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The proposed partial disposal of shareholdings in Sunwest and Worcester
SUN INTERNATIONAL LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1967/007528/06)
Share code: SUI
ISIN: ZAE000097580
("SIL")
THE PROPOSED PARTIAL DISPOSAL OF SHAREHOLDINGS IN SUNWEST INTERNATIONALPROPRIETARY LIMITED AND
WORCESTER CASINO PROPRIETARY LIMITED
1. Introduction
Terms have been agreed between SIL, Grand Parade Investments Limited ("GPI") and Tsogo Sun
Gaming Proprietary Limited ("Tsogo") regarding a proposed disposal by GPI and SIL of a 10% interest
each in SunWest International Proprietary Limited ("SunWest") and a 10% interest each in Worcester
Casino Proprietary Limited ("Worcester") (collectively the "Western Cape Assets") to Tsogo ("Proposed
Transaction").
2. Background to the Western Cape Assets
SunWest and Worcester have casino and hotel operations in the Western Cape. SunWest’s primary
assets are the GrandWest Casino and the Table Bay Hotel in Cape Town situated on the historic
Victoria & Alfred Waterfront. Worcester operates the casino, hotel and ancillary leisure and
entertainment business in respect of the Golden Valley Casino at Worcester in the Breede River Valley.
3. Structure of the Proposed Transaction
During May 2014, SIL, GPI and Tsogo ("the Parties") announced a transaction whereby Tsogo would
have acquired a 40% interest in SunWest and Worcester ("Previous Transaction"). In January 2015 the
Competition Commission ("the Commission") recommended to the Competition Tribunal ("the
Tribunal") that the Previous Transaction be prohibited. The Parties did not agree with the
recommendation made by the Commission and opposed such recommendation before the Tribunal.
A key condition of the Previous Transaction was that it be implemented by 31 August 2015. It became
apparent that the Tribunal process was such that the Previous Transaction could not be concluded
prior to 31 August 2015 (being the long stop date) and the Parties concluded that it was not possible to
simply extend the date again as the commercial metrics agreed to had changed due to the effluxion
of time. The Parties, by mutual agreement, therefore decided to terminate the Previous Transaction in
July 2015.
When structuring the Proposed Transaction, in addition to reducing the shareholding to 20% and
revising the commercial metrics from the Previous Transaction, Tsogo’s investment in the Western Cape
Assets will be limited to that of a passive investor and Tsogo will therefore have no:
- Representation on the board of directors of either SunWest or Worcester;
- Operational involvement in the Western Cape Assets nor any material influence in respect of the
conduct of the businesses of the Western Cape Assets; or
- Access to any information regarding the Western Cape Assets, except for information to which it
has statutory rights as a shareholder, which will include the audited financial statements of the
Western Cape Assets.
4. Salient Terms of the Proposed Transaction
The Proposed Transaction entails SIL disposing of a 10% economic interest in the Western Cape Assets
for a purchase consideration of R675 million ("Purchase Consideration") ("Sun Disposal"). The Purchase
Consideration is calculated based on the aggregate of the forecast EBITDA to 30 June 2016 and the
aggregate of the forecast net debt position at 30 June 2016 of the Western Cape Assets. In the event
that the 30 June 2016 actual EBITDA is less than the forecast 30 June 2016 EBITDA by more than R25
million then an adjustment will be made to the Purchase Consideration. The Purchase Consideration
will also be adjusted by any variation from the forecast net debt. Tsogo will settle the Purchase
Consideration through the payment of 18 monthly cash installments of R37.5 million (unless adjusted per
the aforegoing) commencing in the month following the fulfillment of the condition precedent to the
Proposed Transaction, which condition is anticipated to be fulfilled by 30 April 2016.
The Proposed Transaction also entails GPI disposing of a 10% economic interest in the Western Cape
Assets on the same terms as the Sun Disposal ("GPI Disposal"). The GPI Disposal is conditional on GPI
obtaining the approval of its shareholders by 30 June 2016, which date may be extended by 30 days at
the instance of GPI. In the event that GPI shareholder approval is not obtained by this date then SIL will
increase the shares disposed of under the Sun Disposal such that Tsogo acquires a further 10% stake in
the Western Cape Assets from SIL, bringing Tsogo’s aggregate interest in the Western Cape Assets to
20%.
