- »Major Shareholders Unimpressed by Apollo-GCG Deal
Major Shareholders Unimpressed by Apollo-GCG Deal
When we reported in November that Apollo Global Management planned to acquire Great Canadian Gaming Corporation in a $3.3 billion deal, there were mixed reactions.
On one hand, there was relief. After a horrific year due to the pandemic, an infusion of confidence – not to mention money – was a welcome sight. Great Canadian Gaming’s board of directors immediately approved the deal.
On the other hand, many shareholders are not pleased. Between selling to a non-Canadian company to underestimating the value of Great Canadian Gaming, shareholders and analysts were not altogether supportive.
Apollo and GCG announced the deal on November 10. Apollo Global Management would acquire all outstanding shares of GCG’s common stock at C$39 per share. That put GCG and its 25 properties across Canada into the hands of a US-based company for approximately C$3.3 billion.
Despite the American investment, GCG assured stockholders that it would remain a Canadian company, complete with its headquarters still in Toronto. Management and board representation would also remain Canadian.
Current GCG investors, however, were not amused.
The next day, Bloomberg reported that some investors announced their intentions to oppose the deal. Fund managers at BloombergSen and CI Financial Corporation were particularly vocal, mostly due to the low sale price per share.
BloombergSen President Sanjay Sen was blunt in his assessment: “They’re selling a Canadian monopoly asset at rock bottom prices to foreign buyers.” He insisted that GCG did not need to sell and is “not bleeding cash like other Covid-affected sectors.” The Toronto-based firm owns 14% of the shares.
The only company that owns more shares (17.5%) is CI Financial. That company did not publicly comment and may not wholly vote against the offer, as shares are held in various funds.
Another large shareholder, Burgundy Asset Management, also expressed criticism, going so far as to say it will vote against the deal. A letter from Burgundy noted that GCG’s Ontario properties are “irreplaceable” and the bid from Apollo “reflects only a fraction of their potential value.”
Bloomberg obtained a statement from an Apollo representative, who said that the price per share (C$39) “delivers significant and immediate value” to shareholders. That person also noted that target prices from analysts were as low as C$24 per share and only as high as C$35 per share. Pre-pandemic shares traded as high as C$45.80.
Apollo touted its “significant experience in the gaming and hospitality industries” when noting the opportunities to maximize growth for GCG.
As a company with $414 billion in assets as of June 2020, Apollo does have experience in the investment business. The company owns pieces of everything from ADT to Cox Media Group, from Shutterfly to Smart & Final.
Past involvement in the gambling industry in the past dozen years included a 2006 acquisition of Harrah’s Entertainment for $27.4 billion (with TPG Capital) and a 2019 purchase of a 48.6% stake in Gamenet SPA in Italy.
Previous Potential Buyer Said No
The latest news from Bloomberg came at the end of November. Apollo wasn’t the first company to entertain the idea of buying Great Canadian Gaming. In fact, significant discussions broke down with that company, which led to a special board committee asking GCG management to continue reviewing potential options.
Management met to do just that in July, and Apollo knocked on the door, unsolicited, on August 28.
Although GCG didn’t disclose the name of the company, nor was there a formal proposal on the table, it curiously released the information in a November 2020 shareholder update. Quite possibly, the purpose was to indicate to nervous shareholders that there has been great interest in GCG, serious enough to go from one potential deal to another.
When Apollo first approached GCG in late August, talks included a bid of $38 to $41 per share. Instead of holding an auction, though, the board of directors agreed to take $39.
Stock Prices Affected
As happens with such major deals, the stock prices of both companies involved moved noticeably in the past several weeks.
On the New York Stock Exchange, Apollo Global Management (APO) was at $38.19 per share on November 2 but began to increase and hovered around $44 at the time of the GCG acquisition disclosure. The highest point in November — $45.77 – hit just one week after the announcement.
Investors are more cautious on Great Canadian Gaming Corporation (GC), per the Toronto market. On November 2, the price was at a monthly low of $22.37. On the news of the deal, the price soared to $39. Since then, it has stayed between $37 and $39.
On November 26, GCG notified its shareholders and optionholders that it was mailing proxy materials. The deadline for them to vote is 11am on Monday, December 21, 2020.
The meeting of securityholders is set for December 23 at 11am Vancouver time. Due to Covid-19, it will be a virtual-only format with a live audio webcast.
“The Board of Directors of Great Canadian unanimously recommends that shareholders vote FOR the transaction,” read the notice. At least two-thirds of the votes must approve the arrangement resolution.
Meanwhile, GCG continues to feel the sting of the coronavirus’ second wave. In the past several weeks, government and health officials required GCG to again suspend operations at Casino Woodbine, Elements Casino Mohawk and Elements Casino Flamboro, Casino Ajax and Great Blue Heron Casino, and Casino Nova Scotia Halifax.