Gateway Casinos & Entertainment expected to be left without a buyer

Open this photo in gallery

Gateway Casinos & Entertainment Ltd. may be left at the altar, as the U.S. company that pledged to acquire the B.C.-based owner of 25 properties takes steps to find a new partner.

Gateway, controlled by financier Newton Glassman’s Catalyst Capital Group Inc., announced plans to merge with New York-based Leisure Acquisition Corp. in late December, in what the two companies described as a $1.5-billion transaction.

Catalyst acquired Gateway in 2009 and first tried to sell the casino company through an initial public offering, or IPO, in 2012, then pulled the deal. Catalyst filed for a second Gateway IPO in 2018, then shifted gears a year later, announcing plans to combine forces with Nasdaq-listed Leisure Acquisition.

In March, the COVID-19 pandemic shut down Gateway’s casinos in B.C., Alberta and Ontario. Leisure Acquisitions stated in recent filings with U.S. regulators that it may abandon the bid and try to buy another gambling business. If the Leisure Acquisition deal falls apart, it will be the latest in a string of Catalyst-owned businesses that Mr. Glassman promised would be sold, then failed to exit.

In recent weeks, potential buyers in other sectors abandoned a number of takeovers announced prior to the pandemic. The list of spurned companies features businesses similar to casinos in that they require large numbers of people to be in small spaces, with failed bids for theatre chain Cineplex Inc., retailer Victoria’s Secret and mall owner Taubman Centers Inc.

The deal with Leisure Acquisition was initially set to close by April 5. When the novel coronavirus shuttered Gateway properties in mid-March, the closing date was pushed back.

Leisure Acquisition is what’s known as a special-purpose acquisition corporation, or SPAC, backed by a team of experienced casino operators. The company was created in 2017 with US$207-million of capital and went hunting for a partner. The rules that govern SPACs stipulate that if Leisure Acquisition fails to take over a business by a predetermined date, the company must return its cash to shareholders. That deadline was originally set for April, then extended to June 30.

Last Friday, Leisure Acquisition shareholders agreed to extend the deadline again, to Dec. 1, after the company said in a regulatory filing that it needed more time to close the deal with Gateway “or another initial business combination, if the company is unable to conclude its business combination with Gateway.”

“There can be no assurance that it will be possible to complete a business combination with Gateway prior to July 15,” said Leisure Acquisition in a filing with securities regulators. Gateway, Catalyst and Leisure Acquisition declined further comment on their plans.

As part of the process that extended deadlines, Leisure Acquisition allowed its investors to withdraw their money each time they gave the SPAC more time to close a deal. The bulk of shareholders have taken advantage of that opportunity: after last Friday, Leisure Acquisition only has US$13.2-million of capital, according to filings. With the SPAC’s cash melting like snow in July, Gateway faces a significant financial challenge.

Gateway built its portfolio of casinos in part with borrowed money and owed lenders $1.15-billion at the end of last year. When the Leisure Acquisition transaction was announced in December, Gateway said it planned to use cash from the SPAC to pay down $215-million of debt. In May, Gateway postponed construction of a planned $31-million casino in North Bay.

Shares in Toronto Stock Exchange-listed Great Canadian Gaming Corp., a competitor to Gateway, are down by 37 per cent so far this year, after the company closed its 25 properties. Great Canadian’s portfolio includes casinos in New Brunswick and Nova Scotia, and the company is preparing to welcome back gamblers after the two provincial governments gave initial approval in June for reopening.

Toronto-based Catalyst is a private-equity fund manager that oversees approximately $4-billion on behalf of institutional investors. The oldest of its current funds was originally scheduled to hand back cash and be wound down in 2016. In recent years, Mr. Glassman repeatedly pledged to pay back Catalyst investors by selling holdings at significant profits, then failed to deliver deals.

Catalyst said it planned an IPO at Therapure Biopharma Inc. in 2015, then announced it would sell a division of the company to a China-based company in 2017. Neither transaction took place. In 2018, Catalyst told investors it was in negotiations to sell Sonar Entertainment Ltd. and Advantage Rent A Car. No deals emerged and Advantage filed for creditor protection in late May.

Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.