The Proposed Transaction will not result in a change of control in respect of the Western Cape Assets.
Following the implementation of the Proposed Transaction, the effective voting and economic
shareholding of the Western Cape Assets will be as follows:
SunWest Worcester
SIL and GPI Sell 10% Each SIL Sell 20% SIL an GPI Sell 10% Each SIL Sell 20%
Voting Economic Voting Economic Voting Economic Voting Economic
SIL 50.05% 61.60% 50.01% 51.60% 61.40% 61.40% 51.40% 51.40%
GPI 29.93% 15.10% 49.89% 25.10% 15.10% 15.10% 25.10% 25.10%
Sun International Employee Share Trust ("SIEST") 0.01% 3.30% 0.01% 3.30% 3.50% 3.50% 3.50% 3.50%
Tsogo 20.00% 20.00% 0.09% 20.00% 20.00% 20.00% 20.00% 20.00%
Sun International Management Limited will continue to manage the Western Cape Assets under its
existing management contract on the same terms and conditions
5. Put Option
In the event that any party ("Offeror") acquires 35% or more of the issued ordinary shares of SIL,
excluding treasury shares ("Trigger Shareholding") or makes an offer or causes a scheme of
arrangement or any other transaction or arrangement to be proposed which, if implemented, will result
in the Offeror (and/or parties acting in concert with it) holding a Trigger Shareholding or acquiring all or
the greater part of the assets or undertaking of SIL ("Offeror Transaction"), then Tsogo may elect by
written notice given to SIL, within 30 days of the announcement of the Offeror Transaction ("Offer
Announcement"), to put its equity in the Western Cape Assets to SIL for shares in SIL and/or for a cash
consideration. SIL will determine the proportion of the purchase consideration which will be settled by
the issue of SIL shares (subject to shareholder approval at that time) or in cash.
The aggregated value of the equity held by Tsogo in the Western Cape Assets will be determined
based on an EBITDA multiple of 7.5, where the EBITDA is determined based on the last available
published financial information of the Western Cape Assets as published by SIL. The valuation of the
Tsogo investment in the Western Cape Assets will be limited to 29.99% of SIL’s market capitalisation at
that time ("Capped Amount") and Tsogo will only be entitled to put so much of its investment to SIL as is
equal to the Capped Amount, retaining the balance, subject to any required regulatory approval.
In the event that SIL shares are to be issued in settlement of the Put Option (subject to shareholder
approval at that time) then the 5 day volume weighted average price at which SIL ordinary shares
trade on the exchange operated by the JSE Limited following the Offer Announcement will apply.
6. Rationale and Use of Proceeds
The Proposed Transaction allows SIL to realise a portion of its investment in the Western Cape Assets at
market value without compromising its control or management of the assets. The cash proceeds from
the Proposed Transaction will be utilised to repay debt.
SIL and GPI are of the considered view that Tsogo can provide similar BEE ownership credentials to that
of GPI, thereby ensuring that the BEE ownership requirements of the operations are maintained.
Furthermore Tsogo has the financial capability to implement a transaction of this magnitude.
7. Conditions Precedent
The Sun Disposal is conditional upon receipt from the SIEST, by not later than 30 April 2016, that it has
waived its pre-emptive rights in terms of the current shareholders agreement. SIEST has a right to
increase its current shareholding in SunWest from 3.3% to 3.5%.
8. Net Assets Disposed and Profits Attributable to those Assets
The net book value of the Western Cape Assets as at 31 December 2015 is R327.8 million. The EBITDA
associated with these assets for the 6 months ended 31 December 2015 was R506.5 million and the
profit after tax was R256.3 million.
9. Categorisation
The Sun Disposal constitutes a Category 2 transaction in terms of Section 9 of the JSE Limited Listings
Requirements.
Sandton
4 April 2016
Legal Advisor
Cliffe Dekker Hofmeyr
Competition Law Advisor
Baker & McKenzie
Sponsor
RAND MERCHANT BANK (a division of FirstRand Bank Limited)
Date: 04/04/2016 05:09:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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