board
in reviewing Greenlight's proposals is described in detail in the
Management Information Circular that was mailed to you. Despite the
independence of the Special Committee and the advice received from
its financial and legal advisors, Greenlight would have you believe
that the Special Committee members are incapable of exercising
independent judgment or fulfilling their fiduciary duties because
Mr. Stronach, as the controlling shareholder, has the ability to
remove them. This is absurd as it would mean that no director of
any publicly-listed company with a controlling shareholder is
independent or capable of fulfilling his or her fiduciary duties.
Greenlight's position is supported by neither common sense nor by
applicable corporate law. Your Board has demonstrated its
independence by adopting the additional recommendations disclosed
in the Management Information Circular and significantly increasing
the 2005 dividend, despite Mr. Stronach's reservations. WE ARE
COMMITTED TO ENHANCING SHAREHOLDER VALUE
----------------------------------------------- Although Greenlight
would like to take the credit for MID's performance, even they
cannot deny our record in creating shareholder value. Since our
spin-off from Magna International until the day prior to the
announcement of Greenlight's proposals, the total return to our
shareholders has outperformed all but one of our peers examined by
the Special Committee's financial advisors. We achieved a 59% total
return to shareholders over this period, more than twice the 26%
average for those peers. This was achieved through the operation
and growth of our business by MID management and your Board and
not, as Greenlight would have you believe, by their opposition to
the MEC privatization. The fact that MID determined not to proceed
with the MEC privatization meant only that MID and MEC maintained
the relationship that had existed since the time of MID's spin-off
from Magna International. It is well-known that Mr. Stronach has a
passion for horse racing. That interest is irrelevant to your
Board. The passion your Board shares with Mr. Stronach is his
passion for creating long-term shareholder value, as has been the
case with MID and with Magna International over the last 25 years.
Your Board intends to create value by balancing the goals of
increasing return on equity, managing our business prudently and
maintaining financial flexibility to pursue attractive growth
opportunities. VOTE AGAINST THE GREENLIGHT RESOLUTIONS
--------------------------------------- Your Board urges you NOT to
return any green proxy form to Greenlight. Even if you have sent a
green proxy form to Greenlight, you can change your vote. Please
vote your BLUE proxy form today AGAINST the Greenlight resolutions
and mail it using the enclosed postage-paid envelope, even if you
previously have signed and sent in one or more BLUE proxy forms.
Only your latest dated proxy form will be counted. We thank you for
your continued support. Yours truly, (signed) (signed) THE
HONOURABLE M. DOUGLAS YOUNG, P.C. JOHN D. SIMONETTI Lead Director
and Chair of the Chief Executive Officer Special Committee
-------------------------------------------------------------------------
Vote AGAINST the Greenlight Resolutions
--------------------------------------- 1. Regardless of how many
shares you own, please vote. Please sign, date and mail the
enclosed BLUE proxy form and return it to our agents by 5:00 p.m.
(Toronto time) on May 2, 2005. Please vote each BLUE proxy form you
receive since each account must be voted separately. Only your
latest dated proxy counts. 2. We urge you NOT to sign any green
proxy form sent to you by Greenlight Capital, not even as a
"message" or "pressure" vote. 3. Even if you have sent a green
proxy form to Greenlight Capital, you can change your vote. You may
revoke that proxy and vote as recommended by your Board of
Directors by signing, dating and mailing the enclosed BLUE proxy
form in the enclosed postage-paid envelope and returning it to our
agents by 5:00 p.m. (Toronto time) on May 2, 2005. If you have any
questions on how to vote your shares, please call our proxy
solicitor: MORROW & CO., INC. Individuals Call Toll Free:
1-800-607-0088 Banks and Brokers Call Toll Free: 1-800-654-2468
-------------------------------------------------------------------------
About MI Developments Inc. MI Developments is a real estate
operating company focusing primarily on the ownership, leasing,
management, acquisition and development of a predominantly
industrial rental portfolio for Magna International Inc. and its
subsidiaries in North America and Europe. The Company also holds a
controlling investment in Magna Entertainment Corp., North
America's number one owner and operator of horse racetracks, based
on revenue, and among the world's leading suppliers, via
simulcasting, of live horse racing content to the growing
inter-track, off-track and account wagering markets.
Forward-Looking Statements The contents of this press release may
contain "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Forward-looking statements may include, among
others, statements regarding MID's future plans, costs, objectives
or economic performance, or the assumptions underlying any of the
foregoing. In this press release we use words such as "will",
"expect", "should" and similar words to identify forward-looking
statements. Forward- looking statements should not be read as
guarantees of future performance or results, and will not
necessarily be accurate indications of whether or the times at or
by which such future performance will be achieved. Forward-looking
statements are based on information available at the time and/or
management's good faith belief with respect to future events and
are subject to known and unknown risks, uncertainties and other
unpredictable factors, many of which are beyond MID's control, that
could cause actual results to differ materially from such
forward-looking statements. Such risks, uncertainties and other
factors are set forth under "Risk Factors" in MID's Annual
Information Form for 2004, attached as Exhibit 1 to MID's Annual
Report on Form 40-F for the year ended December 31, 2004. MID
expressly disclaims any intention and undertakes no obligation to
update or revise any forward-looking statements to reflect
subsequent information, events or circumstances or otherwise.
DATASOURCE: MI Developments Inc. CONTACT: Investors: John
Simonetti, Chief Executive Officer, MI Developments Inc., (905)
726-7619; Media: John Lute, Lute & Company, (416) 929-5883
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