Great Canadian Investors Infuriated by Apollo Global Acquisition Offer

The land-based gambling market has taken a big knock having lost several months of trading. However, despite shaky financial forecasts US-based private equity group, Apollo Global Management put in a bid to acquire Great Canadian Gaming Corporation (GCG).

The deal is valued at C$3.3 billion (US$2.5 billion). That represents a price of C$39 per share, which is 35% more than the stock’s closing value on the day the offer was submitted.

 Bid Meets Board Approval

GCG CEO Rod Baker was bullish in his support of the offer, going so far as to release a statement sharing why he felt Apollo was the perfect fit for GCG:

“We believe Apollo’s extensive experience in the gaming sector will provide additional strategic benefits to help expand our gaming and hospitality offerings and to secure our position as a long-term market leader.”

The company is aware of the challenges that buying a casino group could pose at this time but remain positive for the future. Alex van Hoek, a partner in the investment firm said:

“(Apollo) is committed to working with the management team, regulators and health authorities to allow the company to reopen its properties as soon as it’s safe to do so.”

This show of faith in GCG could ultimately boost its valuation and allow the company to begin to climb out of the financial doldrums it has faced over the past year.

 Investors Push Back

While the board is set to move ahead with the deal a subset of the investors is not as gung-ho about the company’s valuation. Burgundy Asset Management, one of GCG’s larger investors, is prepared to do everything in their power to stop the deal and have labelled the offer as "opportunistic".

David Vanderwood and Andrew Lu of Burgundy described their disdain for the offer in a letter claiming it is a low-ball offer:

“We believe Great Canadian’s Ontario assets are irreplaceable properties for which Apollo’s C$39 [$30] offer reflects only a fraction of their potential value.”

Burgundy is not alone in their opinion and has the support both BloombergSen Inc. and CI Financial Corp, two major GCG shareholders.

Where Wishes and Numbers Collide

The real question being asked at this time is whether opposition to the bid is true resistance or merely an attempt to drive up the offer a few more points per share?

While the offer is based on stock prices which have shown a devaluation given the challenges posed by 2020, the reality is that Apollo’s offer is 35% above the current market value. It would appear on the surface to the perfect intersection of intent and opportunity. As the old adage says, ‘strike while the iron is hot’.

The board of directors may have unanimously approved the deal and issued a recommendation to all shareholders to do the same, however, the deal is far from finalised as it still needs to check the following boxes:

• Majority approval by the shareholders by December 2020
• Federal regulatory approval under the Investment World Act and Competition Act
• Approval by the Supreme Court of British Columbia

Should everything progress smoothly, the deal could be closed in the second quarter of 2021. Should the investors remain adamant about a higher valuation only time will tell if the deal progresses to the next stage or fails to launch at all.