Stockholders Angry Over Santa Anita Proposal
Is Santa Anita Cos. stacking the odds against its stockholders?
That’s what some holders asserted Friday, after Santa Anita revised its agreement for a Los Angeles real estate firm to invest $138 million in Santa Anita in exchange for a 45% stake in the company.
The firm is Colony Capital Inc., whose chief executive, Thomas J. Barrack Jr., is also a Santa Anita director. The angry stockholders once again accused Santa Anita of giving Colony preferential treatment by agreeing to sell it a big chunk of the Arcadia-based horse racing and real estate concern at a below-market price.
They also claimed that the revised pact now contains a “poison pill,” or anti-takeover provision, that would protect Santa Anita management and Colony’s investment but deprive other stockholders from getting a higher price should a rival takeover bid surface.
“This deal is a Berlin Wall around shareholder values,” complained Mario J. Gabelli, a New York money manager and Santa Anita’s biggest stockholder, with about 15% of Santa Anita’s shares under his control.
Santa Anita is actually two companies whose stocks are “paired” as one on the New York Stock Exchange. Santa Anita Operating Co. runs the landmark racetrack in Arcadia, and Santa Anita Realty Enterprises owns the track and surrounding land, a 50% interest in the nearby Santa Anita Fashion Park and other real estate holdings.
William C. Baker, chairman of both entities, defended the Colony pact. “It’s not an inside deal,” he said. “It’s an excellent transaction and a wonderful opportunity to build shareholder value.” Colony executives declined to comment.
Santa Anita embraced the deal, first announced Aug. 19, on grounds that it could use not only the cash infusion, but also Colony’s expertise in developing real estate projects.
Under the revised terms, their complex transaction now calls for Colony to begin its investment by acquiring Santa Anita common stock--along with a new preferred stock that’s convertible into common shares--for $12.975 a share, or $12.7 million. That would give Colony an initial 8% stake in Santa Anita.
Through a series of transactions, Colony would eventually invest the full $138 million, or about $15 a share overall, Santa Anita said.
But critics noted that Santa Anita’s stock closed Friday at a higher price, $16.875 a share, despite slipping 12.5 cents on the day.
“To issue new stock to a director of the company at under $13, while it is trading near $17, is contemptible,” said the manager of another of Santa Anita’s institutional shareholders, who asked not to be identified.
In addition, Colony gets “special voting rights” if any matters arise “that could adversely affect the terms” of its Santa Anita preferred stock.
Critics said that language is the poison pill, because it would dissuade another party from making a higher bid for Santa Anita for fear that Colony could derail it.
To be sure, the Colony deal remains subject to approval by all of Santa Anita’s current stockholders. But Santa Anita said that even if it’s rejected, Colony gets to cash in its preferred shares at Santa Anita’s market price at the time. If the price remains higher than $12.975 a share, Colony pockets the difference.
“It smacks of grab, grab, grab,” Gabelli said. “This is not consistent with shareholder democracy.”
Why was the deal revised? Originally, Santa Anita proposed to simply sell Colony newly issued common shares. But then it found that NYSE rules prohibit its listed firms from selling more than 1% to an insider--in this case Colony’s Barrack.
So Santa Anita, which is being advised by Morgan Stanley & Co., came up with the new plan to issue Colony the convertible preferred stock.
