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

Apollo Global Management Inc., Apollo Global Management, has proposed the $ 2.1 billion acquisition of Great Canadian Gaming Corp. Great Canadian Gaming is facing increased opposition from shareholders who complain that the price is too low given the company control of casinos in the Greater Toronto Area.

In a letter, Burgundy Asset Management, Canada’s third largest shareholder with 9.5%, said it would vote against the deal, announced earlier this month. He joins other institutional investors who have opposed the deal, including BloombergSen, which holds a 14.5% stake.

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

Burgundy said the COVID-19 pandemic, which forced casinos to close across the country, put pressure on Great Canadian’s actions, leading Apollo to submit a “disappointing and unsolicited offer”. However, the fortunes of the industry in other regions of the world have shown that gambling demand will not suffer long-term damage, he said.

Meanwhile, Great Canadian maintains a monopoly in the Greater Toronto Area, which is the richest region in the country 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.

Canada’s great CEO Rod Baker said the cash offering is a good deal for shareholders, who have seen their share value plummet after casinos and other entertainment venues close reduce the spread of COVID-19. The offer represented a 35% premium from closing the day before the announcement. The stock was up 0.5% to $ 37.81 on Tuesday.

Apollo, based in New York, which has gambling operations in the United States and Europe, says it will keep the company based in Canada. In addition, he said he plans to sell interest to Canadian institutional investors once the deal is closed. He didn’t say which ones.

CI Global Asset Management, Great Canadian’s largest shareholder with nearly 16%, does not publicly say how it intends to vote, CI Vice President Murray Oxby said. Based on current voting indications from other shareholders, a refusal by CI would effectively kill the deal in its current form.

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

As a result of how the offering was structured, Great Canadian’s pre-tax operating earnings from GTA facilities will decrease once the redevelopment expense is completed, due to the increase in its revenue threshold and the cost of gross gambling revenue, he said. That makes the $ 39 offer a good deal, McFadgen said.

“I think if they want to take this agreement to the finish line, they will have to disclose some of these in the circular,” he said.

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

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

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