Wrap Text
Detailed Terms Announcement
SUN INTERNATIONAL LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1967/007528/06)
Share code: SUI
ISIN: ZAE000097580
(“Sun International”)
DETAILED TERMS ANNOUNCEMENT REGARDING:
1) THE PROPOSED RESTRUCTURE OF SHAREHOLDINGS IN SUNWEST
INTERNATIONAL PROPRIETARY LIMITED (“SunWest”) AND WORCESTER CASINO
PROPRIETARY LIMITED (“Worcester”),
2) THE PROPOSED ACQUISITION OF AN ADDITIONAL EFFECTIVE 5.6%
SHAREHOLDING IN AFRISUN KZN PROPRIETARY LIMITED, TRADING AS THE
SIBAYA CASINO AND ENTERTAINMENT KINGDOM (“Sibaya”), AND
3) THE PROPOSED ACQUISITION BY SUN INTERNATIONAL OF A MATERIAL
SHAREHOLDING IN GPI SLOTS PROPRIETARY LIMITED (“GPI Slots”) AND
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
INTRODUCTION
Sun International shareholders are hereby advised that terms have been agreed
regarding the respective separate transactions set out in 1, 2 and 3 below. The
transactions are consistent with Sun International’s long-term objectives of increasing its
interests in key strategic assets, expanding into different product offerings and
geographic regions, streamlining the corporate structure, and enabling Black Economic
Empowerment (“BEE”) value creation.
1) THE PROPOSED RESTRUCTURE OF SHAREHOLDINGS IN SUNWEST AND WORCESTER
1.1 SALIENT TERMS
Terms have been agreed between, inter alia, Grand Parade Investments Limited (“GPI”)
Sun International, and Tsogo Sun Holdings Limited (“Tsogo”) regarding a proposed
disposal to Tsogo by Sun International (through its subsidiary companies) of a 14.9%
interest in SunWest and Worcester for an aggregate cash consideration of R635 million,
the proposed subscription by Tsogo for a new class of A ordinary shares in each of
SunWest and Worcester (“A shares”) for an aggregate subscription price of R1.55 billion,
and a proposed specific share repurchase to be undertaken by each of SunWest and
Worcester such that the entire interest currently held by GPI and Grand Casino
Investments Proprietary Limited, a wholly-owned subsidiary of GPI (collectively “the GPI
Parties”) being 25.1% in each of SunWest and Worcester, will be repurchased for an
aggregate cash consideration of R1.55 billion (collectively referred to as “the SunWest
and Worcester Transaction”).
The effect of the SunWest and Worcester Transaction on the effective economic
shareholding of SunWest and Worcester will be as follows:
Party Before After
Worcester SunWest Worcester SunWest
Sun International 71.4% 71.6% 56.5% 56.7%
GPI Parties 25.1% 25.1% - -
Sun International Employee 3.5% 3.3% 3.5% 3.3%
Share Trust (“SIEST”)
Tsogo - - 40.0% 40.0%
After implementation of the SunWest and Worcester Transaction, Tsogo will hold an
effective 40% economic and voting interest in each of SunWest and Worcester. Sun
International (through its subsidiaries) will hold an effective 56.7% economic and 59.97%
voting interest in SunWest and 56.5% voting and economic interest in Worcester.
Tsogo will have representation on the board of directors of SunWest and Worcester.
Tsogo will have no operational responsibility as all operations will continue to be
managed by Sun International Management Limited under each of its existing
management contracts.
The effective date of the SunWest and Worcester Transaction is 3 business days after
the fulfillment or waiver, as the case may be, of the conditions precedent as set out in
paragraph 1.4 below.
1.2 BACKGROUND ON SUNWEST AND WORCESTER
SunWest and Worcester conduct casino and hotel operations in the Western Cape,
which are predominantly focused on the market in and around Cape Town.
SunWest’s primary assets are the GrandWest Casino, the Table Bay Hotel in Cape
Town, one of the “Leading Hotels of the World” situated on the historic Victoria & Alfred
Waterfront and a minority equity interest in the Cape Town International Convention
Centre.
