MEC Consultant: No Sacred Cows in Operations Review

A day after announcing new initiatives to reduce debt, Magna Entertainment Corp. hosted an earnings conference call Aug. 10 that was deemed by one financial analyst to be “irregular.”

With chairman and interim CEO Frank Stronach conspicuously absent from the proceedings, former MEC president and CEO Thomas Hodgson, who the company has brought in as a consultant to review operations, hosted the conference call.

One analyst, while saying he was glad Hodgson was back in some capacity with MEC, characterized it as “quite irregular” that a consultant was hosting a conference call instead of management.

“Just how is the company being managed at the current time?” he asked.

Hodgson noted Stronach was still chairman and interim CEO. Michael Neuman exited the company during the quarter (June 22) after about a four-month run as CEO.

“Clearly, the key message the company wanted to convey today, aside from delivering (financial) results, is the focus on the assets review and operations review,” Hodgson said. “And the thinking was that I could do that directly.”

When asked specifically where Stronach was, Hodgson said only: “He is away.”

In announcing second-quarter earnings Aug. 9, which detailed a loss of $23.4 million by the company during the period, MEC unveiled yet another plan of attack to reduce debt. Hodgson, now a senior partner with Greenbrook Capital Partners, was introduced as a hired gun of sorts to right the ship.

“There will be no half-measures, and there are no sacred cows,” Hodgson said. “No stone will be left unturned.”

Asked to interpret "sacred cows," Hodgson said that the review would be "very comprehensive" and "may include action with existing racetracks." He declined to elaborate further, saying it would be inappropriate.

With Hodgson at the helm as the CEO of MEC from early 2005 until his resignation in March 2006, the company stock price often traded in the $6-$7 range. The day he left the company, the stock was trading at $6.68; earlier this week it hit an all-time low closing of $1.72 (the stock closed Aug. 10 trading at $2.69, up 34.5% on the day for the fifth-highest percentage gain on the NASDAQ board).

Gulfstream Park in Florida was singled out by Hodgson as an underperformer, particularly in the slots arena. Average daily revenues per Gulfstream machine ranged from $70-$100 during the quarter, while two competing Broward County racinos posted averages from $169-$227, according to data compiled by the state.

“(The) recent performance of Gulfstream Park is not acceptable,” Hodgson said. “The daily slot operation, in terms of daily win per machine and current tax and purse regime, are unsustainable.

“MEC has made substantial capital investments in these facilities and has no realistic prospects of returning an acceptable return of investment in the current operating environment.”

Hodgson would provide no hard details of what the strategic review of company operations would entail.

“I wish we could do this today,” he said.

A report by Greenbrook Capital Partners is expected to be delivered to the MEC board in September, and another conference call will likely be held to discuss the findings, Hodgson said.

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