Hotchkiss and Wiley to vote against MI Developments' planned reorganization deal with Stronach

By Lisa Kerner

Charlotte, N.C., April 17 - MI Developments, Inc. investors led by Hotchkiss and Wiley Capital Management, LLC said they strongly oppose the proposed deal between MI Developments and chairman of the board Frank Stronach and will 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. The letter was included as part of a schedule 13D filed with the Securities and Exchange Commission.

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

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.

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.

In the letter, Hotchkiss and Wiley said it has felt "oppressed" by Stronach for some time, citing Stronach's use of his super voting power to block a shareholder proposal that had overwhelming support.

In addition, Hotchkiss and Wiley said 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.

As a result, the investor asked the board to forbid any future investments into Magna unless Stronach wants to use his own money.

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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