Santa Anita Cos. has entered the home stretch in its bid to be acquired by the investment firm Meditrust, a deal expected to ensure the future of horse racing at the historic-but-unprofitable Santa Anita Park racetrack in Arcadia.
The two companies on Sept. 2 filed their proxy statement on the proposed deal with the Securities and Exchange Commission. They were preparing to mail those proxies out to their shareholders, who will vote on the proposed merger at a meeting in Boston in October.
Santa Anita Chairman William Baker said his greatest fear is that not enough Santa Anita shareholders would vote. Under Delaware law governing the merger, at least 50 percent of the shares must be voted for the election to be deemed valid. In addition to that, a majority of those votes must be in support of the deal.
“We’ve got people out there telling our shareholders how important it is to vote,” Baker said.
Wall Street appears confident that the merger will go through as planned and will be beneficial to both companies. Since the merger was first announced April 13, Santa Anita’s share price has rocketed 20 percent, closing at $32.50 on Sept. 4. It’s up more than 90 percent from when the company first started courting partners last September.
Santa Anita is a rare breed in the business world, consisting of two companies that are traded together on the New York Stock Exchange in a “paired-share structure.” Santa Anita Operating Co. runs the race track while Santa Anita Realty Enterprises owns various properties in and around Arcadia, including the track.
Meditrust is a Massachusetts-based real estate investment trust that specializes in medical care facilities. It hopes to tie up with Santa Anita because the Arcadia-based company is one of only four REITs in the country that is allowed to both own properties and manage non-real estate operations while preserving its corporate income tax exemption.
By allowing itself to be technically taken over by a company one-tenth its size, Meditrust will also enjoy that tax break.
“If they can overlay Santa Anita’s paired-share structure over Meditrust, it will allow (Meditrust) to benefit from the operating side of the business,” said Philip Martin, an analyst at EVEREN Securities in Chicago. The deal will enable Meditrust to funnel revenues from all its various operations through Santa Anita’s tax-exempt structure. “It will be a catalyst to grow the business in a way not possible in the past,” Martin said.
The two companies are telling their respective shareholders that the merger would allow Meditrust to diversify beyond health care, while simultaneously giving Santa Anita access to the capital of a larger, more-profitable company.
Under the merger proposal, Meditrust shareholders would receive 1.2016 shares of the Santa Anita Cos. for each share of Meditrust they own. Based on Thursday’s closing price, 1.2016 shares of Santa Anita Cos. stock had a market value of $39.05, compared with a closing price of $39.68 for Meditrust. Santa Anita shareholders can continue to hold their existing shares after the merger.
With the merger expected to be approved soon, the share price of Santa Anita Cos. could be nearing its peak, said one analyst who asked not to be named.
“The stock reached a level at which I think it is fully valued and I’ve bailed out,” the analyst said.
The market price of Santa Anita stock as of last week also appeared rich relative to the $31-a-share price the company is offering to pay to back up to 3.225 million of its outstanding shares, or 28 percent of the outstanding common stock.
If the proposed merger is approved by a majority of both companies’ shareholders, the name of Santa Anita Realty would be changed to Meditrust Corp.
“I don’t foresee any problem getting the vote. You are going to see shareholders benefit from this,” Martin said.
Meditrust General Counsel and Secretary Michael Benjamin said he expects the merger to be completed by the end of October.
Meditrust certainly is not buying Santa Anita to gain exposure to the horse racing industry. In recent years the Santa Anita Cos. have lost millions of dollars amid a nation-wide decline in race attendance. Baker blamed a combination of greater competition from other spectator sports and the introduction of off-course betting.
“We have not worked hard enough over the last 10 years to get people out to the track,” he said.
Such losses had created fears that whichever entity joined forces with Santa Anita would tear down the historic Arcadia race track and redevelop the land.
Meditrust officials, including Chairman Abraham Gosman, have repeatedly stated that they intend to keep the ponies running in Arcadia for the long term. Analysts speculated that Santa Anita would risk losing its paired-share structure if it closed down its racing operations.
As if to drive that point home, Santa Anita is spending $12 million on refurbishing the 60-year-old race course.
“A coat of paint is worth a thousand words. I’ve spent $400,000 just to paint the ceiling,” Baker said.
The renovation is expected to be finished in time for the popular Oaktree meet, which begins Oct. 1.
Benjamin said even though the merger has not yet been approved by investors, Meditrust has been in regular contact with Santa Anita and fully supports the facility upgrade.
He and every other Meditrust investor has a stake in keeping the Santa Anita Park looking its best. Following the merger, Meditrust shareholders will each receive free passes to the races.