Colonial's Privatization Plan OK'd by Commission

The plan to privatize Colonial Downs moved a step closer to fruition Tuesday when the Virginia Racing Commission, after a public hearing and about an hour of deliberation, voted 3-2 to allow the acquisition of Colonial Holdings Inc. by Gameco Inc.

The bigger vote is yet to come. The shareholders of Colonial Holdings will have to approve the privatization plan at a meeting tentatively scheduled for September. Two-thirds of the stockholders will have to approve the buyout at that meeting. Jacobs owns 23% of the Class A stock.

Currently, Gameco, wholly owned by Jeffrey P. Jacobs and the Richard E. Jacobs Revocable Trust, owns CD Entertainment, which owns 23% of the Class A stock in Colonial Holdings and 44% of the stock overall. Jacobs has proposed an offer of $1.10 per share to acquire the remaining stock in Colonial Holdings.

The stock's recent value has been under a $1 per share. With the privatization of Colonial Downs, track officials hope to save approximately $150,000 per year in administration and filing fees. Colonial would also save $1 million a year in interest from a loan provided by CD Entertainment with the conversation of a portion of the loan to equity.

The commission had hoped Colonial would earmark the most of that money for reinvestment in the Virginia racing industry. What it learned is that future reinvestment is a possibility with approval, and unlikely with denial.

"The stockholders not only made a monetary investment, but more of an investment of emotion (when they purchased stock)," said commissioner John Bowen, who voted against the plan.

"The hard sell is going to be with the shareholders, and shouldn't be with the commission," said commissioner Earnest Oare, who voted in favor of the plan.

"We don't really know where this is going," said commission chairman Robin Williams, who eventually cast the deciding vote in favor of the plan.

The commission would have liked to see a long-term plan to grow live racing in Virginia, but found it had little grounds to deny the plan after legal consultation.

There were conditions attached to the commission's approval: It will not go into effect until the merger is finalized and stockholders vote, Colonial Downs would continue to provide unconsolidated quarterly financial reports, and the officers of Gameco would be investigated by the commission.

Meanwhile, Colonial Downs continues to experience success with its summer Thoroughbred meet. Average daily purses of $200,000 have attracted nine starters per race; total daily handle on live racing has clipped the $1 million mark 11 times in the first 14 days of the meet, good for a 23% increase; and average daily attendance of 2,500 is double the figure from last fall.

Colonial Downs had hoped to reduce the amount of turf races it cards each day to 60%, but with the increased response to the purses and demand for turf racing, 85% of the races have been run on the turf.