Greenlight opposed to MI Developments reorganization plan, Stronach's "iron-fisted control" of company

By Lisa Kerner

Charlotte, N.C., April 18 - MI Developments Inc. shareholder Greenlight Capital said it will vote against the reorganization plan proposed by Frank Stronach and urged other MI Developments shareholders to do the same.

Stronach submitted his proposal after Greenlight submitted its shareholder proposal, a Greenlight news release said.

Greenlight said its shareholder proposal simply asks MI Developments shareholders to vote to have the company's board implement the valued-enhancing proposals it developed and adopted in May 2005, with the support of Stronach.

According to Greenlight, Stronach's reorganization plan incorporates the board resolutions as well components of Greenlight's plan, including:

• A significant increase in MI Developments' leverage;

• Paying out 80% of the company's available annual cash flow to shareholders;

• Returning excess capital to shareholders; and

• Disposing of MI Developments' interest in Magna Entertainment Corp.

Stronach will vote against Greenlight's plan as well as the board resolutions he backed three years ago, the news release said, citing an MI Developments management proxy circular.

"So, why is Mr. Stronach now in favor of these components in his proposed reorganization, but not in favor of the board resolutions?" Greenlight president David Einhorn asked in the release.

"The answer is very clear. The Stronach proposal contains a multi-hundred million dollar payoff for Mr. Stronach, and the board resolutions do not," Einhorn said.

Greenlight said that if Stronach does not receive a payoff "amounting to the vast majority of the unlocked value," the value destruction at MI Developments will continue "until the shareholders surrender to him."

Stronach's plan requires the affirmative vote of two-thirds of each class of shares voted at the company's shareholder meeting, not a simple majority vote.

According to Greenlight, because Stronach does not have enough MI Developments shareholders to reach the level of support needed, shareholders can still stop the proposed reorganization by voting against it.

Greenlight questioned the true independence of MI Developments' board noting that the special committee failed to recommend that shareholders vote in favor of Greenlight's shareholder proposal despite the board's unanimous approval of its similar resolutions in 2005.

Stronach's "iron-fisted control" and "undue influence" have made MI Developments' board unwilling to do its job and unlock long-term shareholder value without a Stronach pay off, Greenlight said.

It was previously reported that MI Developments said Greenlight has "attempted to impose its views" on MI Developments' operations and structure since 2003.

The investor took the company to court in 2005 after filing an oppression application. The Ontario Superior Court dismissed Greenlight's complaints; however, an appeal hearing is scheduled for April, a prior news release said.

Hotchkiss and Wiley against Stronach plan

On April 17, MI Developments investors led by Hotchkiss and Wiley Capital Management, LLC voiced their opposition to the company's proposed deal with Stronach, saying they will also vote all of their shares against the transaction.

Hotchkiss and Wiley, a 12% shareholder, made the comments in an April 14 letter to the special committee of MI Developments' board of directors.

According to Hotchkiss and Wiley, the proposed reorganization will "cost shareholders 47% of the existing market capitalization."

Hotchkiss and Wiley said Stronach's deal reflects an "appalling and unjustified transfer of assets from shareholders" to Stronach, giving him more than $325 million of shareholder value on day one plus control of a partnership funded with another $220 million of shareholder assets that he can use to support his controlled entity, Magna Entertainment.

The investor asked the special committee to make public its calculations on valuation of the Stronach deal compared with valuation of the board's existing plan.

Hotchkiss and Wiley added that Stronach, with the board's complicity, has overseen "hundreds of millions" of MI Developments' dollars invested into Magna Entertainment, where Stronach is chairman and chief executive officer.

Guardian Life in favor of reorganization

The Guardian Life Insurance Co. of America and its affiliates entered into a support agreement with 2167951 Ontario Inc., a new Ontario corporation controlled indirectly by Stronach Trust and formed for the purpose of participating in MI Developments' proposed reorganization, it was announced on April 10.

Under the agreement, certain of the investors agreed to vote, or cause to be voted, all class A shares of the company they own or control in favor of the transaction, according to a schedule 13D filing with the Securities and Exchange Commission.

Guardian Life has a 9% stake in MI Developments, the filing said.

Under Stronach's plan announced on March 31, holders of MI Developments' class A subordinate voting shares and class B shares would exchange their existing shares for $15.50 in cash and shares of a new public company, a prior MI Developments news release said.

MI Developments would sell its controlling equity investment in Magna Entertainment Corp. to an entity to be identified by the Stronach Group for $25 million in cash, the release said.

The new MI Developments would be owned 80% by the former public shareholders, 10% by an entity affiliated with Stronach and 10% by Magna International Inc. Its board of directors would consist of nine members: five nominated by the Stronach Group and Magna International and four nominated by the public shareholders, it was previously reported.

MI Developments reported that the proposed reorganization would be carried out by way of a court-approved plan of arrangement under Ontario law and would be subject to applicable shareholder and regulatory approvals.

MI Developments is an Aurora, Ont.-based real estate operating company engaged in the ownership, development, management, leasing and acquisition of industrial and commercial real estate properties located in North America and Europe.

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