MEC Unaware of Reasons for Stock Surge

MEC shares more than double in two days.

Magna Entertainment Corp. said Nov. 4 it was not sure why its stock price had more than doubled in the last two days of trading on the NASDAQ exchange.

MEC shares closed trading Nov. 4 at $3.97, a rise of 110.1% over the $1.89 recorded during Oct. 31 trading, and 13.4% higher than the $3.50 realized during Nov. 3 activity. Shares traded as high as $4.71 Nov. 4.

In a one-paragraph statement released late in the afternoon of Nov. 4, MEC said it “is not aware of any specific developments to which the recent increase in its stock price would be attributable.” The statement was not attributed to any official. The company added that it "continues to consider certain asset sales and solutions to its liquidity situation."

MEC’s volume of 66,302 on Nov. 4 was more than four times the daily average, but far less than the 218,700 recorded Sept. 30 when the stock price plummeted to $1.75. The stock then reached an October low of $1.24 (on Oct. 10) during the national downturn of the stock market.

Recent public announcements about the company, which has struggled with annual losses and debilitating debt in recent months and years, wouldn’t seemingly predicate a rise of the stock price on their own. In fact, the company announced Nov. 4 a $16.5 million deal to sell land in Florida had been terminated. Proceeds of the sale were to be used to pay down on loans the company has accrued, and as part of a debt-reduction plan announced in August 2007.

The company on July 22 implemented a 1-20 reverse stock split, in part because it had fallen out of compliance with NASDAQ requirements by trading for an extended period of time below $1. For comparison purposes, the $3.90 stock price realized Nov. 4 translates to just under 20 cents per share, or about 46% below the 37 cents it was trading for pre-split.

MEC has a few loans scheduled to mature in a week or so, including a $40 million credit facility with a subsidiary of the Bank of Montreal. The pending loan deadlines, which includes money borrowed from MEC’s parent, MI Developments, have been extended several times this year, often with six-figure extension fees to the lenders declared.

In a separate matter, a minority shareholder in MI Developments filed a letter with the Securities and Exchange Commission Nov. 4, asking the parent company to consider an offer extended by entrepreneur Halsey Minor. Greenlight Capital, which has long been critical of MID’s dealings with MEC, said ignoring Minor’s offer is “clearly a violation of the MID board’s duties.”

Both MEC and MID are headed by chairman and founder Frank Stronach. Minor in October extended an offer to buy inter-company loans MID has made to MEC in an attempt to take control of the racetrack company.

“Any transaction in which MID can be rid of its unlimited and never-ending exposure to MEC must be taken seriously,” wrote Greenlight Capital president David Einhorn, who controls 11.7% of MID’s Class A shares. “We minority shareholders rely on you to protect our interests from Mr. Stronach’s uneconomic and self-serving support of MEC and remind you that you will be held accountable if you fail to fulfill your fiduciary duty to the MID shareholders.”