MI Developments set to spin off MEC under proposal

(In U.S. dollars unless noted)

TORONTO, March 31 (Reuters) - MI Developments Inc (MIMa.TO: Quote, Profile, Research) said on Monday it has received a proposal to spin off its majority stake in struggling racetrack operator Magna Entertainment Corp MECa.TO and create a focused real estate investment vehicle that would distribute 80 percent of its available cash flow.

The news sent shares of MI Developments up C$3.83, or 14.9 percent, to C$29.56 on the Toronto Stock Exchange.

The proposal, which would see Magna Entertainment sold to an unidentified buyer for $25 million, is supported by the majority of MI Developments shareholders including controlling shareholder Frank Stronach.

Under the plan, existing MI Development shares would be exchanged for $15.50 and shares of a new public company.

The new MI Developments would be owned about 80 percent by the former public shareholders, and 10 percent each by the Stronach Group and Magna International Inc (MGa.TO: Quote, Profile, Research).

Magna International, which would be asked to guarantee a $1 billion five-year term loan in exchange for a guarantee fee from MI Developments, has not committed to the proposal.

Magna International would pay an amount equal to the guarantee fee for its 10 percent interest in the new company.

Shareholders of MI Developments have been urging the company to divest the stake for years.