'Groundhog Day:' MEC Losses Mount
With one analyst tagging the proceedings "Groundhog Day," Magna Entertainment Corp. announced Feb. 29 more losses during a short, testy conference call that discussed year-end financials for 2007.
MEC reported it lost $113.8 million in 2007, with $43 million of that coming in the fourth quarter alone, and said it was struggling in the United States' current economy to complete a debt-elimination plan announced last year.
“No one can be happy with our performance in fourth quarter 2007 or the year as a whole,” said Frank Stronach, founder, chairman, and interim chief executive officer of MEC, in his opening remarks.
During a 15-minute question-and-answer period that featured callers being cut off from follow-up comments, an analyst expressed in a self-described “rant” his disappointment with the performance of the company.
“I really think you guys ought to go back and listen to about the last seven to eight conference calls, because it’s like Groundhog Day,” said Tim Rice of Rice-Voelker LLC. “Every quarter, the results are disappointing; every quarter, we are going to sell assets and reduce debt. And nothing ever happens.”
Another caller requested an update on the search for a new CEO. Stronach has been serving as interim CEO since Michael Neuman’s departure from the position last March after a four-month stint. The company has had five CEOs since it was launched in 2000, with Stronach filling in on an interim basis three separate times.
Stronach responded to the caller by saying new chief operating officer Ron Charles and former CEO Tom Hodgson, who has been retained by the company as a consultant, were taking on broader responsibilities. And, as in previous conference calls, Stronach asked for suggestions of any prospective CEOs to be sent to MEC.
“Can I make a suggestion?” asked the caller. “You should go to Harvard MBA school or the University of Toronto for an MBA with experience. No disrespect to Ron, but just because he likes horses -- I like horses, too -- doesn’t mean that I or my son could run the company, no better than the company has been run in the last five or six years.”
“It’s a good point you make,” Stronach replied. “The board (of directors) has a search committee, and you people have an investment in MEC. And thereby, we will be happy to, if you know of a person that has some of the assets that they could make a contribution, we would be happy to hear about it. Send us the resumes.”
MEC has now reported net losses of $402.1 million in the last four years combined. A plan to raise up to $700 million in capital by the end of 2008 has run into tough times due to weakened markets in real estate and credit, Hodgson said.
“There are fewer interested parties for some properties than we expected, and some that have found it more difficult to arrange financing than they expected,” Hodgson said. “But my message to you is that we remain as committed to the successful implementation of the debt-elimination plan as we ever were. While the markets are not all on our side, we will continue to work very hard over the next 10 months to achieve that goal.”
MEC has classified Remington Park, Thistledown, Great Lakes Downs, and Portland Meadows as discontinued operations as of Dec. 31, 2007. All four tracks are for sale, as are former proposed racetrack properties in Dixon, Calif., and Ocala, Fla., among others.
Charles described his first two months as the company’s chief operating officer as “challenging.” Charles, who also currently serves as the president of Santa Anita Park, called the issues with that track’s synthetic surface “well documented,” but also called Gulfstream Park’s current meet disappointing.
“We continue to struggle at Gulfstream because of problems we are having with construction and parking,” Charles said of ongoing redevelopment of the South Florida complex. “On-track attendance and handle is down. And we continue to be disappointed with the fact that we are unable to allow people to get to the racetrack and conveniently park.”
Stronach also noted shareholder concern with the company’s struggling stock price, and said the company is considering a reverse stock split to help out the situation. MEC was notified Feb. 13 it faced delisting from NASDAQ trading by mid-August unless it brought its stock price above $1 for 10 consecutive days.
“I am very mindful of the poor performance of our stock in the marketplace, and I am committed to addressing the issues underlying that unsatisfactory performance,” Stronach said. “I have been personally been working very hard on our key strategic initiatives that I hope will come to (fruition) in the future.”
MEC’s stock price has closed under $1 for 43 straight days, and was trading at about 80 cents during mid-day trading Feb. 29.
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