National Post (National Edition)
MARKET SAYS ONTARIO FLEECED
Province’s sale of gambling assets in GTA
It may not be top of mind for Doug Ford, but if Ontario’s incoming premier wants to act in the best interests of taxpayers then a review of how the provincial government sells assets would be a good place to start.
And based on what is learned from that analysis, a plan could be put in place to ensure the province, and hence the taxpayer, gets full value in the future.
The latest example of an apparently less-than-optimal sale involved the disposition of gaming assets including OLG Slots at Woodbine and Ajax Downs, and the Great Blue Heron Casino — the so-called “GTA Gaming Bundle.”
This year, a three-member consortium — Great Canadian Gaming Corp., Brookfield Business Partners LP and Clairvest — acquired the right to run the gaming assets for at least the next 22 years. That deal was announced Jan. 23.
On May 9, Great Canadian, which along with Brookfield each own 49 per cent, released its financials which revealed the great deal received by the consortium.
The consortium’s purchase price, according to Great Canadian, was $158 million, which landed them $161.3-million in total assets. But the GTA Gaming Bundle itself held $62 million of cash at the time of acquisition — which effectively meant the group paid less than $100 million. The consortium also arranged a $1.05-billion credit facility.
Great Canadian said that in the two-plus months it had operated the assets, the GTA bundle contributed an extra $86.7 million in revenue and, staggeringly, an extra $31.3 million in net income. Based on those numbers, the consortium will have paid for its investment in well under a year — which makes a mockery of the normal rule that businesses sell at 10-15 times earnings of 9-11 times EBITDA.
Investors lapped up the news as have the analysts: two of the five who cover the company changed their rating: Great Canadian now has three buys and two holds.
Since those financials, Great Canadian’s share price is up by almost 50 per cent. It closed Monday at $54.87; on May 9, it closed at $37.26.
So, over the period to last Friday from May 9, Great Canadian’s market cap, based on 61 million shares outstanding, jumped by $1.115 billion — or almost 50 per cent.
That suggests the market is saying the GTA bundle the consortium purchased for around $100 million last January is now worth $2.275 billion. In other words the taxpayer received less than five per cent for what the assets are worth, and the province missed out on about $2 billion.
In an email, OLG disputed this way of looking at the deal. It said the transaction is not a “simple one-time asset sale” with the purchase price “being the only measure of financial value.”
OLG added the purchase price is for the gaming assets “used to operate the gaming sites in the bundle,” and that the process to sell the assets was “open, fair and competitive (and) in line with public sector procurement guidelines.”
It also provided a backgrounder on the compensation structure where all gaming revenue flows to OLG; where OLG retains the revenue until a specified annual threshold is reached; after that level, the consortium keeps 70 per cent. OLG added, “further details about the financial arrangement are commercially confidential.”
The lack of transparency means one of two conclusions: either the market or OLG is wrong on the issue. Maybe Doug Ford can provide the answer.