Plan includes spin-off of MEC to MID shareholders, increased
dividend payout ratio, substantial stock buyback and MEC
forbearance AURORA, ON, Nov. 26 /PRNewswire-FirstCall/ -- MI
Developments Inc. (MID) (TSX: MIM.A, MIM.B; NYSE: MIM) today
announced that its Special Committee of independent directors has
recommended, and the Board of Directors has approved, holding a
vote of MID shareholders on a reorganization proposal developed by
MID management. The reorganization proposal is intended to unlock
value for MID shareholders, simplify the ownership structure of MID
and Magna Entertainment Corp. (MEC), and position both companies
for future success. MEC will be recapitalized to permit it to
pursue its strategy of horse racing, gaming and entertainment on a
standalone basis. MID, MEC and the Stronach Trust, MID's
controlling shareholder, and other entities affiliated with Frank
Stronach (the Stronach Group), have entered into an agreement to
implement the reorganization proposal. All dollar references in
this press release are to U.S. dollars. Dennis Mills, MID's
Vice-Chairman and Chief Executive Officer, commented, "We believe
that this reorganization proposal will deliver significant value to
shareholders and better align the interests of all MID
shareholders. The proposal achieves many of the objectives
identified by MID Class A shareholders, including: a spin-off of
MEC, an increased dividend, a substantial stock buyback and a
forbearance agreement restricting future transactions with MEC. I
am optimistic that shareholders will see the merits of this
reorganization and that, with their support, MID and MEC will move
forward as separate companies focused on executing their respective
strategic initiatives and business plans." The reorganization
proposal contemplates a three stage transaction that, upon
completion, will result in, among other things: (i) the divestment
and spin-off of MID's ownership position in MEC to MID
shareholders, with the Stronach Group purchasing direct voting
control of MEC; (ii) the adoption by MID of a dividend payout ratio
of 40% of annual funds from operations; (iii) a substantial issuer
bid by MID to buy back at least $240 million of MID Class A shares;
(iv) a forbearance agreement between MID and MEC; and (v) the
Stronach Group purchasing a 5% equity interest in MID, with
warrants to acquire an additional 5%. The principal components of
the proposal include: Immediate Transactions
----------------------- - MEC agreeing to use commercially
reasonable efforts to sell or enter into joint ventures in respect
of its assets, including its core racetrack assets; - MID making
available to MEC a new loan to (i) fund its operations until MID
shareholders have the opportunity to vote on the reorganization
proposal and (ii) provide financing for MEC's application for a
Maryland slots license and, provided that such license is awarded,
construction of the temporary slots facility; - MID extending the
maturity dates and repayment deadlines under its existing loans to
MEC; and - MID using commercially reasonable efforts to increase
its leverage by arranging new debt financing to fund an MID stock
buyback and real estate purchases from MEC. Following MID
Shareholder Approval ----------------------------------- - MID
implementing a forbearance agreement that prohibits new
transactions with MEC unless such transactions are approved by a
majority of the minority MID Class A shareholders; - MID adopting a
policy of distributing 40% of its annual funds from operations as
dividends; - MID undertaking a substantial issuer bid to buy back
at least $240 million of MID Class A Shares; - MID purchasing from
MEC specified real estate assets in Florida and California at their
fair market value; - MID increasing the commitment under the new
loan to MEC, extending maturity dates and repayment deadlines for
existing MEC indebtedness owed to MID and amending the terms of all
indebtedness owed to MID (other than the Laurel Park portion of the
new loan) to defer interest and principal until maturity or
repayment and allow MEC to repay such indebtedness, at its option,
either in cash or MEC Class A Shares (or a combination of the two)
following the retirement by MEC of all of its existing convertible
subordinated notes; and - the Stronach Group purchasing additional
MID equity. Following Retirement by MEC of its Existing Convertible
Subordinated
---------------------------------------------------------------------
Notes ------ - The Stronach Group purchasing MEC shares from MID
and MEC to give it up to a 60% voting interest in MEC; and - MEC
repaying all indebtedness owed to MID (other than the new Laurel
Park funding) at MEC's option either in cash or MEC Class A Shares
(or a combination of the two), and MID distributing all such cash
and MEC Class A Shares to its shareholders. Certain of the
transactions associated with the reorganization proposal would be
effected pursuant to a statutory plan of arrangement and would be
subject to approval by MID's shareholders and the Ontario Superior
Court of Justice. MID expects to hold the special meeting of its
shareholders to consider the proposal in the first quarter of 2009.