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.
1.3 RATIONALE AND USE OF PROCEEDS
GPI has, since inception, been the primary BEE partner in SunWest and Worcester. The
SunWest and Worcester Transaction will result in R1.55 billion of value being realised by
GPI which is testimony to the substantial value created for BEE stakeholders by GPI and
Sun International. GPI will be utilising the proceeds to pursue other investment
opportunities. As set out in 2 and 3 below, GPI is simultaneously disposing to Sun
International its interests in Sibaya and GPI Slots.
Tsogo has limited exposure to the Western Cape metropolitan markets and wishes to
enhance its presence in this market. Sun International 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.
Tsogo is desirous of acquiring at least a 40% voting and economic interest in SunWest
and Worcester, which will be achieved through the subscription for the A shares together
with the acquisition of shares from Sun International.
1.4 CONDITIONS PRECEDENT
The SunWest and Worcester Transaction is conditional upon the fulfillment or waiver, as
the case may be, of, inter alia, the following conditions precedent:
- Shareholders of GPI approving the terms of the SunWest and Worcester
Transaction in a general meeting and the requisite resolutions of the shareholders
of GPI not being set aside by the court in accordance with section 115(7) of the
Companies Act, 2008 (“the Companies Act”);
- The shareholders of Sun International approving the placing of shares under the
control of the directors of Sun International to give effect to an undertaking in
terms of which, in the event that an offeror acquires 35% or more of the issued
shares of Sun International, Sun International may be required to issue shares in
Sun International to Tsogo in exchange for some or all of Tsogo's shares in
SunWest and Worcester;
- The release of the GPI Parties' shares in SunWest and Worcester from the
security interests held over them;
- The shareholders and directors of SunWest and Worcester passing the
necessary resolutions for implementation of the SunWest and Worcester
Transaction and any applicable notices of amendment to the Memorandum of
Incorporation of each of SunWest and Worcester, including those required to
facilitate the creation of the A shares, being filed in the manner prescribed in the
Companies Act;
- Independent experts appointed by each of SunWest and Worcester in terms of
section 114(2) of the Companies Act delivering to the respective boards and the
shareholders of those companies the report referred to in section 114(3) of the
Companies Act in respect of the repurchase of shares under the SunWest and
Worcester Transaction;
- The Western Cape Gambling and Racing Board providing their consent to the
SunWest and Worcester Transaction;
- To the extent required, obtaining all such approvals for the SunWest and
Worcester Transaction that may be required by the JSE Limited (“the JSE”) and
the Takeover Regulation Panel; and
- The SunWest and Worcester Transaction being approved by the Competition
Authorities in terms of the Competition Act, 1998.
1.5 UNAUDITED PRO FORMA FINANCIAL EFFECTS OF THE SUNWEST AND WORCESTER TRANSACTION
The unaudited pro-forma financial effects set out below have been prepared for
illustrative purposes only to assist Sun International shareholders to assess the impact
of the SunWest and Worcester Transaction on the earnings per share ("EPS"), headline
earnings per share ("HEPS"), adjusted HEPS and net asset value ("NAV") per share of
Sun International.
The unaudited pro-forma financial effects are based on Sun International`s unaudited
results for the six months ended 31 December 2013.
These unaudited pro-forma financial effects have been disclosed in terms of the JSE
Listings Requirements (“the Listings Requirements”) and because of their nature may
not fairly present Sun International`s financial position, changes in equity, results of
operations or cash flows. The unaudited pro-forma financial effects are the responsibility
of the directors of Sun International.
