Tuesday, March 23, 2010

Betrayal in Maryland

The auction of Laurel and Pimlico and the rest of Magna Entertainment's Maryland properties has been cancelled, and Magna's lawyers went to bankruptcy court today with a revised reorganization plan that would leave Frank Stronach in control of Maryland racing for the foreseeable future.

The auction was to have been held Thursday, March 25th.

According to the Blood-Horse (which posted its story about an hour and a half after mine), Stronach's captive company, MI Developments, will pay $13 million to cover secured claims by the PNC Bank, $6 million for unsecured creditors of the Maryland tracks, and $5 million to the DeFrancis family, as a buyout of their claim to a share of slots revenue. In addition, Stronach's lawyers last week secured agreement from the unsecured creditors committee in the larger Magna entertainment bankruptcy to settle the creditors' pending lawsuit for a payment of $89 million, also to come from MI Developments.

More details are available at the Baltimore Sun site, and in this press release, issued Tuesday afternoon by MI Developments. The press release claims that the plan to hold on to the Maryland properties has the approval of a special committee of the MI Developments Board of Directors, including representatives of the minority shareholders who have been distraught in the past over Stronach's use of their money to fund his unprofitable racetrack empire. The press release also portrays the takeover of the Maryland tracks by MI Developments as principally a real-estate play, saying that "we are excited about the development opportunities" on the 565 acres in Maryland owned by the Maryland Jockey Club. Doesn't bode well for the continuation of lots of race days. The scheme also includes a condition that the Maryland Jockey Club's racing operations return to profitability within three years, and that accumulated losses in that three-year period not exceed $15 million. I have no idea how this will be accomplished.

As I've pointed out earlier, MI developments is a real estate holding company, and its minority shareholders are anything but happy with Stronach's use of their money to support his race track habit. With Frank once again pledging other people's money to settle his debts, I wonder if there'll be a new shareholder revolt, despite the apparent approval of today's plan by the special committee of the MI Developments Board.

The Maryland deal stinks. There were other bidders prepared to offer up to $100 million in cash, and, right up until the close of business yesterday, Stronach's lawyers were lying to them and saying that the auction was going forward. In the class that I teach at Touro Law School, I just yesterday went over the provisions of the Rules of Professional Responsibility about lying to others when you're a lawyer. Maybe I should have my students draft a complaint to the relevant authorities.

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