Fred Lum/The Globe and Mail
The bitter and lengthy battle between Frank Stronach and minority shareholders of MI Dev'ts is ending in a truce that will give him ownership of several racetracks in return for giving up control of the company.
Minority shareholders of MI Developments will take control of the company and its real estate assets, while the shift of racetracks and other gambling operations to Mr. Stronach eliminates the shareholders' long-standing grievance that MI Developments was simply the bank of last resort for the now failed Magna Entertainment Corp.
The surrender by Mr. Stronach of control of MI Developments is the latest in a series of moves he has made to disengage from the corporate empire he started in 1957 when what is now auto parts giant Magna International Inc. sprang to life in a Toronto garage.
The battle between Mr. Stronach and minority shareholders included lawsuits, challenges of MI Developments' corporate governance practices at the Ontario Securities Commission and an annual meeting at which a major shareholder compared the Austrian-born entrepreneur to Fidel Castro.
At the root of the dispute was Magna Entertainment Corp., which went into Chapter 11 bankruptcy protection last year in the U.S. despite receiving hundreds of millions of dollars in loans from MI Developments to support redevelopment of such horse racing jewels as Gulfstream Park in Florida and Santa Anita in California.
Mr. Stronach will take over those tracks, another one in California and MI Developments share in two tracks in Maryland, including Pimlico Race Course, home of the Preakness, one of the marquee events in North American horse racing as the second leg of the Triple Crown.
He has described the horse racing business as a labour of love that he believes can be resurrected from what appears to be a terminal decline.
Minority shareholders will elect a new board for MI Developments, whose main asset is the land underneath many of Magna's auto parts plants around the globe, sources familiar with the deal said Tuesday. No money will change hands, the sources said.
Trading in the shares of MI Developments was halted early Tuesday afternoon after rising 85 cents to $19.32 in trading on the Toronto Stock Exchange.
That price is considerably higher than the $13 (U.S.)-a-share offer that Mr. Stronach made to minority shareholders this fall to take the company private.
That offer appeared to be the kickoff to negotiations that occurred while the threat of a lawsuit by five shareholders holding about 26 per cent of MI Developments' shares was hanging over Mr. Stronach and several officers and directors of the company. A statement of claim was filed with the Ontario Superior Court of Justice this spring, but the lawsuit was put on hold during the negotiations.
The MI Developments deal follows a controversial transaction earlier this year in which Magna purchased Mr. Stronach's multiple-vote controlling shares in the company for $860-million (U.S.) in cash and shares.
Earlier this month, Mr. Stronach sold 2.4 million of the 9 million common shares in Magna he received in that deal, reducing his stake to 6.4 per cent from 7.4 per cent.
The 78-year-old joked earlier this week that he will hang on to the remaining shares or some of them for another 50 years or so.
The MI Developments deal, however, could create a problem for Magna International Inc., because a third-party not controlled by Mr. Stronach will own the land under many of Magna's auto parts plants and could be subject to a takeover bid or demands that rents on the properties be raised.
The negotiations on the minority shareholders' side of the deal were led by Farallon Capital Management LLC. The San Francisco-based investment firm was one of the five MI Developments shareholders that filed the statement of claim amid shareholder anger over transactions between the real estate company and Magna Entertainment Corp., a racetrack operator controlled by MI Developments.
Separately, Magna announced that Belinda Stronach, Mr. Stronach's daughter, will resign as executive vice-chairman of the company and from its board of directors.