The impact on Sun International is outlined below:
Before the After the
SunWest and SunWest and
Worcester Worcester
Transaction Transaction
Per Sun International ordinary share (cents) (cents) % change
Basic EPS 324 305 -5.84%
HEPS 326 307 -5.81%
Adjusted HEPS 335 318 -5.04%
NAV 2,272 2,864 26.09%
Weighted average number of shares in
issue (’000) 93,246 93,246 -
Diluted weighted average number of shares
in issue (’000) 93,589 93,589 -
Diluted weighted average number of shares
in issue (’000) used in the Adjusted HEPS
calculation 103,845 103,845 -
Shares in issue as at 31 December 2013
(‘000) 93,371 93,371 -
Notes:
1. The EPS, HEPS and adjusted HEPS as set out in the "Before" column are based
on the unaudited income statement of Sun International for the six months ended
31 December 2013. The EPS, HEPS and adjusted HEPS as set out in the "After"
column assumes that the SunWest and Worcester Transaction was implemented
on 1 July 2013.
2. EPS, HEPS and Adjusted HEPS effects are based on the following principal
assumptions:
(i) Reduction of earnings attributable to a loss of 14.9% of SunWest and
Worcester earnings which will now accrue to minority shareholders;
(ii) Interest saving of R22 million assuming the cash consideration received
by Sun International is utilised to redeem redeemable preference shares
at a rate of 6.9% per annum; and
(iii) Assumed transaction costs of R5 million.
3. The NAV per share as set out in the "Before" column is based on the unaudited
balance sheet of Sun International as at 31 December 2013. The "After" column
assumes the SunWest and Worcester Transaction was implemented on 31
December 2013.
4. NAV per share effects are based on the following principal assumptions:
(i) Cash consideration received for the SunWest and Worcester Transaction
of R635 million;
(ii) Capital gains tax of R32 million payable; and
(iii) The excess of the SunWest and Worcester Transaction consideration
over the carrying value of the net assets disposed of is recognised
directly in equity and amounted to R590 million.
1.6 CATEGORISATION
The SunWest and Worcester Transaction is categorised as a category 2 transaction in
terms of section 9.5(a) of the Listings Requirements.
2) PROPOSED ACQUISITION OF AN ADDITIONAL EFFECTIVE 5.6% SHAREHOLDING IN SIBAYA
2.1 SALIENT TERMS AND RATIONALE
Sun International has previously stated its intention to streamline the corporate structure
of its underlying South African operations and where possible to increase its exposure to
such operations. An agreement has now been reached whereby Sun International,
through its wholly owned subsidiary, Sun International (South Africa) Limited (“SISA”),
will acquire from Grand Casino Investments KZN Proprietary Limited (“GCI KZN”), a
wholly-owned subsidiary of GPI, a 24.9% interest in Dolcoast Investments Limited
(“Dolcoast”), which effectively translates to an additional 5.57% of Afrisun KZN
Proprietary Limited operating as Sibaya Casino and Entertainment Kingdom and 7.45%
of Afrisun KZN Manco Proprietary Limited (“KZN Manco”) (“the Sibaya Transaction”).
Company Sun International effective shareholding
Before Sibaya After Sibaya
Transaction Transaction
Sibaya 61.6% 67.2%
KZN Manco 40.0% 47.5%
The purchase consideration is R130 million, to be settled in cash.
The effective date of the Sibaya Transaction is 5 business days after the fulfillment or
waiver, as the case may be, of the conditions precedent as set out in paragraph 2.3
below.
2.2 BACKGROUND ON DOLCOAST
Dolcoast, an investment holding company, through a wholly-owned subsidiary has an
indirect interest in Sibaya, which gives GCI KZN an effective shareholding of 5.57% in
Sibaya and 7.45% in KZN Manco, a Sibaya management company. Sibaya is
exceptionally well-positioned between Umdloti and Umhlanga on the north coast of
KwaZulu-Natal.
