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Great Canadian Gaming's, River Rock Casino stands in Richmond, B.C. on Dec. 5, 2017.Ben Nelms

Apollo Global Management Inc.’s Apollo Global Management proposed $2.1-billion takeover of Great Canadian Gaming Corp. Great Canadian Gaming is facing more opposition from shareholders who complain that the price is too low given the company’s control over casinos in the Greater Toronto Area.

In a letter, Burgundy Asset Management, the third-largest Great Canadian shareholder with 9.5 per cent, said it plans to vote against the deal, announced earlier this month. It joins other institutional investors that have come out against the transaction, including BloombergSen, which has a 14.5-per-cent stake.

For the takeover to proceed, Apollo, the New York-based private-equity firm, requires holders of two-thirds of the stock to vote in favour of the $39-a-share offer at a meeting in December. Toronto-based Great Canadian operates 25 casinos in Ontario, British Columbia, New Brunswick and Nova Scotia.

Burgundy said that the COVID-19 pandemic, which forced casinos to close across the country, put pressure on Great Canadian’s shares, and that led to Apollo presenting an “underwhelming, unsolicited bid.” However, the industry’s fortunes in other global regions have shown that demand for gambling will not suffer long-term damage, it said.

Meanwhile, Great Canadian maintains a monopoly in the Greater Toronto Area, which is the country’s most affluent region and where the business has “significant growth potential,” the investor said.

“In short, we believe Great Canadian’s Ontario assets are irreplaceable properties for which Apollo’s $39 offer reflects only a fraction of their potential value,” Burgundy said.

Great Canadian chief executive Rod Baker has said the cash offer is a good deal for shareholders, who saw the value of their stock tumble after casinos and other entertainment venues closed to reduce the spread of COVID-19. The offer represented a 35-per-cent premium from the close on the day before it was announced. The stock rose 0.5 per cent to $37.81 on Tuesday.

New York-based Apollo, which has gambling businesses in the United States and Europe, says it would keep the company based in Canada. In addition, it said it expects to sell interests to Canadian institutional investors when the deal is done. It has not said which ones.

CI Global Asset Management, Great Canadian’s largest shareholder with nearly 16 per cent, is not saying publicly how it intends to vote, CI vice-president Murray Oxby said. Based on the current voting indications by other shareholders, a rejection by CI would effectively render the deal dead in its current form.

The disagreement in value appears to stem from a lack of detailed information from Great Canadian about how it stands to generate future earnings at its GTA holdings, which it won in an Ontario government auction of long-term leases, said David McFadgen, analyst at Cormark Securities Inc. Mr. McFadgen has recommended that investors accept the offer.

As a result of how the bidding was structured, Great Canadian’s pretax operating earnings from the GTA facilities will decline once redevelopment spending is completed, because of increases in its revenue threshold and the cost of gross gambling revenue, he said. This makes the $39 bid a good deal, Mr. McFadgen said.

“I think if they want to get this deal across the finish line, they’ll have to disclose some of this in the circular,” he said.

The company aims to release the circular, providing the details and background of the offer, later this week or early next.

For its part, Apollo said its offer represents a higher price than future targets that had been set by analysts that follow Great Canadian. “Apollo Funds’ cash offer of $39 per share delivers significant and immediate value to the shareholders of Great Canadian, despite the material impacts COVID-19 has had on the business for a prolonged period of time,” Apollo spokeswoman Erin Clark said in a statement.

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