Greenlight Rips MEC Reorganization Plan

Adversarial shareholder blasts Magna Entertainment Corp. reorganization plan.

A longtime adversarial shareholder in MI Developments has blasted the latest reorganization proposal to spin-off subsidiary Magna Entertainment Corp., a plan which includes $75 million in funding for a potential slots parlor at Laurel Park in Maryland.

Greenlight Capital’s David Einhorn, who collectively controls nearly 12% of Class A shares in MEC’s parent, MI Developments, in a Feb. 10 filing with the Securities and Exchange Commission called the reorganization “just one more egregious attempt to further erode MID’s value.”

The plan, which was announced in November 2008, includes provisions for MI Developments to extend new loans to MEC. Both companies are headed by founding chairman Frank Stronach.

Einhorn, who previously lost a Canadian lawsuit charging shareholder oppression against Stronach and MI Developments, in his letter calls for the company’s board to reject the reorganization plan, specifically the “immediate transactions” that are proposed.

“We are vehemently opposed to MID using its funds to make these additional gambling investments,” wrote Einhorn, who vowed to vote against the plan. “We intend to contest the plan every step of the way. No doubt other large shareholders will conduct their own analysis and reach the same conclusion.”

Greenlight Capital and other shareholders were similarly in opposition to another complex reorganization plan unveiled by the companies in March 2008. MI Developments a few months later announced it was postponing a shareholder vote on that plan.

The Greenlight Capital filing also asks the MID board to reconsider a proposal from technology entrepreneur Halsey Minor to buy the company’s loans to MEC, which was tendered in October 2008 during a flurry of shareholder opposition to the first reorganization plan.

“There is little doubt that selling the MEC loans to Mr. Minor would be a far better outcome for MID shareholders than the current proposal, and it would not require approval from Mr. Stronach or a shareholder vote,” Einhorn wrote.

MID officials did not release an immediate reaction to the Einhorn letter. The company at the time of the plan’s announcement said it was developed with shareholder’s concerns in mind, including a “spin-off” of MEC to entities affiliated with Stronach.

“I am optimistic that shareholders will see the merits of this reorganization and that, with their support, MID and MEC will move forward as separate companies focused on executing their respective strategic initiatives and business plans,” Dennis Mills, MID’s vice-chairman and chief executive officer said at the time.

MEC has battled debilitating debt issues and annual financial losses in recent years. The company's stock price was trading at 60 cents in morning trading Feb. 10 after hitting a 52-week low of 51 cents on Feb. 5. Factoring in the 1-20 reverse stock split MEC implemented last summer, shares are trading at a pre-split value of about three cents each Feb. 10.