Great Canadian Gaming (GC.TO) – Merger Arbitrage – 6% Upside

Current Price: C$37.24

Offer Price: C$41.00+ (updated C$45.00)

Upside: 10%

Expiration Date: TBD

Information Circular

This idea was shared by Edwdo.


NOTE: The situation has developed much further and the current write-up now serves as a background of the situation. For further developments, please refer to the comment section below.


Great Canadian Gaming is subject to an acquisition by the prominent PE fund Apollo at C$39/share in cash. However, major shareholders with a combined ownership of 38% have opposed the merger and intend to vote against it. The meeting date is set for the 23rd of December, while approval from 2/3rds of the votes cast will be needed. Last week, rumors came out that Apollo might increase its offer in order to get the support from shareholders, however, the amended offer will likely stay in the range of up to C$41/share. The upward adjustment seems possible as Apollo is a credible buyer with plenty of experience in the gaming sector and the initial offer itself is opportunistic. The definitive agreement has already been signed. The price seems low (6.1x 2019 adj. EBITDA) and definitely has headroom for improvement. It is likely that Apollo will not let this opportunity slip away easily and we will see at least one bump to the offer price.

The main risk is that shareholders reject the acquisition and Appolo does not offer a higher bid.

Downside to pre-announcement price (C$24/share) is quite large. In contrast to US peers, most of GC properties are still closed and GC share was ligering significantly below the pre-covid levels of C$43/share. Assuming the re-opening in H1’21 and recovery of Canadian gaming sector in-line with US peers, the company seems cheap and is likely to trade above C$24/share in case the transaction breaks.


Some more details in favor of the trade

  • There is substantial opposition to the current proposal and in order to proceed, the buyer will have to increase the price. CI GAM (owns 14%), BloomberSen (owns 14%), and Burgundy Asset Management (9.5%), and even certain minority holders have all expressed their dissatisfaction and stated that they will not support the proposal. Two major proxy firms ISS and Glass Lewis have also recommended voting against the proposal stating that the offer is opportunistic and the company has sufficient financial strength to recover after the pandemic.
  • The offer comes at 6.1x 2019 adj. EBITDA, while US-listed peers now trade around 10x 2019 adj. EBITDA. For the major part, this gap exists because GC still has most of its properties closed – only 6 out of 26 casinos are open and just at 20-25% capacity, whereas US peers have already re-opened most of their properties and in Q3 have reported a very rapid recovery generating 81% (vs 13% for GC) of the last year’s revenues (Casino revenues are in line or higher than last year, while the deficit comes mostly from food/room segments, etc.). This shows that the value of the assets/properties of Casino operators have not been impaired much by the pandemic and as stated by ISS: “the company could return to historical valuation levels as the operating environment normalizes over time”. So assuming quick recovery (as seen at the US peers), the offer price looks cheap.
  • An increase to C$41/share (as rumored) would still be in the (C$38-C$41/share) range stated in Apollo’s preliminary proposal back in August. The buyer could increase the price at least to this level. C$41/share would also make much more sense in light of the recent GC buybacks. During 2019 the company has repurchased over C$180m of shares at an average price of C$42/share. Also earlier this year GC announced a tender offer for 20% of outstanding shares in the range of C$39-C$46/share (the offer was canceled due COVID outbreak). So an acquisition bid at C$41/share is more likely to win shareholders’ approval.
  • GC looks like a high-quality acquisition for Apollo and the buyer is unlikely to back away. GC operates 26 gaming venues and has a monopoly in several Canadian cities (Toronto, New Brunswick, Nova Scotia). It does have a concentrated shareholder base, however, it’s not like the buyer did not know that before making an offer. The current proposal also came at the lower level of the initially indicated range (C$38-C$41), which left space for an improved ooffer. Apollo itself is a major PE fund (over US$400bn AUM) and financing is not an issue here. It has a history of gaming investments and has recently been looking for more bargains in the sector. Earlier this month the buyer has agreed to acquire an Italian gaming machine manufacturer for US$1.15b, while in November it lost a bidding war for William Hill (UK bookmaker) to Ceasars.



  • Apollo can decide not to increase the offer price in which case the acquisition will get voted down in the upcoming meeting.
  • If the price increase doesn’t satisfy the shareholders, the acquisition can still fail. Some reports indicate that certain shareholders want to see not less than C$70/share, which most probably is beyond Apollo’s range (it’s a financial investor).
  • During 2018 GC conducted a strategic review process. From July’18 to September’18 27 bidders were contacted, including both strategic and financial suitors. 9 potential bidders, including Apollo, entered due diligence and some bidders asked for supplemental data. As a result, no offers were made, while the company reports that certain potential buyers have stated that “Great Canadian ran the risk of having a cost structure that was too high relative to the expected revenue growth, and as a result, future profitability could be adversely affected”. This doesn’t add confidence to the current situation. However, it is worth noting that GC was trading at around C$50/share during 2018 and any offers would have had to be made at a premium to this price.