Additional Detail on the Reorganization Proposal
------------------------------------------------- Immediate
Transactions ----------------------- MEC Asset Sales and Joint
Ventures ----------------------------------- MEC will agree to use
commercially reasonable efforts to sell or enter into joint
ventures in respect of its assets, including its core racetrack
assets, that will result in MEC receiving net proceeds or joint
venture payments sufficient to retire in full by no later than
December 14, 2009, its existing $75 million 7.25% convertible
subordinated notes due December 15, 2009 and $150 million 8.55%
convertible subordinated notes due June 15, 2010 (collectively, the
"MEC convertible subordinated notes"). New Loan by MID
---------------- MID will make available to MEC a new loan in two
tranches. The new loan will bear interest at the rate of LIBOR plus
12%, will be guaranteed by certain subsidiaries of MEC and will be
secured by substantially all the assets of MEC (subject to prior
encumbrances). The first tranche of the new loan in the amount of
up to $50 million (plus costs and fees) will be immediately
available for drawdown and is intended to support MEC's operations
until MID shareholders have the opportunity to vote on the
reorganization proposal. The first tranche of the new loan may be
used by MEC solely to fund (i) operations, (ii) payments of
principal or interest and other costs under the new loan and under
other loans provided by MID to MEC, (iii) mandatory payments of
interest in connection with other of MEC's existing debt, (iv)
maintenance capital expenditures and (v) capital expenditures
required pursuant to the terms of MEC's joint venture arrangements
with Forest City Enterprises and Caruso Affiliated. The first
tranche will mature on March 31, 2009. However, in the event that
the reorganization proposal does not receive the requisite MID
shareholder approval or is abandoned or withdrawn, the maturity
date will be accelerated to thirty days following such event. The
second tranche of the new loan will be available for drawdown: (i)
in an amount of up to $45 million to fund the application by MEC's
subsidiary Laurel Park for a Maryland slots license, following
MID's satisfaction with the slots license application, and related
matters; and (ii) in an amount of up to an additional $30 million
to fund the construction of the temporary slots facility at Laurel
Park, following receipt of the Maryland slots license and following
MID's satisfaction with the municipal approvals, design and
construction of the temporary facility. At such time as the second
tranche is made available to MEC, the new loan will be guaranteed
by The Maryland Jockey Club group of companies and secured by all
of such companies' assets. The second tranche matures on December
31, 2011, but will become due (i) ninety days following the Laurel
Park slots application being denied or withdrawn, (ii) immediately
on the closing of any sale of Laurel Park or (iii) immediately on
the closing of any new debt financing in connection with Laurel
Park slots. MEC will be required to repay the second tranche with
any refunds of any fees if the Laurel Park slots application is
denied or withdrawn. Loan Repayment Extensions
-------------------------- The maturity dates and repayment
deadlines under all existing MEC indebtedness owed to MID
(comprised of the bridge loan and the Gulfstream Park and Remington
Park project financings) will be extended through to March 31,
2009. In the event that the reorganization proposal does not
receive the requisite MID shareholder approval or is abandoned or
withdrawn, the maturity dates and repayment deadlines will be
accelerated to thirty days following such event. New MID Debt
Financing ----------------------- MID will use commercially
reasonable efforts to arrange approximately $375 million of debt
financing (including a $50 million undrawn bank revolving credit
facility) that will be available to fund (i) an MID substantial
issuer bid for its Class A Shares, (ii) real estate purchases from
MEC and (iii) working capital requirements. MID intends to have
arranged the new financing prior to the special meeting of
shareholders. This new debt would increase MID's pro forma
debt-to-capitalization ratio (taking into account the MEC spin-off
described below and the substantial issuer bid) to, but not above,
approximately 40%. Following MID Shareholder Approval
----------------------------------- MID Real Estate Purchases
-------------------------- MID will purchase for cash from MEC
development lands in Aventura and Ocala, Florida and Dixon,
California, additional acreage in Palm Meadows, Florida (required
to complete MID's existing recently rezoned development) and MEC's
membership interest in, and land underlying, MEC's joint venture
with Forest City Enterprises at Gulfstream Park. The purchase price
for such real estate assets will be the fair market value of such
assets as of the date hereof as determined by negotiation between
the Special Committees of MID and MEC. MID estimates the aggregate
price will be approximately $100 - $120 million. MEC will use part
of the proceeds from the asset sales to MID to repay its $40
million senior secured bank credit facility and its $4.5 million
bank term loan in connection with MEC's AmTote International
subsidiary. MID Loans to MEC ----------------- MID will: i. extend
the maturity date of the bridge loan, the first tranche of the new
loan described above and the $100 million repayment deadline under
the Gulfstream Park project financing to December 14, 2009; ii.
