The proposal, which was announced March 31, is a complex, three-way deal that also includes auto parts giant Magna International, involves MID transferring $150 million in cash, $247 million worth of loans owed by MEC, and certain real estate worth an estimated $50 million to a new company controlled in a 59% majority by Stronach.
Stronach would also pay $25 million to MID, which is a real estate arm of Magna International, and own 10% of a new MID-type entity. Magna International, of which Stronach is also chairman, would also control 10% of the new real estate company, with the 80% balance spread out among existing shareholders.
MID said May 30 that a special committee of the company’s board of directors has been formed to review the reorganization proposal. The proposal requires a two-thirds majority for approval from shareholders.
It is believed that two of MID’s largest independent shareholders may have the power to block the deal. Hotchkis & Wiley Capital Management and Greenlight Capital Inc., which each hold more than 10% of MID Class A shares, have said they would vote against the proposed deal.
Under conditions of the proposal, it is believed the two investment firms, because of their holdings, can block the deal in its current form if they exercise their respective dissent rights.
Greenlight Capital in particular has called the proposal “coercive,” and said that it would result in an "outrageous payoff" to Stronach.
MID claims that more than 50% of its shareholders are in support of the proposal. According to filings with the U.S. Securities and Exchange Commission, the proposal is supported by large shareholders such as Mackenzie Financial Corp., which owns 19.8% of Class A shares, Donald Smith & Co., which owns 10.2%, and Farallon Capital Management, which owns with 7.3%.
MEC owns or operates 11 racetracks, some of which are listed for sale as part of a debt-reducing plan announced last August. MEC has lost more than $520 million since 2002.
The maturity date of a $40-million loan with the Bank of Montreal was recently extended to July 30. The loan, which has now been extended four times this year, is secured by assets associated with Golden Gate Fields and Santa Anita Park, which are not listed for sale by MEC.