It isn’t often one gets to witness the spark of a revolt, but that may be what listeners heard on the Great Canadian Gaming Corporation third quarter conference call.
The Toronto-listed company announced on the evening prior to the morning call that it has agreed to be sold to Apollo Management for $39 a share.
Given that the price was a 35 percent premium to its previous day’s (November 10) close and 71 percent over its price as recently as October 30, it superficially sounded like a great deal for Great Canadian investors.
Until the investors spoke up.
Sanjay Sen of Bloomberg was the first and most outspoken, calling the proposed deal terrible and ridiculous.
Why, he asked, had the company spent $900 million buying back shares at $45 in order to sell the whole company at $39. And to those foreigners, he added.
Eli Samaha from Madison Avenue Partners said his firm will vote its 2.3 million shares against the acquisition.
Another institutional investor said that, if valued the same as American peers, Great Canadian is worth $70 to $110 a share. And that doesn’t take into consideration its government-granted monopoly in Metro Toronto.
The two firms hold around 16 percent of the stock. They will vote against the sale, they said. A third institutional investor, Chris Colvin of Breach Inlet Capital, added his firm to the opposition.
CEO Rod Baker said that if shareholders oppose, then he hasn’t done his job of showing he is not selling “on the cheap to the Americans,” and might not remain CEO.
That bought this response: “If you want to do another job, I think we can find another person to take over.”
Baker’s comments touched off déjà vu for me.
Last year, when Great Canadian and its two partner investment firms were granted the Toronto Metro casino monopoly, it struck me as a once-in-a-lifetime opportunity for a mid-size company. After all, MGM Resorts and Las Vegas Sands earlier had indicated they would be glad to build a multi-billion resort in Toronto if given the right, and that was even without being given control of outlying casinos for a reginal monopoly.
Fantini Gaming Report Editor Blake Weishaar set about writing a research note that showed, comparing Toronto to US metros, Great Canadian EBITDA could triple. In fact, the long-term expectation could be even greater given monopoly status and the chance to build the kind of integrated resort US regional markets mostly lack and that the company would earn management fees.
It was surprising, then, when Great Canadian management seemed to downplay the potential of the Toronto Metro monopoly. It was much like the company’s investors were told in the most recent conference call that they don’t understand the potential return on Great Canadian’s Toronto investment.
Obviously, it’s surprising, too, to its major shareholders. A firm doesn’t hold 14 percent of a company’s stock without having a sense of its value and potential.
The same is true of Apollo. It didn’t grow to manage more than $400 billion in assets by not knowing the value of its investments, and it wouldn’t invest in Great Canadian to that value flat line or decline.
So, that raises the question, is there someone else out there willing to pay more than $39 a share for Great Canadian?
