After a break for the Preakness, negotiations by a Canadian firm interested in acquiring Maryland's major thoroughbred racetracks are expected to resume shortly, according to sources familiar with the talks.
The deal under discussion calls for Magna Entertainment to pay more than $100 million in a two-step transaction that would allow it to first acquire control and, several years later, the rest of the shares, according to one source.
That would preserve a role for current president and majority stockholder Joseph A. De Francis.
Magna Entertainment, which is based in Aurora, Ontario, and operates eight thoroughbred tracks across the United States, has been in talks for months with the Maryland Jockey Club, operator of Pimlico Race Course and Laurel Park.
The talks were interrupted as Pimlico's managers prepared for their biggest day, the Preakness Stakes that was run Saturday. They now are likely to resume, according to sources familiar with the negotiations who spoke on the condition of anonymity.
Pimlico president De Francis declined to discuss the status of any talks other than to deny reports over the weekend that a deal with Magna had been concluded.
"No deal has been done and no deal has been signed," he said yesterday.
Magna, headed by auto parts magnate and horse owner Frank Stronach, did not respond to requests to comment. Magna president Jim McAlpine attended the Preakness with his wife but made no public statement.
Said one source: "This is still in the negotiations stage."
"There appears to be some headway," said another source, "but I wouldn't say it is done."
A deal between De Francis and Magna would need to be approved by several minority shareholders and the Maryland Racing Commission.
Among the issues that must be resolved is whether and how De Francis and the other current stockholders would benefit if the state permits slot machines to be located at the tracks, with some of the profits used to support racing - a potential windfall for the tracks' owners.
The role of De Francis and other current owners in track management also would need to be resolved. Magna, more so than archrival Churchill Downs, Inc., has been known to retain a role for local management when it acquires a track. This holds appeal for De Francis, who would like the chance to operate the tracks with the financial resources that Magna would provide, according to sources.
Churchill Downs offered to purchase the tracks twice this year but could not come to terms with De Francis.
Magna has made no secret about its ambition to own more racetracks. The company struck a deal in March to buy a track near Dallas, which would bring to nine the thoroughbred tracks it operates. It also owns a harness racing track and a greyhound dog track.
The company's strategy calls for establishing a year-round schedule of live racing that it can offer customers on its simulcast service, its telephone betting service called XpressBet, and a satellite-television wagering network in which it is a partner.
In an April 3 filing with the Securities and Exchange Commission, Magna said it had "no definitive agreements" to buy any tracks but made clear the urgency of its expansion strategy: "Our current business plan calls for us to continue to actively pursue strategic acquisitions. Our future profitability will depend to some degree upon the ability of our management to identify, complete and successfully integrate commercially viable acquisitions.
"If we do not do so for any reason, we may not be able to implement our business plan successfully, or grow as quickly as we anticipate, and this could have a material adverse effect on our future profitability," the company said.
Magna recently completed a supplemental stock sale that netted $143 million. It also recently arranged for a $75 million line of bank credit. The money will be used for "the potential acquisition or construction and development of additional racetracks and related entertainment operations," according to Magna.
The company reported a profit of $18.4 million, excluding one-time gains from the sale of real estate, in the three months ended March 31, compared to $15.3 million in the same period a year earlier.
"We will selectively pursue the acquisition of strategically important, geographically diverse racetracks and related operations in order to increase our ownership of live racing content. We intend to simulcast this content to other pari-mutuel wagering venues and to increase both the number of days in the year and hours in the day that we offer wagering on live and simulcast races," the company said in its SEC filing.