Apollo Great Canadian Offer Turns Soap Opera as Another Investor, ISS Balk

Posted on: December 16, 2020, 08:00h. 

Last updated on: December 17, 2020, 08:56h.

Apollo Global Management’s (NYSE:APO) attempt to acquire Great Canadian Gaming Corp. (GCGC) for $2.5 billion has hit another stumbling block. The casino operator’s biggest investor turned back the offer and an advisory firm recommended other investors vote against it.

Apollo Great Canadian
The 2018 New Year’s Eve Celebration at River Rock Resort, owned by GCGC. Apollo is facing headwinds buying that company. (Image: Twitter)

The news comes just a day after reports surfaced that the private equity firm is considering upping its bid in an effort to quash concerns it undervalues the gaming company. Late Wednesday, it was revealed that CI Financial Corp., which owns 14 percent of GCGC’s shares outstanding, is telling its fund managers to vote against the Apollo overture. Institutional Shareholder Services (ISS), a provider of corporate governance solutions, is recommending other investors do the same.

The lack of a sale process heightens concerns regarding the timing of the offer, as shareholders cannot be confident they are receiving adequate value for their shares,” according to ISS.

Previously, some investors said Apollo is exploiting weakness in GCGC’s business caused by the coronavirus pandemic. They claim it is turning in an “opportunistic” bid that doesn’t account for the target’s operations rebounding when the virus is vanquished.

Pressure Mounting on Apollo

It isn’t a foregone conclusion that the private equity giant will increase its offer, with reports indicating that while such a move is under consideration, the suitor is also leery of overpaying.

Any prospective buyer is within its rights to consider if its offer is too low or too high. But barely more than a month after the GCGC board unanimously approved the bid, Apollo could be staring at the specter of knowing its $2.5 billion proposal won’t be accepted.

The math isn’t on the suitor’s side. Add up the shares held by investors that are publicly voicing opposition to the transaction, including CI Financial, Burgundy Asset Management, and hedge fund BloombergSen, and they own 37 percent of GCGC equity, according to Bloomberg data.

That’s more than enough to make life difficult for Apollo, and close enough to a threshold where the deal could be outright rejected. A minimum of two-thirds of GCGC’s shares outstanding must be voted to ratify a decision.

Recovery Process Has Value

Following a recent spike in COVID-19 cases, Canadian gaming properties are again shuttered, including the 25 operated by GCGC.

Still, ISS, the proxy advisory firm, maintains that Apollo’s offer doesn’t adequately address the target’s financial sturdiness and its positioning in a rebound scenario.

“The ongoing recovery among gaming peers suggests that the company could return to historical valuation levels as the operating environment normalizes over time,” according to ISS.

Vancouver-based GCGC runs casinos on both Canadian coasts and in Ontario, the country’s largest province by population. Some investors believe the Apollo bid doesn’t recognize the value of the Ontario assets, nor does it account for the potential benefits of single-game sports betting, a policy lawmakers will evaluate after the holidays.