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Great Canadian Gaming Corporation
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- National Instrument 51-102 Continuous Disclosure Obligations, s. 13.1 -- BAR -- An issuer requires relief from the requirement to file a business acquisition report -- The acquisition is insignificant applying the asset and investment tests; applying the profit or loss test produces an anomalous results because the significance of the acquisition under this test is disproportionate to its significance on an objective basis in comparison to the results of the other significance tests and all other business, commercial, financial and practical factors; the filer has provided additional measures that demonstrate the insignificance of the property to the filer and that are generally consistent with the results when applying the asset and investment tests.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am.
National Instrument 51-102 Continuous Disclosure Obligations, s. 13.1.
March 24, 2016
IN THE MATTER OF THE SECURITIES LEGISLATION OF BRITISH COLUMBIA AND ONTARIO (THE JURISDICTIONS) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF GREAT CANADIAN GAMING CORPORATION (THE FILER)
DECISION
Background
1 The securities regulatory authority or regulator in each of the Jurisdictions (Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) granting relief from the requirement in Part 8 of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) to file a business acquisition report (BAR) in connection with the Filer's indirect acquisition of gaming assets (East Bundle Assets) from the Ontario Lottery and Gaming Corporation (OLG) and the Ontario Gaming Assets Corporation (OGAC) (OLG and OGAC, together, the Sellers) in an area designated by the OLG as Gaming Bundle 2 (East) (East Bundle) on January 11, 2016 (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
(a) the British Columbia Securities Commission is the principal regulator for this application;
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in Alberta, Saskatchewan, Manitoba, Quebec, Nova Scotia, New Brunswick, Prince Edward Island and Newfoundland and Labrador; and
(c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
Interpretation
2 Terms defined in National Instrument 14-101 Definitions, MI 11-102 and NI 51-102 have the same meaning if used in this decision, unless otherwise defined in this decision.
Representations
3 This decision is based on the following facts represented by the Filer:
The Filer
1. the Filer is a corporation existing under the British Columbia Business Corporations Act and its head office is located in Coquitlam, British Columbia;
2. the Filer is a reporting issuer under the securities legislation of each of the provinces of Canada;
3. the common shares of the Filer are listed and posted for trading on The Toronto Stock Exchange under the trading symbol "GC";
4. the Filer is not in default of securities legislation in any jurisdiction;
5. the Filer is in the business of acquiring and operating gaming facilities in Canada and the United States;
The Acquisition
6. the Filer is the 90.5% majority owner of Ontario Gaming East Limited Partnership (OGELP);
7. on January 11, 2016, the OGELP acquired the East Bundle Assets from the Sellers (Acquisition), inclusive of $12.3 million of working capital, for an aggregate purchase price of $51.3 million, subject to certain agreed upon post-closing adjustments;
8. on closing of the Acquisition, the OLG and the OGELP entered into a Casino Operating and Services Agreement (COSA) that provided that the OGELP would be retained as the exclusive service provider to the OLG to operate the gaming facilities in the East Bundle with all gaming revenues generated from the East Bundle Assets remaining the property of the OLG;
9. under the COSA, OGELP has guaranteed to OLG that the OLG will earn from gaming operations in the East Bundle Assets a pre-established annual gaming revenue threshold payment;
10. in consideration for providing the services under the COSA, the OLG will pay to the OGELP annual fees comprised of (i) an annual fixed component, (ii) a variable component equal to 70% of gaming revenues from the East Bundle Assets that are in excess of a pre-established annual gaming revenue threshold amount payable to OLG under the COSA, and (iii) a fixed amount for permitted capital expenditures;
11. the indirect acquisition of the East Bundle Assets constitutes a "significant acquisition" of the Filer for the purposes of Part 8 of NI 51-102, requiring the Filer to file a BAR within 75 days of the acquisition pursuant to section 8.2(1) of NI 51-102;
Significance Tests for the BAR
12. under Part 8 of NI 51-102, the Filer is required to file a BAR for any completed acquisition that is determined to be significant based on the acquisition satisfying any of the three significance tests set out in section 8.3(2) of NI 51-102;
13. the acquisition of the East Bundle Assets is not a significant acquisition under the asset test in section 8.3(2)(a) of NI 51-102 as the proportionate value of the East Bundle Assets represented approximately 4.6% of the consolidated assets of the Filer as of December 31, 2014;
14. the acquisition of the East Bundle Assets is not a significant acquisition under the investment test in section 8.3(2)(b) of NI 51-102 as the proportional investment in the East Bundle Assets represented approximately 2.9% of the consolidated assets of the Filer as of December 31, 2014 ;
15. the acquisition of the East Bundle Assets would, however, be a significant acquisition under the profit or loss test in section 8.3(2)(c) of NI 51-102 and the optional profit or loss test in section 8.3(4)(c) of NI 51-102 as a result of the Filer's proportionate share of the consolidated specified profit of the East Bundle Assets exceeding 20% of the consolidated specified profit of the Filer calculated using (i) audited annual financial statements of the Filer and unaudited annual financial information for the East Bundle Assets for the year ended December 31, 2014, and (ii) unaudited financial information for each of the Filer and the East Bundle Assets for the twelve months ended September 30, 2015;
16. the application of the profit or loss test produces an anomalous result for the Filer because it includes gaming revenues derived from the East Bundle Assets that OGELP has not paid to acquire and will not be entitled to as a result of the completion of the Acquisition and therefore exaggerates the significance of the Acquisition out of proportion to its significance on an objective basis in comparison to the results of the asset test and investment test;
Not a Significant Acquisition
17. the Filer believes that the application of the profit or loss test does not demonstrate any correlation with the actual significance of the Acquisition from a commercial, business or financial perspective; and
18. the Filer has provided additional operational measures that better demonstrate the significance of the indirect acquisition of the East Bundle Assets to the Filer; these additional operational measures compared other operational information including the Filer's proportionate share in (i) the pro-forma specified profit and loss of the East Bundle Assets applying the service fees formula under the COSA and an estimate of OGELP's management and administration expenses, and (ii) the pro forma revenues attributable to the East Bundle Asset applying the service fees formula under the COSA and an estimate of OGELP's management and administration expenses, and the results of those measures are generally consistent with the results of the asset test and the investment test.
Decision
Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Makers under the Legislation is that the Exemption Sought is granted.
"Paul C. Bourque, Q.C."
Executive Director
British Columbia Securities Commission