2.3 CONDITIONS PRECEDENT
The Sibaya Transaction is conditional upon the fulfilment or waiver, as the case may be,
of inter alia, the following conditions precedent:
- Sun International delivering a written notice informing GPI that it is satisfied with
the outcome of the due diligence investigation on Dolcoast and its wholly-owned
subsidiary;
- The requisite approval from the KwaZulu-Natal Gaming and Betting Board for the
Sibaya Transaction (including any revisions to the Memorandum of Incorporation
and shareholders agreement for Dolcoast);
- To the extent necessary, the Sibaya Transaction being approved by the
Competition Authorities in terms of the Competition Act, 1998;
- The remaining shareholders of Dolcoast waiving any rights (including but not
limited to pre-emptive rights) in relation to SISA’s acquisition of the shares in
Dolcoast;
- SISA does not, prior to the fulfilment of the other conditions precedent, give
notice that SISA is aware of any material adverse change in the condition of
Dolcoast or its wholly owned subsidiary;
- GCI KZN having passed a special resolution in terms of section 112 (2) of the
Companies Act, approving the terms of the Sibaya Transaction;
- All required regulatory approvals having been obtained, to the extent required;
and
- A fairness opinion having been obtained from an independent expert indicating
that the terms of the Sibaya Transaction are fair as contemplated in paragraph
10.7 of the Listings Requirements.
2.4 UNAUDITED PRO FORMA FINANCIAL EFFECTS OF THE SIBAYA TRANSACTION
The Sibaya Transaction will be settled with available cash resources and is not expected
to have a significant effect (i.e. less than 3%) on Sun International’s earnings, headline
earnings, adjusted headline earnings or NAV per share.
2.5 CATEGORISATION AND RELATED PARTY TRANSACTION
In terms of Section 10 of the Listings Requirements, as GPI is a material shareholder in
a Sun International subsidiary, GPI is deemed to be a related party to Sun International.
In terms of section 10.7 of the Listings Requirements, as the value of the Sibaya
Transaction, in so far as it relates to Sun International, is less than 5% of Sun
International’s market capitalisation but exceeds 0.25%, it meets the definition of a small
related party transaction. As a result, the directors are required to provide the JSE with
written confirmation from an independent expert (“the Fairness Opinion”) that the terms
of the Sibaya Transaction are fair insofar as the shareholders of Sun International are
concerned. In this regard an independent expert will be appointed to provide the
Fairness Opinion. Upon finalisation of the Fairness Opinion an announcement will be
made on SENS indicating the outcome thereof.
3) PROPOSED ACQUISITION BY SUN INTERNATIONAL OF A MATERIAL SHAREHOLDING IN GPI SLOTS AND
WITHDRAWAL OF CAUTIONARY
3.1 SALIENT TERMS
An agreement has been reached whereby SISA will acquire up to a 70% interest in GPI
Slots, a wholly-owned subsidiary of GPI (“the GPI Slots Transaction”). GPI Slots is the
holding company of GPI’s limited payout gaming operations that own and operate
Limited Payout Machines (“LPMs”).
The GPI Slots Transaction is to be effected as follows:
- Acquisition of an initial 25.1% interest in GPI Slots (“Investment One”) for a cash
consideration of R225 million plus 25.1% of the face value of shareholder loans
(currently estimated at R38 million) as at the implementation date of Investment
One, being the later of the 5th business day following the day (a) on which all
conditions precedent are fulfilled, and (b) on which the financial results of GPI
Slots for the year ending 30 June 2014 are finalised. Such amount of R225
million ("Investment One Share Consideration") is subject to adjustment if there
is a variance in the equity value of GPI Slots of 3% or greater as determined
based on actual earnings before interest, taxation, depreciation and amortisation
(“EBITDA”) achieved for the year ending 30 June 2014 and taking into account
the net debt of GPI Slots as at 30 June 2014. The effective date of Investment
One is 1 July 2014.
- GPI has granted SISA an option to acquire additional GPI Slots shares and
shareholder loans for cash such that SISA’s total shareholding and shareholder
loans in GPI Slots post exercise of the option will be 50.1% (“Investment Two
Option”). The Investment Two Option is exercisable within 30 days of the
financial results of GPI Slots for the year ending 30 June 2015 being finalised. If
the Investment Two Option is exercised, the effective date of the resulting sale
("Investment Two") will be 1 July 2015. The Investment Two purchase
consideration will, in so far as the additional shares are concerned, be based on
an equity value of GPI Slots determined by applying a 7.5 times EBITDA multiple
to the actual EBITDA achieved by GPI Slots for the year ending 30 June 2015,
after deducting therefrom net debt. The additional shareholder loans will have a
purchase consideration equal to the face value of the loan.
