Minority investors quick to reject proposed sale of Great Canadian Gaming to Apollo

Great Canadian Gaming stock ended the day at $38.90, up $9.99 or nearly 35 per cent

The Great Canadian Gaming Corp. logo is shown in a handout. The company says it has signed a deal to be bought by a U.S. private equity firm that values the casino operator at $3.3 billion. THE CANADIAN PRESS/HO

The Great Canadian Gaming Corp. logo is shown in a handout. The company says it has signed a deal to be bought by a U.S. private equity firm that values the casino operator at $3.3 billion. THE CANADIAN PRESS/HO

Great Canadian Gaming Corp.’s chief executive officer faced a barrage of questions Wednesday from some of its minority shareholders who oppose the casino operator’s acceptance of a $3.3 billion takeover announced the previous evening.

Apollo Global Management Inc. has agreed to pay $39 per share for the company — a price that’s about 35 per cent above Great Canadian’s recent value but well short of what some investment managers argue it is worth.

Great Canadian CEO Rod Baker, who has led the company for about a decade, said its independent directors had done a thorough job of analyzing Apollo’s offer but acknowledged they hadn’t approached other potential investors before unanimously recommending the deal.

“This is a very, very strong offer and reflects, we think, all of the potential of the business — factoring in what’s going to be a very difficult and uncertain period for some amount of time,” Baker said.

Great Canadian Gaming stock ended the day at $38.90, up $9.99 or nearly 35 per cent. It was the stock’s highest close since early March, a few days before the World Health Organization declared COVID-19 had become a pandemic.

The company runs 25 gaming, entertainment and hospitality facilities, primarily in Ontario and British Columbia, but has suspended most of its operations because of COVID-19-related public health restrictions.

Apollo said in its announcement that Great Canadian would remain headquartered in Toronto, led by a Canadian management team, but Baker said neither he nor his team has had any communications with the U.S. firm.

Earlier Wednesday, the company reported a $49-million net loss for the three months ended Sept. 30, of which $36.5 million or 66 cents per share are attributable to its common shareholders.

Revenue dropped 87 per cent from a year earlier to $43.1 million from $341.1 million and cash generated by Great Canadian’s operating activities shrank to $27.6 million from $99.5 million a year earlier.

Despite the impact of more than six months of reduced activity since the COVID-19 pandemic hit Canada early this year, Baker said Great Canadian can operate on a reduced level without Apollo but he recommends shareholders accept its offer.

He was criticized during the call by Bloombergsen Investment Partners, a Toronto-based investment firm that owns about 14 per cent of Great Canadian’s equity.

According to financial data firm Refinitiv, Bloombergsen is one of Great Canadian’s largest minority shareholders and Great Canadian is one of Bloombersen’s largest holdings in a portfolio worth about US$1.1 billion as of Aug. 31.

“This is a terrible and ridiculous deal,” said Sanjay Sen, president and co-founder of Bloombergsen.

“We will vote against this transaction. The equity value of the business has not been hurt, (it) isn’t burning much cash, we’ve turned the corner (on COVID) … (and) the U.S. regional casinos that are open are earning more money today than they were a year ago,” Sen said.

Baker said he recognized that Sen was upset but assured him the Apollo deal is in the best interest for shareholders and said Sen should understand that Great Canadian’s future growth may not be as strong as it has been in the past.

“This is not a sell-out on the cheap to some Americans,” Baker said.

“We don’t have to do this deal but this deal is being brought forward because it’s the absolute right thing for our shareholders. And, frankly, you and the others should take this.”

With no majority or controlling shareholder, Bloombergsen wouldn’t have enough votes to block the deal at a shareholder meeting to be held in December.

However, minority shareholder groups can sometimes combine forces to push for better terms or to block deals they oppose.

Representatives of two U.S.-based minority shareholders, Madison Avenue Partners and Breach Inlet Capital investors, said on the call that they would also vote against the Apollo deal.

Among other things, the investors said Great Canadian should have looked for alternatives to the Apollo offer, which was announced late Tuesday ahead of the company’s scheduled third-quarter financial report issued Wednesday.

David Paddon, The Canadian Press

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