Magna Entertainment Corp. chairman Frank Stronach criticized certain hedge-fund investors for putting "unwarranted" pressure on the bankrupt racetrack company's parent entity, suggesting May 8 that those antagonists could start their own company if they didn't like what they saw.
Stronach, who spoke at the annual shareholders meeting of MEC’s controlling shareholder, MI Developments, said he had nothing in general against hedge funds, but said there was no question he had different business philosophies from those investment groups.
“If hedge funds have certain ideas or philosophies of how companies should be run, then I believe they should create and manage their own companies,” Stronach, who is also chairman of Canadian-based MID, said at the meeting held in Thornhill, Ontario.
Stronach didn’t name names, but it was clear he was referencing groups such as Greenlight Capital, a large minority shareholder in MID that has unsuccessfully sued Stronach and others in Canadian court for alleged shareholder oppression. Greenlight has long been critical of MID’s investment into MEC, which owes its parent more than $370 million in loans, and has filed several objections to MID’s involvement in MEC’s bankruptcy proceedings.
“It is unfortunate that a great deal of management’s time, as well as time and attention of MID’s board of directors, is spent fighting unwarranted lawsuits from MID hedge-fund investors,” Stronach said. “Those lawsuits are very costly for MID, not only in terms of money, but also in terms of lost business opportunities.
“But MID’s involvement with MEC was clearly stated from the outset. The loans provided to MEC by MID were secured by premium, first-rate real estate. Some MID investors are pushing for fire sales in regards to MEC properties. However, at MID, we believe that in bad economies, real estate still represents a good investment."
Stronach said he was proud of his business legacy, which includes being founding chairman of auto parts conglomerate Magna International. "I am very proud of what I have achieved over the last 50 years; I am proud of my operating record," he said.
MID chief executive officer Dennis Mills said the company “worked tirelessly” to find solutions to MEC’s challenges that would be acceptable to all stakeholders. “Unfortunately, despite the best efforts of MID and those shareholders who were willing to participate in a constructive dialogue aimed at resolving the differences, no compromise could be reached,” he said.
Mills said MID at some point considered foreclosing on the loans to MEC, but claimed bankruptcy rules would have stayed, or held up, those actions. He also said a Chapter 7 liquidation of MEC’s assets was also discussed but quickly discounted.
“One of the key factors in reaching this decision was the belief that asset sales in a Chapter 7 scenario would likely realize lower -- and possibly significantly lower -- proceeds than if they were sold on ongoing basis,” Mills said.
MID also reported May 8 a $25.2-million profit from its core leasing business, but its bottom line was compromised by a $54.8-million loss by MEC’s continuing operations, helping yield an actual earnings loss of $28.8 million for the real estate company. MID's financials carried a "deconsolidation" impairment of $46.7 million in relation to MEC.
An earnings release said MID reported its results under U.S. GAAP guidelines, or generally accepted accounting principles, because it “ceased to have the ability to exert control over MEC” when the latter went into bankruptcy. MEC’s portion of the results was only calculated through the March 5 bankruptcy filing in Delaware.