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Hollywood Park Mulls Paired-Share Status


Hollywood Park Inc., eager to tap investors' growing zeal for the handful of companies with "paired shares" of publicly traded stock, said Tuesday that it's mulling whether to restore the paired-share status it voluntarily relinquished five years ago.

The company--which owns the Hollywood Park horse-racing track and a casino in Inglewood, along with some other racetracks and casinos--is pondering the step because tax advantages inherent in the paired-share structure have sparked considerable interest on Wall Street.

In the last year, bidding contests for two other paired-share companies have delivered big premiums to their stockholders.

Cross-town racetrack operator Santa Anita Cos. in Arcadia recently accepted a buyout bid from health-care real estate firm Meditrust, which said it mainly wants Santa Anita for its corporate structure. California Jockey Club/Bay Meadows Operating Co., based in San Mateo, plans to be bought by hotel owner Patriot American Hospitality Inc.

"The market ascribes a very significant value to the [paired-share] structure and, given that, we didn't feel like . . . we could ignore investigating whether we could provide that structure," said G. Michael Finnigan, Hollywood Park's chief financial officer.

If Hollywood Park pursues the matter, approvals probably would be needed from the Internal Revenue Service and the Securities and Exchange Commission, he said.

The structure works like this: Two separate companies have stocks that are paired, or trade as one. One company is a real estate investment trust (REIT), which owns real estate and avoids corporate taxation by passing along at least 95% of its net income to its stockholders.

But a REIT cannot operate a business on land it owns; it's supposed to passively collect rents or mortgage payments from its holdings and hire another firm to run the enterprise.

That's where the other paired-share entity comes in. It runs the racetrack, hotel or casino, and can itself significantly cut taxes by passing along most of its profit to its paired REIT in the form of rents or mortgage payments. At Santa Anita, for instance, Santa Anita Realty Enterprises owns the land, and Santa Anita Operating Co. runs the track.

Congress ended the formation of such paired-share firms more than a decade ago. But it grandfathered in a few firms, including Santa Anita and Hollywood Park. For years the structure drew little notice, and Hollywood Park even relinquished its paired-share status in 1992 because it believed the structure made it hard for the company to finance its expansion.

Not anymore. Hollywood Park has issued additional stock and secured new bank lines of credit for expansion. And now, with the paired-share structure very much in favor, Hollywood Park believes it can regain that status because it was one of the firms grandfathered in.

Hollywood Park's investors could use a lift. Since 1991, when a group led by Hollywood Park Chairman Randall D. Hubbard won a nasty proxy fight to oust its former chief executive, Marjorie Everett, Hollywood Park's earnings have been weak and its stock has tumbled.

The last two years, in fact, Hollywood Park has lost money in part because of weak attendance at live racing events, including $4.3 million last year on revenue of $143.2 million. At the moment, however, it has a strong balance sheet with little long-term debt.

Still, its stock has lost more than 50% of its value since late 1993 even as the stock market has raced to record highs, although it gained $1 a share, to $14.125, on the Nasdaq market after the company's announcement.

If the company regains its paired-share status, it would separate its racetrack and other operations from its real estate holdings, make the real estate into a REIT and then re-pair the two businesses' stocks into one, Finnigan said. The change would probably not occur before the end of this year, he said.

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