Developer Offers Competing Deal for Santa Anita Cos.

By JAMES F. PELTZ

Oct. 10, 1996 12 AM PT

TIMES STAFF WRITER

A bidding war for control of Santa Anita Cos. erupted Wednesday as a group including Newport Beach real estate mogul Donald M. Koll offered to buy 55% of the famed racetrack operator as part of a complex deal valued at more than $180 million.

Koll teamed up with Apollo Advisors in New York to make the bid, which calls for a cash dividend payment of $14 a share to existing Santa Anita shareholders. Apollo is run by former Drexel Burnham Lambert deal maker Leon Black.

Their unsolicited offer counters a rival deal accepted by Santa Anita in August, in which a Los Angeles real estate concern named Colony Capital Inc. agreed to buy 45% of Santa Anita over the next two years for an average price of $15 a share, or $138 million.

Colony has completed the first step of that deal, having bought an 8% stake in Arcadia-based Santa Anita for just under $13 a share. Its remaining investment is still subject to shareholder approval.

The Colony deal had been loudly criticized as too low by some major Santa Anita investors, and the arrival of the Koll/Apollo bid prompted Wall Street to bid up Santa Anita’s shares. The stock jumped $2.25 a share to close at $20.50 in New York Stock Exchange composite trading Wednesday.

But sources in the Santa Anita/Colony camp blasted the Koll/Apollo deal as well, arguing that Koll and Apollo--which made the offer through an entity named Koll Arcadia Investors (KAI)--would in effect be purchasing control of Santa Anita for only $50 million.

Santa Anita Chairman William C. Baker did not return a call seeking comment, but the company said its board will evaluate the offer. Colony declined to comment.

Santa Anita is actually two enterprises whose stocks are “paired” as one on the NYSE. One entity runs the track--which is currently hosting its annual fall event, the Oak Tree Meeting--and the other owns the track, 50% of the nearby Santa Anita Fashion Park shopping mall and other real estate in Southern California and elsewhere around the country.

The scramble for control of the combined company is the result of Santa Anita’s effort to raise cash and bolster its lackluster performance of the last few years.

Live wagering at the racetrack has steadily declined, and although off-site betting on Santa Anita events has been growing, total revenue from Santa Anita’s racing operations is little changed from four years ago. Meantime, Santa Anita has been shrinking its real estate portfolio after the group produced uneven results.

Also, Santa Anita’s attempts to redevelop parts of the 400-acre racetrack site have been stymied by local opposition and by its own missteps. A local measure in Arcadia on the November ballot, in fact, would require Santa Anita to get voter approval if it wants to significantly develop its Arcadia property.

In a letter outlining its offer, KAI said it “intends to analyze carefully the development potential of excess acreage at Santa Anita” and produce a plan that “is both economically viable and sensitive to the concerns of the residents and elected officials of Arcadia.”

First, however, Santa Anita has to evaluate the complicated KAI offer and compare it to the Colony Capital proposal.

KAI proposes to pay the $14-a-share dividend, or a total of about $180 million. The money would include $50 million invested by KAI, $90 million raised through a debt offering or some other financing and about $40 million from Santa Anita’s existing cash or by selling some assets unrelated to its racing operations, according to James Watson, one of KAI’s principals.

After the dividend was paid, KAI expects that Santa Anita’s stock would be worth about $3 a share, with KAI as a 55% owner. In addition, KAI plans a rights offering in which stockholders would be entitled to buy more Santa Anita stock for $2 a share.

KAI also said it’s “prepared to invest up to an additional $150 million” in Santa Anita if necessary. But a source involved in the Santa Anita/Colony pact said KAI’s increased investment is not binding and that in essence KAI would be acquiring control of Santa Anita with only its initial $50-million investment.

In turn, Colony’s $138-million investment in Santa Anita is binding if approved by the stockholders, he said.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Gambling on Growth

Santa Anita Cos., which now has two groups seeking to invest in the company, is actually two entities: Santa Anita Operating Co., which runs the landmark racetrack in Arcadia, and Santa Anita Realty Enterprises, which owns the track and surrounding land in addition to other real estate holdings. A look at revenues from these divisions, which trade under one stock on the New York Stock Exchange:

Racing Ahead

Revenue from horse racing versus revenue from rental property, in millions of dollars:

Horse racing: $70.3

Rental property: $22.4

Climbing Stock

The stock price has climbed since the first investment offer in August. Weekly closes and latest:

Wednesday: $20.50, up $2.25

A Bigger Pool

Satellite wagering is a growth area for Santa Anita. Percentage of total horse-racing revenue:

1991

On- site wagering: 37.0%

Satellite wagering: 14.3%