- Provided that SISA exercises and implements the Investment Two Option, GPI
has granted SISA a further option to acquire additional GPI Slots shares and
shareholder loans for cash such that SISA’s total shareholding and shareholder
loans in GPI Slots post exercise of the option will be 70.0% (“Investment Three
Option”). The Investment Three Option is exercisable within 30 days of the
financial results of GPI Slots for the year ending 30 June 2016 being finalised. If
the Investment Three Option is exercised, the effective date of the resulting sale
("Investment Three") will be 1 July 2016. The Investment Three purchase
consideration will, in so far as the additional shares are concerned, be based on
an equity value of GPI Slots determined by applying a 7.5 times EBITDA multiple
to the actual EBITDA achieved by GPI Slots for the year ending 30 June 2016,
after deducting therefrom net debt. The additional shareholder loans will have a
purchase consideration equal to the face value of the loan.
GPI currently provides certain management and information and communications
technology (“ICT”) services to GPI Slots for which it earns a monthly fee. A management
and ICT services cancellation agreement (“the Management and ICT Services
Cancellation Agreement”) is to be entered into between GPI and Sun International,
whereby the existing management and ICT services agreement between GPI and GPI
Slots will be cancelled for a fee of R20 million (inclusive of any Value-Added Tax)
payable to GPI. The management services will be cancelled with effect from 1 July 2014
and the ICT services will be cancelled thereafter as determined by the board of GPI
Slots.
Should SISA not exercise the Investment Two Option or if the Investment Two Option is
exercised and closing of Investment Two does not take place (other than as a result of a
breach by GPI), GPI will be entitled to a call option (“the Repurchase Call Option”)
entitling GPI to repurchase the interest in GPI Slots held by SISA at that particular date
(“Repurchase Equity”). Should SISA not exercise the Investment Three Option, GPI will
also be entitled to the Repurchase Call Option.
The purchase consideration payable in terms of the Repurchase Call Option will be an
amount equal to the Investment One purchase consideration and, if applicable, the
Investment Two purchase consideration paid by SISA to GPI plus R20 million.
3.2 BACKGROUND ON GPI SLOTS
GPI Slots is the holding company of all the limited payout gaming operations of GPI.
LPMs are gambling machines with a prescribed bet and prize and are principally located
in bars, clubs and restaurants. GPI Slots owns and operates five LPM subsidiaries:
- Grand Gaming Western Cape Proprietary Limited, trading as Grandslots in the
Western Cape;
- Grand Gaming KwaZulu-Natal Proprietary Limited, trading as Kingdomslots in
KwaZulu-Natal;
- Grand Gaming Gauteng Proprietary Limited, trading as Grand Gaming Slots in
Gauteng;
- Grand Gaming Mpumalanga Proprietary Limited, trading as Grand Gaming Slots
in Mpumalanga; and
- Bohwa1 Gaming Proprietary Limited, trading as Hot Slots in Gauteng.
The LPM operator licences held by the subsidiaries jointly allow GPI Slots to operate a
current maximum of 5,000 LPMs.
The acquisition of a further licence, Gold Circle KwaZulu-Natal Slots Proprietary Limited,
trading as KZN Slots, and licensed to operate 1,000 LPMs and with 631 active LPMs in
KwaZulu-Natal, was announced by GPI on SENS on 6 March 2014. This transaction is
currently subject to certain conditions precedent, which are to be fulfilled by 30 June
2014.
3.3 RATIONALE
A key strategic focus area for Sun International entails growing operations into new
geographic regions and diversifying its product offering. The GPI Slots Transaction
provides Sun International with a meaningful entry into the LPM market with potential to
expand not only within South Africa but into other jurisdictions.
The LPM market is generally characterised by fragmentation and small participants,
which makes meaningful acquisitions difficult. The opportunity to acquire an interest in
GPI Slots provides the following strategic advantages:
- A sizeable operation with a broad national LPM footprint in South Africa;
- Strong growth prospects over the short and medium term;
- Market leader in two of the four regions in which it operates; and
- Potential synergies between GPI Slots and Sun International’s sport betting
offering, Sunbet.
