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The value of MI Developments Inc. – the real estate arm of the Frank Stronach empire – has fallen so much that it's in danger of being taken over at a discount by Mr. Stronach or his cash-rich auto parts company Magna International Inc., MI's largest shareholder says.
The real estate company is “vulnerable to a discounted, coercive ‘going private' takeover attempt by Magna or another Stronach-controlled entity,” Greenlight Capital Inc. states in a filing with the U.S. Securities and Exchange Commission.
Greenlight is locked in a legal battle with MI related in part to the real estate company's ownership of about 70 per cent of Magna Entertainment Corp., a racetrack and gambling company that has lost more than $500-million (U.S.) since being spun out of Magna in 2003.
A move by Magna to buy back MI, which owns the real estate underneath dozens of Magna auto parts plants around the world, would raise alarm bells in the offices of institutional shareholders.
MI Developments
Magna International
Shareholders rebelled in the late 1990s when the auto parts company began buying up racetracks and considered other investments in non-automotive endeavours, such as a theme park in Mr. Stronach's native Austria and a transatlantic airline for well-heeled travellers.
Now, Magna is sitting on a cash pile of $2.2-billion, while MEC is heavily indebted to MI and warned in its own SEC filing last week that it may be forced to liquidate assets or seek protection from creditors.
“This truly is the time when that cash is a huge competitive advantage,” an investment manager at one Magna shareholder said yesterday.
Magna should use the money to snap up bargains in the auto parts industry amid the downturn now battering the sector or to expand in growing regions where it doesn't have a large presence, the source said.
“They could come out of this two or three years later a much stronger company,” the source said.
MEC has $210-million worth of debt maturing this year, including a payment of more than $30-million due to a Canadian financial institution on March 30 and $180-million payable to MI by the end of May.
Greenlight said in its SEC filing that MI's board adopted a plan in 2005 to increase the real estate company's leverage, increase dividends, repurchase shares and consider providing short-term liquidity only to MEC.
Since the defeat of a Greenlight proposal in 2005 that included selling off MEC, MI has increased its financing to the racetrack company to $237-million from $26-million and made the financing long term, Greenlight's filing states, noting that MEC's stock price has plunged 90 per cent and the value of MI's shares has dropped 24 per cent.
“MEC's financial prospects have become dire and [MI] has substantially increased its exposure by lending MEC more money,” Greenlight said.
Greenlight holds about 21 per cent of MI's 46.2 million shares outstanding and has submitted a proposal to the real estate company's annual meeting asking shareholders to require the company to adopt the board's value-creating plan immediately.
Magna spokeswoman Tracy Fuerst said Magna would not comment. MI officials did not return calls yesterday.