Great Canadian Gaming

The Company operates 26 gaming, entertainment, and hospitality facilities in Ontario, British Columbia, New Brunswick, and Nova Scotia. The Company operates 11 casinos and two racetracks in Ontario, 10 gaming facilities in British Columbia, including two racetracks, and three gaming facilities in Atlantic Canada.


15 thoughts on “Great Canadian Gaming (GC.TO) – Merger Arbitrage – 6% Upside”

  1. Curious what your thoughts are on GC.TO right now? Looks like a good opportunity for merger arbitrage given that they have already secured the line share of the votes and want to get this done quickly and already have most of the process completed. May be a ~3% return in a month or two tops?

    • Press release said deal wouldn’t close till Q2, assuming May/June, would be a reasonable, but not great, IRR.

  2. In two months, the spread for the Great Canadian Gaming takeover has slowly increased to 6%+. Meanwhile, shareholder approval (used to be the biggest hurdle) and court approvals have already been received. The merger is expected to close in Q2, so just several months away, and offers interesting IRR opportunity on what seems to be a rather safe bet.

    The only remaining condition is regulatory consent – competition and foreign investment authorities of Canada. This has never been even considered as a potential threat to the transaction. GC.TO is a major gaming operator in CA and British Columbia, however, as far as I am aware, Apollo doesn’t own any other gaming assets there and overall, is a credible, purely financial buyer.

    Meanwhile, the gaming industry is continuing to recover – GC.TO has opened several more casinos this year, while US peers are continuing to soar.

    Am I missing something?

  3. I think the widening of the arb spread is linked to the firing of the CEO because the timing aligns perfectly. He was fired on Jan. 25th, coinciding with the beginning of the stocks drift down. The CEO got fired for trying to “jump the line” on getting a COVID vaccine.

    Interesting story – he and his wife flew to the Yukon, went to a small town with a population of 103, posed as motel workers to get their vaccine at a mobile vaccination center.

    My guess is selling shareholders took the position that if he is dishonest in his personal life maybe he was dishonest in his professional life and holding the stock for the arb isn’t worth the risk that something nefarious is uncovered. He was CEO for about a decade.

    • Given that an outsized number of CEOs are sociopaths, this really shouldn’t be too surprising.

  4. The Cullen Commission is ongoing and Great Canadian’s name is in the mud every day. While I think the fact they facilitated money-laundering is known to all parties all the current press around it could potentially be unsettling to Apollo. For Apollo it’s a small acquisition so reputation risk may require them to withdraw. Just a thought.

    • If the deal “is expected to be completed in the second quarter of 2021”, i.e. a little over one month from now, then the 2% spread currently available is actually quite attractive.
      Any new risks/obstacles have emerged since the April update from GC?

      • Definitely seems interesting. The latest Q1 update (May) also states that closing is expected in Q2’21 and that “Significant progress has been made in the closing of the arrangement with Apollo Funds, as demonstrated by the recent Investment Canada Act approval”. The only thing that I see is that post-COVID recovery is playing out slower than expected, which likely reduces the initially assumed IRR for Apollo.

        Still, given the short remaining timeline, the chances of termination seem low.

  5. Spread for the Great Canadian Gaming merger arbitrage has been eliminated. The idea is closed with 6% in 4 months.

      • Spread has remained elevated at 2.4%, for a deal expected to close in the 3rd quarter.

        I don’t have any company-specific explanation, but thought a recent article (published on 27 August ) by GMO’s event driven team may be interesting to fellow members.

        The article argues that there currently exists technical-driven supply/demand imbalance in the merger arb market, causing spread to widen to historically top quartile level.

        If this were a strategy-wide sell-off driven by technical factors, now may be the good time to double down on some ongoing deals.

        “The chart breaks the daily weighted average gross spread of our Event-Driven Strategy going back to late 2014 into quartiles and calculates the median spread for each cohort.
        The overall median spread across nearly 1,700 observations has been 5.9%. Wide deal spreads are a key indicator of attractive prospective returns.
        Earlier in the month [August], our portfolio’s weighted average gross spread stood at a whopping 11.3%, far in excess of the top quartile’s 9.7% median.
        Even after the hectic rush of forced selling has largely calmed, its impact lives on and this metric remains elevated in the top quartile.”


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