Great Canadian Gaming faces shareholder opposition to $2.1-billion sale

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U.S. private equity firm Apollo Global Management Inc. has agreed to buy Great Canadian Gaming Corp. in a $2.1-billion deal that quickly faced stiff opposition from some shareholders, who complained the casino operator is being sold too cheaply to a foreign player.

Great Canadian said the cash offer is a good deal for shareholders, who saw the value of their stock tumble after casinos and other entertainment venues across the country closed to reduce the spread of COVID-19, squelching revenues.

Under the agreement announced late Tuesday, Apollo would pay $39 a share for the Toronto-based company, which operates 25 casinos in British Columbia, Ontario, New Brunswick and Nova Scotia. That represents a premium of 35 per cent over Great Canadian’s closing price on Tuesday.

Including the assumption of Great Canadian’s debt, the value of the transaction is $3.3-billion, the companies said. Shares in Great Canadian surged 35 per cent to $38.90 on the Toronto Stock Exchange on Wednesday.

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

“We believe this transaction is beneficial for our shareholders, our team members, our guests, and other stakeholders as we continue to execute on our operational and development plans into 2021 and beyond, while we navigate through this volatile time,” Great Canadian chief executive officer Rod Baker said in a statement.

But in a tense exchange during a conference call, Sanjay Sen, president of Toronto-based investment firm BloombergSen, expressed frustration that Mr. Baker would sell the company during a pandemic before shareholders could benefit from its “enormous growth potential.” BloombergSen has a 14.5-per-cent stake in Great Canadian.

“This is a terrible and ridiculous deal,” Mr. Sen said. “It is taking billions of dollars in shareholder value, long-term shareholder value, in a Canadian-controlled monopoly, and giving it to foreigners.”

He pointed out that early this year, Great Canadian sought to buy back up to $500-million in stock at up to $46 a share. The company reduced the size of the substantial issuer bid before cancelling it in March as lockdowns began.

Executives with other investment firms, including Madison Avenue Partners LP and Breach Inlet Capital Management, said on the call they would also vote against the deal.

Mr. Sen told The Globe and Mail he has fielded calls from other investors who said they oppose a sale at the agreed price.

Mr. Baker defended the agreement, saying financial risks for the business have grown and the board and management have acted in shareholders' best interests. The board has unanimously approved the takeover, and investors are slated to vote at a meeting in December.

“This is not a sellout on the cheap to some Americans,” he said on the call. “In fact, if you know me, I would not sell out to anybody ... and our board would not sell out to anybody. We’ve always run our business for the long term, for the marathon, and never put our balance sheet in the position where we’d been forced to do something that we otherwise wouldn’t want to do because it wasn’t in shareholders' interest. And we have not done that in this circumstance.”

Apollo’s approach was unsolicited, and Great Canadian did not seek other bids after discussions began, Mr. Baker said.

Shares in the company were hit hard after it was forced to shutter facilities in March. The stock had been down by a third since the start of the year, although it had rallied this week amid market optimism about a potentially effective vaccine against the coronavirus.

For the third quarter, the company reported a net loss of $49-million as revenue sank 87 per cent to $43-million from $341-million a year earlier.

Apollo partner Alex van Hoek said the fund manager is attracted to Great Canadian because of its array of properties in “the best geographic markets in Canada.” Among the properties are Casino Woodbine in Toronto, River Rock Casino Resort in Vancouver and Casino Nova Scotia in Halifax.

Apollo, which has US$433-billion in private equity, credit and real estate assets under management, has investments in such gambling and hospitality companies as GameNet, PlayAGS, Diamond Resorts and ClubCorp, and has previously owned others in the sectors.

Great Canadian was likely to remain “challenged” in the short to medium term by government-imposed restrictions owing to the coronavirus. However, it entered the crisis in good financial shape, said Canaccord Genuity analyst Derek Dley.

“This, coupled with the sharp share price decline over the last six months, likely increased Apollo’s appetite to enter into a privatization transaction with Great Canadian. We believe this is a positive outcome, given the near-term challenges, for both investors and the company alike,” Mr. Dley wrote in a research note.

Great Canadian reported in September that it had reopened casinos in Ontario and Atlantic Canada at reduced capacity in line with provincial guidelines. New restrictions and closings in response to a second wave of infections are adding to uncertainty in the gambling sector, however.

Great Canadian took the opportunity to speed up renovations in recent months, spending $99-million in the most recent quarter to upgrade a number of casinos, including properties in Pickering and Toronto. Analyst Sabahat Khan at RBC Capital Markets said in a recent report that Great Canadian can “meaningfully expand the gaming capacity” at a number of casinos in the Toronto area.

With a report from Andrew Willis

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