increase the amount of the first tranche of the new loan by $25
million to a total commitment of up to $75 million for use by MEC
solely to contribute to the retirement of the MEC convertible
subordinated notes; and iii. amend all loans between MID and MEC
(other than the Laurel Park tranche of the new loan) to provide for
(a) the deferral of interest and principal repayments until
maturity or repayment, (b) the right of MEC to repay such loans in
either cash or MEC Class A Shares (or a combination of the two)
following the retirement by MEC of all of the MEC convertible
subordinated notes and (c) the requirement that any proceeds
received by MEC from equity raises, asset sales (other than to MID
as part of the reorganization), joint ventures or other
transactions be placed into an escrow account with MID. MID will
hold the escrow funds as security for the loans to MEC, and MEC
will be permitted to use the funds in the escrow solely (i) to
prepay in cash, from time to time, in the following order of
priority, the Gulfstream Park project financing, the bridge loan,
the new loan and the Remington Park project financing (without
being charged any mark-to-market or make-whole payment in relation
to any such prepayment) and (ii) to retire all of the MEC
convertible subordinated notes. Any cash received by MID pursuant
to a prepayment of the Gulfstream Park project financing, the
bridge loan, the new loan or the Remington Park project financing
will be distributed to MID shareholders, either as a special
distribution or pursuant to an issuer bid for MID Class A Shares.
MID Forbearance with MEC ------------------------- MID will agree
that, other than pursuant to existing arrangements or as
contemplated by the reorganization proposal, it will not, without
the prior approval of the majority of the votes cast by minority
holders of MID Class A Shares, (a) enter the horseracing or gaming
business or enter into any transactions with entities in the
horseracing or gaming business, (b) make any further debt or equity
investment in, or otherwise give financial assistance to, MEC or
(c) enter into any transactions with, or provide any services or
personnel to, MEC except for enforcing its rights under the terms
of existing arrangements and/or making non-material amendments,
waivers or modifications thereto. Distribution Policy and
Substantial Issuer Bid
----------------------------------------------- MID will adopt a
policy of distributing 40% of its annual funds from operations
(adjusted to exclude deferred interest and other income from MEC)
to MID shareholders as dividends. The policy will commence in the
first full fiscal quarter following the approval of the
reorganization proposal. MID will undertake a substantial issuer
bid to acquire not less than $240 million of MID Class A Shares
using new debt that does not result in MID's debt to total capital
ratio exceeding 40% (taking into account the MEC spin-off described
below). The Stronach Group will not tender its shares into the bid.
If the new debt necessary to fund the substantial issuer bid is not
available, or not available on terms acceptable to MID, MID will
proceed with the substantial issuer bid for a lesser amount and
will proceed with one or more subsequent substantial issuer bids
and/or normal course issuer bids as soon as such new debt becomes
available on acceptable terms, so that the total amount expended by
MID to acquire MID Class A Shares is not less than $240 million.
Stronach Group Purchase of Additional MID Equity
------------------------------------------------- The Stronach
Group will purchase from MID approximately 2.5 million units, being
equal to 5% of the outstanding number of MID Class A and B Shares
as at, and after taking into account the impact of, the closing of
the reorganization proposal. Each unit will be comprised of (a) one
MID Class A Share and (b) one three-year warrant to purchase an MID
Class A Share. The purchase price for the units will be equal to
$8.37 per unit, being the volume-weighted average price of the MID
Class A Shares on the New York Stock Exchange for the immediately
preceding five trading days (herein referred to as the MID unit
purchase price). The exercise price for the warrants will be
$10.46, representing a 25% premium to the MID unit purchase price
(and without any adjustment for the spin-off of the MEC shares
described further below). Following Retirement of the MEC
Convertible Subordinated Notes
---------------------------------------------------------------
Existing MEC Class B Shares Held by MID
---------------------------------------- On the date on which MEC
has retired all of the MEC convertible subordinated notes, MID will
sell to the Stronach Group 335,000 MEC Class B Shares at a price of
$1.3552 per share, representing the volume-weighted average price
of the MEC Class A Shares on NASDAQ for the five trading days
immediately preceding this press release. MID will then convert its
remaining MEC Class B Shares into MEC Class A Shares on a
one-for-one basis and will dispose of all its existing MEC Class A
Shares and those received on the conversion noted above to
non-related third parties. Conversion of MID Debt and Spin-off of
MEC ------------------------------------------- On the date that is
45 days following MEC's retirement of all of the MEC convertible
subordinated notes, all indebtedness (including deferred interest)
owed by MEC to MID (other than the Laurel Park portion of the new
loan) that has not been repaid in cash will be converted into MEC
Class A Shares. The conversion price for the loans will be $1.1519
per share, being the volume-weighted average price of the MEC Class
A Shares on NASDAQ for the immediately preceding five trading days
less a 15% discount (referred to herein as the Loan Conversion
Price). As soon as reasonably practicable thereafter, MID will spin
off to holders of MID shares (including the Stronach Group on all
its MID shares) on a pro rata basis all the MEC Class A Shares
