Stronach: More smoke and mirrors

While Magna Entertainment stock was trading at about 43 cents late Wednesday morning, the failed operator of racetracks throughout the United States has received another one-month extension on a $40-million loan it was unable to service on March 31 and is amidst a complicated transaction designed essentially to permit Frank Stronach to transfer the enterprise from one company he controls to another while at the same time the second-most deluded Austrian born in the 20th Century was predicting profitability in three years or less.

This is the third extension of the loan repayment, originally due on Jan. 31 and secured by two Magna assets, Santa Anita Park and Golden Gate Fields, the avoidance of which is part of Stronach’s latest maneuver to forestall the inevitable bankruptcy of the nation’s largest if most inept operator of racetracks.

As part of a proposal announced March 31, Magna’s parent company, MI Developments, would transfer about $247 million in loans to a new entity controlled in a 51 percent majority by Stronach. That proposal, which involves the selling of MI Development’s stake in MEC, would go into effect no later than July 30, if approved by shareholders.

Greenlight Capital, a major shareholder in MI Developments, has blasted the proposal as “outrageous,” a term that fully describes the maneuver.

“Mr. Stronach and MI Developments have effectively put a gun to the head of the company's shareholders and convinced a majority to support an outrageous multi-hundred million-dollar payoff," Greenlight Capital president David Einhorn said in a statement.

Greenlight Capital in 2006 lost a lawsuit in which it charged Stronach and others with shareholder oppression, not the first time Stronach has been the target of such charges. The case is scheduled for appeal April 21 in Ontario Court of Appeal.

MI Developments said in announcing the proposal that it had the support of more than 50 percent of holders of Class A shares, which are publicly traded on NASDAQ, and 95 percent of holders of Class B shares, which are privately held by Stronach and related entities.

"I think this proposal aligns MI's interests with the various stakeholders," MI Developments president John Simonetti told the Toronto Star newspaper.

Separately, Magna filed a proxy statement March 28 that asks for a reverse stock split on its shares, which have been trading well under $1 since mid-February and face delisting from the NASDAQ exchange. This must have thrilled beaten-down shareholders, though it is beyond imagination that there is any market for this stock.

The proposal, which also must be approved by shareholder vote, would consolidate shares on a ratio between 1-to-10 and 1-to-20. Shares that have traded below 40 cents in recent weeks would be valued at 10 to 20 times higher post consolidation.

Magna shares must trade above $1 for 10 consecutive business days before August 11, or the stock will be delisted. “Failure to meet NASDAQ's continued listing requirements would result our...being delisted from NASDAQ, which in turn would likely decrease our attractiveness to investors and our ability to maximize stockholder value,” the proxy statement said.

Maximum shareholder value? Get real.