Apollo faces growing shareholder opposition to its $ 2.1 billion bid for Great Canadian Gaming

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Great Canadian Gaming’s, River Rock Casino is held in Richmond, British Columbia on December 5, 2017.

Ben Nelms

Apollo Global Management of Apollo Global Management Inc. has proposed a $ 2.1 billion takeover of Great Canadian Gaming Corp. Great Canadian Gaming faces greater 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 Canadian shareholder with 9.5%, announced its intention to vote against the deal, announced earlier this month. He joins other institutional investors who have spoken out against the transaction, including BloombergSen, which has a 14.5% stake.

For the buyout to go ahead, Apollo, the New York-based private equity firm, is demanding that holders of two-thirds of the shares vote in favor of the $ 39-share offer at a meeting in December. Great Canadian, based in Toronto, operates 25 casinos in Ontario, British Columbia, New Brunswick and Nova Scotia.

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Burgundy said the COVID-19 pandemic, which has forced casinos to close across the country, has put pressure on Great Canadian shares, and this has led Apollo to make a “disappointing unsolicited offer.” However, the fortunes of the industry in other parts of the world have shown that the demand for gambling will not suffer long-term damage, he said.

Meanwhile, Great Canadian maintains a monopoly in the Greater Toronto Area, which is the wealthiest region in the country and where the company has “significant growth potential.” said the investor.

“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,” said Burgundy.

Great Canadian chief executive Rod Baker said the cash offer was a good deal for shareholders, who saw their stock values ​​plummet after casinos and other entertainment venues closed. to reduce the spread of COVID-19. The offer represented a 35% premium from the close the day before its announcement. The stock rose 0.5% to $ 37.81 on Tuesday.

New York-based Apollo, which owns gambling businesses in the United States and Europe, says it would keep the Canada-based company. In addition, he said he plans to sell interests to Canadian institutional investors once the deal is completed. He didn’t say which ones.

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

The value disagreement appears to stem from a lack of detailed information from Great Canadian on how it is preparing to generate future profits in its holdings in the Greater Toronto Area, which it won in a sale to Ontario government’s long-term lease auction, said David McFadgen, analyst at Cormark. Securities Inc. Mr. McFadgen recommended that investors accept the offer.

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Due to the way the tender was structured, Great Canadian’s pre-tax operating income from the GTA facilities will decline after the redevelopment expenses are completed. due to the increase in its revenue threshold and the cost of gross gaming revenue, he said. That makes the $ 39 offer a good deal, McFadgen said.

“I think if they want this deal to cross the finish line, they will have to disclose part of it in the circular,” he said.

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

For its part, Apollo said its offer represents a higher price than future targets that have been set by analysts who follow Great Canadian. “Apollo Funds’ cash offering of $ 39 per share provides significant and immediate value to Great Canadian shareholders, despite the significant impacts COVID-19 has had on the company for an extended period,” said the Apollo spokesperson Erin Clark in a statement. .

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