received on conversion of the loans. MID will attempt to structure
the spin-off as a return of capital. Issuance of Shares to the
Stronach Group by MEC
------------------------------------------------ MEC will issue to
the Stronach Group at a price per share equal to the Loan
Conversion Price (i) $30 million of MEC Class B Shares and (ii) at
the option of the Stronach Group, an additional number of MEC Class
B Shares that, together with the MEC Class B Shares sold to the
Stronach Group by MID and those acquired from MEC, will represent a
pro forma 60% voting interest in MEC. Reorganization Proposal
Process and Timing ------------------------------------------- The
Board of Directors of MID determined that shareholders should be
provided an opportunity to vote on the reorganization proposal
after considering, among other things, recommendations from a
Special Committee of independent directors of MID comprised of
Franz Deutsch, who acted as Chairman, Manfred Jakszus and Senator
Rod Zimmer. Each of the Special Committee and MID received
financial and legal advice. MID has retained GMP Securities L.P. as
its financial advisor. Certain aspects of the reorganization
proposal will be effected pursuant to a statutory plan of
arrangement that will be subject to approval by the Ontario
Superior Court of Justice. Following receipt of all necessary
regulatory approvals, MID will mail an information circular
describing the reorganization proposal to its shareholders in
connection with the special meeting. The reorganization proposal,
other than the immediate transactions, is subject to certain
conditions, including approval by two-thirds of the votes cast by
holders of MID Class A Shares and MID Class B Shares, voting
together, and by a simple majority of the votes cast by minority
holders of MID Class A Shares. MID expects to hold the special
meeting of its shareholders to consider the proposal in the first
quarter of 2009. For more details on the reorganization proposal,
please review the proposal term sheet, which will be posted on
MID's website at http://www.midevelopments.com/. Additional details
of the reorganization proposal will also be set out in MID's
material change report that will be filed with securities
regulatory authorities on SEDAR at http://www.sedar.com/ and on the
SEC's website at http://www.sec.gov/. MID cautions shareholders and
others considering trading in securities of MID that the
reorganization proposal is subject to certain material conditions,
some of which are beyond MID's control, and there can be no
assurance that the transactions contemplated by the proposal, or
any other transaction, will be completed. About MID MID 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. MID also acquires land
that it intends to develop for mixed-use and residential projects.
MID holds a controlling interest in MEC, North America's number one
owner and operator of horse racetracks, based on revenue, and one
of the world's leading suppliers, via simulcasting, of live horse
racing content to the growing intertrack, off-track and account
wagering markets. Forward-Looking Statements This press release
contains "forward-looking statements" within the meaning of
applicable securities legislation. Forward-looking statements may
include, among others, statements relating to the reorganization
proposal and the terms and conditions of such proposal. Words such
as "may", "would", "could", "will", "likely", "expect",
"anticipate", "believe", "intend", "plan", "forecast", "project",
"estimate" and similar expressions are used to identify
forward-looking statements. Forward-looking statements should not
be read as guarantees of future events or results and will not
necessarily be accurate indications of whether or the times at or
by which such future events or results will be achieved. Undue
reliance should not be placed on such statements. Forward-looking
statements are based on information available at the time and/or
management's good faith assumptions and analyses, and are subject
to known and unknown risks, uncertainties and other unpredictable
factors, many of which are beyond the Company's control, that could
cause actual events or results to differ materially from such
forward-looking statements. Important factors that could cause such
differences include, but are not limited to, the risks that: the
parties will not proceed with the reorganization proposal; if the
parties decide to proceed with a transaction, the terms of such
transaction may differ from those that are currently contemplated
by the reorganization proposal; if the parties decide to proceed
with a transaction, such transaction may not be successfully
completed for any reason (including the failure to obtain any
required approvals); and are set forth in the "Risk Factors"
section in MID's Annual Information Form for 2007, filed on SEDAR
at http://www.sedar.com/ and attached as Exhibit 1 to MID's Annual
Report on Form 40-F for the year ended December 31, 2007, which
investors are strongly advised to review. The "Risk Factors"
section also contains information about the material factors or
assumptions underlying such forward-looking statements.
Forward-looking statements speak only as of the date the statements
were made and unless otherwise required by applicable securities
laws, MID expressly disclaims any intention and undertakes no
obligation to update or revise any forward-looking statements
contained in this press release to reflect subsequent information,
events or circumstances or otherwise. This press release shall not
constitute an offer to sell or the solicitation of an offer to buy
nor shall there be any sale of any securities in any jurisdiction
in which such offer, solicitation or sale would be unlawful.
DATASOURCE: MI Developments Inc. CONTACT: Shareholders and
Analysts: GMP Securities L.P., Eugene McBurney, Harris Fricker,
(416) 367-8600; Media: Sard Verbinnen & Co., Paul Caminiti, Dan
Gagnier, Lauren Rosenfield, (212) 687-8080
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