Greenlight will vote against reorganization plan that is 'patently unfair' to MI Developments shareholders

By Lisa Kerner

Charlotte, N.C., April 24 - MI Developments Inc. shareholder Greenlight Capital, Inc. said it will vote against the reorganization proposal from Frank Stronach.

In a lengthy April 22 letter to MI Developments' special committee, Greenlight noted its primary concern about the proposal is that "the benefits received by Stronach and his related entities are so inequitable that the reorganization proposal is patently unfair to the MI Developments shareholders."

The letter was included in a schedule 13D filed with the Securities and Exchange Commission.

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, a company news 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.

Greenlight, in its letter, outlined questions and concerns it wants the special committee to consider as it decides whether or not to recommend or accept the proposal.

The investor's list of considerations included whether the company has received a fairness opinion, the necessity of the Magna guarantee, leasing framework, tax issues, dual class share structure and the involvement of MI Developments' management in the reorganization proposal.

In closing, Greenlight expressed a willingness to meet and asked the special committee to resist Mr. Stronach's influence and reject the proposed reorganization.

It was previously reported that according to Greenlight, Stronach submitted his proposal after Greenlight submitted its shareholder proposal.

Greenlight's shareholder proposal asks that MI Developments shareholders vote to have the company's board implement the valued-enhancing proposals it developed and adopted, with Stronach's support, in May 2005, a prior news release stated.

Stronach's plan incorporates the board resolutions as well components of Greenlight's plan, the investor said, 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.

Greenlight said Stronach is now in favor of these components in his proposed reorganization but not in favor of the board resolutions because his proposal gives him a multi-hundred million dollar payoff and the board resolutions do not.

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, Greenlight noted previously.

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.

MI Developments had accused Greenlight of attempting to impose its views on the company's operations and structure since 2003.

Shareholder reaction to Stronach plan mixed

On April 17, MI Developments investors led by Hotchkiss and Wiley Capital Management, LLC and holding a 12% stake in the company voiced their opposition to the proposed deal with Stronach, saying they will vote all of their shares against the transaction.

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 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, a prior SEC filing stated.

Guardian Life has a 9% stake in MI Developments.

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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