Burgundy Balking: Asset Manager Says Apollo Offer Undervalues Great Canadian Gaming

Posted on: November 24, 2020, 01:43h. 

Last updated on: November 24, 2020, 02:39h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

There’s takeover drama north of the border. Burgundy Asset Management says it has no plans to vote in favor of Apollo Global Management’s (NYSE:APO) $2.5 billion takeover offer for Great Canadian Gaming Corp. (GCGC).

Great Canadian Gaming
Great Canadian Gaming’s Casino Woodbine in Ontario seen here. Investors say Apollo’s takeover for the operator is too small. (Image: Toronto Star)

Private equity behemoth Apollo revealed its acquisition plans for the gaming company on Nov. 11, valuing the casino operator at C$39 a share. That’s a 35 percent premium to its closing price on that day.

That’s a tidy multiple, particularly in the coronavirus environment that’s depressing prices on gaming assets. However, Burgundy reportedly doesn’t see things that way and views the private equity firm as playing the part of opportunist in its quest for Great Canadian.

We believe Great Canadian’s Ontario assets are irreplaceable properties for which Apollo’s C$39 offer reflects only a fraction of their potential value,” Burgundy portfolio managers David Vanderwood and Andrew Iu wrote in a letter obtained by Bloomberg.

The money manager’s view on the matter is relevant because it controls 9.5 percent of Great Canadian’s equity outstanding, making it the gaming company’s third-largest investor.

The Toronto-based asset manager plans to hold onto shares in the casino operator and vote against the Apollo offer. A call to Burgundy by Casino.org wasn’t returned prior to publication of this article.

Canadian Soap Opera Brewing

Founded in 1982, GCGC operates 25 casinos and pari-mutuel establishments spanning from Canada’s Atlantic Coast to British Colombia.

According to the letter referenced in the Bloomberg article, Burgundy believes Apollo is exploiting the weakness in GCGC’s Ontario operations.

The action by Apollo was forced by the pandemic to “opportunistically approach the company with an underwhelming, unsolicited bid.” However, the shareholder sees the operator’s COVID-19 risk as tolerable, and that its properties on both Canadian coasts “provide a reliable valuation floor.”

Adding to the headwinds Apollo faces to bring this deal across the finish line is the fact that GCGC’s two largest investors — fund managers BloombergSen and CI Financial — apparently have the same feelings as Burgundy.

BloomberSen, a Toronto-based hedge fund, controls 14 percent of GCGC equity. It immediately criticized Apollo’s offer, with co-founder Sanjay Sen calling it “a terrible and ridiculous deal.”

Madison Avenue Partners and Breach Inlet Capital, two US-based investment firms with smaller GCGC stakes, also said they plan to vote against the Apollo proposal.

Apollo Diligently Trying for Gaming Assets

There’s no denying Apollo is on the prowl this year for gaming assets. After losing out to Caesars Entertainment (NASDAQ:CZR) in an effort to acquire sportsbook operator William Hill, it’s rumored the private equity firm is waiting for Caesars to complete that transaction and sell the acquired firm’s European business.

Apollo has a deep history with the casino business. In 2006, it partnered with Texas Pacific Group (TPG) to acquire Harrah’s Entertainment, which would eventually become Caesars, for $27.8 billion.

That deal later proved to be a burden during the global financial crisis and several years later, as “old Caesars” filed for bankruptcy protection. Apollo and TPG liquidated their Caesars stakes in March 2019, three months before Eldorado Resorts offered $17.3 billion for the gaming company.

As for GCGC, there’s no word yet as to whether the suitor will up its offer. But the saga is the latest instance of buyers having difficulty sealing transactions with Canadian gaming firms this year.