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The front facade of Casino Woodbine in Toronto, is pictured here on Nov., 11, 2020.Christopher Katsarov/The Globe and Mail

Great Canadian Gaming Corp. trumpeted its 2018 acquisition of Greater Toronto Area casinos as a transformational opportunity for its shareholders.

Just over two years later, the company is warning those assets represent a big risk for investors, and says Apollo Global Management Inc. is doing them all a favour by offering to take on the danger itself through its $2.1-billion takeover bid.

So, did Great Canadian roll boxcars or snake eyes with its bids for the GTA’s casinos?

Early this month, Great Canadian announced that Apollo, the U.S. private-equity company with its own gambling-related businesses, is offering $39 a share for the casino and entertainment company. Some of its large investors have harshly condemned the bid as lowball.

The company, led by chief executive Rod Baker, said the bid represents good value as it struggles with its facilities across the country closed under government order to prevent the spread of COVID-19. At the same time, it is spending major coin on renovations.

Shareholders, including BloombergSen and Burgundy Asset Management, say the bid undervalues the company, partly because of Great Canadian’s stranglehold on casinos in the country’s richest region. The pandemic won’t last forever and, they contend, when gambling returns, so will Great Canadian’s financial fortunes.

The information circular for the Apollo bid, released this past week, only serves to fuel the debate over the long-term value of the GTA “bundles” of casinos, which Great Canadian and its partners won in 2018 in auctions held by government-owned Ontario Lottery and Gaming Corp.

In it, Great Canadian warns that the costs associated with renovating such Ontario facilities as Casino Woodbine and Pickering Casino could rise faster than the potential revenues. The overall renovation costs are pegged at $1.48-billion, and more than half of the expenditures are slated for next year.

Then, running the expanded facilities will mean “significantly” higher operating and staff costs. “There is no certainty that the company will be able to achieve a sufficient return on the remaining capital expenditures if revenues post-completion of the construction do not achieve pre-pandemic estimates,” Great Canadian says in the circular.

The way the business works, the company must exceed a threshold for gross gambling revenue to cover the amounts that flow to the Ontario government, plus operating costs, capital spending and then its own returns.

In a letter to Great Canadian’s board last week, Burgundy Asset Management, which has 9.5 per cent of the stock, pointed to other regions where casino gambling has been allowed to resume and said demand has not been impaired.

It pointed to comments Mr. Baker made in late 2018 that gross gambling revenues in the GTA were already surpassing the threshold amounts. Burgundy suggested that Apollo is taking advantage of the current restrictions on the gambling and hospitality sectors by launching its “underwhelming, unsolicited bid.”

That last comment, specifically the unsolicited part, will undoubtedly be a topic of heated discussion in the upcoming days as Mr. Baker and his colleagues reach out to investors to try to explain why they think this is the right deal.

The circular revealed the details of an effort to sell the company in 2018. After canvassing a range of potential suitors, nine of them, including Apollo, signed nondisclosure agreements and received the company’s proprietary data to run the numbers. In the end, all of them passed on a deal.

Great Canadian said some had expressed concern that the cost structure of the Ontario operations could be too high once the casino renos were completed.

Now, the company’s special board committee and financial advisers say Apollo’s bid is fair, though it has opted not to recanvass the market for other interest with an end to the pandemic starting to come into view.

A sizeable portion of Great Canadian’s shareholder base says it will vote against the deal next month, so Mr. Baker has a big communications challenge on his hands. Given the feedback from would-be bidders two years ago, he’ll need to explain whether betting the company on dominating the casino business in the GTA was ever worth it.

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