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speakup

TORONTO - A reform proposal by dissident shareholder Greenlight Capital was defeated, as expected, at the annual meeting of MI Developments Inc. (TSX:MIM.A) on Wednesday - a dramatic event featuring an emotional speech by company founder Frank Stronach. Greenlight, a New York investment firm, had called for MI Developments to provide only short-term funding to horse-track subsidiary Magna Entertainment (TSX:MEC.A), and for the land developer to raise its dividend, repurchase stock and increase debt.

The Greenlight proposal went down to defeat Wednesday, and Stronach - the controlling shareholder of MID, MEC and Magna International (TSX:MG.A), from which they were spun off - joined MI Developments chief executive John Simonetti in calling for an end to the public feud with Greenlight.

"We need to end this stalemate," Simonetti said. "And to me, this means thinking about changing our framework. But it needs to be changed in a manner that takes into account the various objectives of the shareholders of this company."

"And equally important, in my mind, Magna (International) is a key stakeholder. Magna is our most important customer and potential source of growth."

Coincident with the annual meeting, MI Developments - whose main business is running the property assets of Magna International factories - released its first-quarter results. The company, which reports in U.S. dollars, said earnings fell to $6.6 million or 14 cents per share, compared with a year-ago profit of $23.3 million, 48 cents per share.

The real-estate business increased its revenue to $54 million from $44.8 million and raised its earnings to $31 million from $23.7 million, but the majority holding in money-losing Magna Entertainment dragged back the bottom line.

Simonetti said a management-supported restructuring proposal was supported by more than half of MI Developments' class A shares and 95 per cent of the class B multiple-voting shares, which are mostly held by Stronach.

That proposal, which hasn't yet been put before shareholders for a vote, calls for MID to sell its stake in the heavily indebted horse-track company to a Stronach investment group for $25 million. MID would also make a cash distribution of $15.50 per share to its stockholders and eliminate the dual-class share structure.

Magna International and Stronach are to each own 10 per cent of MID, with the rest held by the company's minority shareholders.

About $150 million of loans owed by Magna Entertainment to MI Developments would be transferred to a new partnership owned 51 per cent by Stronach and 49 per cent by MID public shareholders.

Greenlight objects to the management-backed restructuring proposal because it appears to favour Stronach over other shareholders and it objected previously to interlinking the steady real-estate business with the unproved horseracing venture.

In the end, however, its proposal was soundly defeated - despite significant support from other class A shareholders.

More than 20.4 million class A votes were cast in favour of Greenlight's proposal, or 72 per cent of the class A shares. But more than 518,980 B shares, or 99.8 per cent of the total multiple-vote shares. As a result, more than 267 million votes from both classes, or 93 per cent, were against the Greenlight proposal.

And after Greenlight's inevitable defeat, a representative of the hedge fund got the chance to confront Stronach directly in a question-and-answer session.

"Greenlight, have you got any questions? I want to be fair to you guys. I want to give you time," Stronach said, after speaking out vehemently against the philosophy of "some hedge funds" of creating debt and spinning out most of the profits.

Although the crowd chuckled at Stronach's suggestion of a public face-off, Greenlight's representative responded: "Sure."

"Why are you paying $25 million for a package of assets that's worth $450 million, and getting 50 per cent of that?" he asked.

Stronach responded that investors should know that from the creation of MID as a publicly traded spinoff of Magna International (TSX:MG.DB), that there were two classes of shares and that he, by virtue of a arrangement accepted by Magna shareholders in the 1970s, had control through his multiple-vote shares.

"I did say I gave up 20 per cent of my equity in Magna and right now this would amount, perhaps to close to $3 billion. That would include also MID. And all of the MID shareholders, I believe you're sophisticated shareholders, I believe it was clearly stipulated out that those are the rules, that is the framework, that is the philosophies, that's the way I run the company with support of the directors."

He went on to complain about the cost of fighting the legal battles with Greenlight.

"To me it's an absolute waste," Stronach said. "It's not only the $10 million we wasted on legal costs, but it takes enormous time away from key management. Their mandate should be to grow the business, not constantly fight frivolous, unwarranted litigation."

Greenlight's representative responded by asking whether the alternative shareholder proposal that's being considered by MID's board wasn't developed by "advisers of yours or folks at Magna International?"

Stronach paused, said Magna International has a "great stake" in MID and said some of the parent company's managers had "tried to find solutions" to the situation at MID, which is the landlord for many of the manufacturing company's factories.

"But in the final analysis, it is the MID shareholders which have to agree to a proposal of that sort. And so far, over 50 per cent agree," Stronach concluded.