Magna Entertainment's buying spree is over for the time being. The Ontario-based racing conglomerate has shifted its focus toward making the 10 racetracks it owns and manages more efficient and profitable.
"The financial markets are choppy, issues of corporate governance are paramount, and we need to slow investment and capital spending while we focus on the opportunities provided by our present portfolio of businesses," said Jim McAlpine, Magna's president and chief executive officer. "We need to take the time to execute our detailed business plans at each racetrack and business unit in the MEC family. These plans are sound and the people responsible are competent and committed."
Since Dec. 1998, Magna has spent $381 million in cash and stock to acquire seven Thoroughbred tracks, a Greyhound track, a harness track, an OTB network, a Pennsylvania telephone account wagering service, and interest in television racetrack network. The company also owns the operating rights to Portland Meadows in Oregon. Earlier this year, Magna reached agreements valued at $263 million to acquire Flamboro Downs in Ontario, Lone Star Park near Dallas, and a 51% interest in the Maryland Jockey Club, which operates Pimlico Race Course and Laurel Park. The value of the pending acquisitions includes the assumption of debt.
Besides stepping away from new acquisitions, Magna has also shelved temporarily the redevelopment of Gulfstream Park into an entertainment and retail complex. The company had planned to begin tearing down a portion of the Hallandale, Fla., racetrack grandstand soon after this year's meet ended and had acquired 24-hour work permits from the city and county. Now Magna is shifting its focus to a $65 million to $69 million training center called Palm Meadows, which is 40 minutes to the north of Gulfstream near Boynton Beach.
"At the same time, Gulfstream's management is focusing on preparing the existing facility to run a first class winter meet commencing in January 2003," McAlpine said. "We have learned some important lessons following our experiences in 2002 and we are determined to ensure our racing an wagering customers and our horse owners and trainers that we are serious about meeting their current needs."
A shortage of 1,200 stalls due to the closing of Hialeah Park was a major reason Gulfstream had a disappointing meet this winter. For the first 63 days of the meet, average on-track handle fell 18% and the average out-of-state handle and total handle each fell 13.5% compared with the same period of 2001.
The pending deal to acquire a majority interest in the Maryland Jockey Club also contributed to the decision to delay the Gulfstream Park project.
"There is no question that capital need to be expended at both Laurel and Pimlico," McAlpine said. "One of things that entered into our decision with respect to our overall capital allocations was the acquisition of those two racetracks. So clearly, because we have deferred a decision on Gulfstream for the time being that does provide more flexibility to address the needs of Maryland."
Magna's decision to take a breather from expansion coincided with the release of disappointing second quarter results. Analysts had estimated earnings of 3 cents per share for the quarter ending June 30 and the company reported earning 1 cent per share. McAlpine blamed the shortfall on a $600,000 write-off related to a purse overpayment at Remington Park, $1.8 million in increased utility and insurance costs, and a generally poor performances at the company smaller tracks.
CIBC World Markets lowered its earnings per share estimates to 12 cents per share for 2002 and 17 cents per share for 2003. CIBC analysts also lowered its rating on Magna from 'buy' to 'hold'.
Since announcing its Maryland acquistion, Magna stock hit a new 52-week low of $4.20. The stock did rise to $5.55 prior to the release of second quarter numbers on Wednesday night, then fell 8% to $5.05 by the end of trading Thursday.