Sun International will be acquiring an interest in an asset that has existing licences,
management and infrastructure rather than entering this market organically.
3.4 CONDITIONS PRECEDENT
Investment One and the grant of the Investment Two Option and the Investment Three
Option are conditional upon the fulfilment or waiver, as the case may be of, inter alia, the
following conditions precedent:
- GPI and Sun International obtaining the required approvals of their respective
shareholders in general meeting, and any other required regulatory approvals
including the approvals of the JSE, to the extent necessary;
- SISA completing a due diligence on GPI Slots and its subsidiaries and delivering
to GPI a written notice stating that Sun International is satisfied with the results of
the due diligence;
- All relevant Provincial Gambling Boards providing their consent to the GPI Slots
Transaction;
- A Shareholders Agreement between SISA, GPI and GPI Slots and the
Management and ICT Services Cancellation Agreement having been entered
into and becoming unconditional in accordance with their respective terms;
- A revised Memorandum of Incorporation being adopted in respect of GPI Slots
and each of its subsidiaries; and
- Investment One being approved by the Competition Authorities in terms of the
Competition Act, 1998.
Investment Two is conditional upon the fulfilment or waiver, as the case may be, of inter
alia, the following conditions precedent:
- Investment Two being approved by the Competition Authorities in terms of the
Competition Act, 1998; and
- All relevant Provincial Gambling Boards providing their consent for Investment
Two to the extent that such consents are not obtained in advance.
Investment Three is conditional upon the fulfilment or waiver, as the case may be, of the
following condition precedent:
- All relevant Provincial Gambling Boards providing their consent for Investment
Three to the extent that such consent is not obtained in advance.
3.5 UNAUDITED PRO FORMA FINANCIAL EFFECTS OF THE GPI SLOTS TRANSACTION
The GPI Slots Transaction will be settled with available cash resources and is not
expected to have a significant effect (i.e. less than 3%) on Sun International’s earnings,
headline earnings, adjusted headline earnings or NAV per share.
3.6 CATEGORISATION AND RELATED PARTY TRANSACTION
In terms of Section 10 of the Listings Requirements, as GPI is a material shareholder in
a Sun International subsidiary, GPI is deemed to be a related party to Sun International.
In terms of the Listings Requirements, as the value of the GPI Slots Transaction, in so
far as it relates to Sun International, exceeds 5% of Sun International’s market
capitalisation a general meeting of shareholders will be called and an ordinary resolution
in respect of the GPI Slots Transaction will be required to be approved by shareholders
at the general meeting.
As required in terms of section 10.4 of the Listings Requirements, the directors are
required to provide the JSE with written confirmation from an independent expert that the
terms of the GPI Slots Transaction are fair insofar as the shareholders of Sun
International are concerned. In this regard Deloitte and Touche Inc has been appointed
as independent expert to provide the Fairness Opinion. The Fairness Opinion report will
be included in the circular to be posted to shareholders in respect of the GPI Slots
Transaction.
3.7 CIRCULAR
A circular providing information on the GPI Slots Transaction and incorporating a notice
convening the necessary Sun International general meeting will be posted to Sun
International shareholders in due course.
3.8 WITHDRAWAL OF CAUTIONARY
Sun International shareholders are referred to the cautionary announcement released on
SENS on 7 March 2014 and the renewal of the cautionary announcement on 23 April
2014 and are advised that, given that the full terms of the GPI Slots Transaction have
been disclosed, it is hereby withdrawn.
Sandton
13 May 2014
Investment Bank and Transaction Sponsor to Sun International
Investec Bank Limited
Sponsor to Sun International
Rand Merchant Bank (a division of FirstRand Bank Limited)
Legal advisor to Sun International
Cliffe Dekker Hofmeyr Inc
Reporting accountants
PriceWaterhouseCoopers
Independent expert
Deloitte & Touche
Date: 13/05/2014 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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