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Acquisition of the Peermont Group and withdrawal of cautionary announcement
Sun International Limited
(Incorporated in the Republic of South Africa)
(Registration Number: 1967/007528/06)
Share code: SUI ISIN: ZAE000097580
(“Sun International” or the “Group”)
ACQUISITION OF THE PEERMONT GROUP & WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
DETAILED TERMS ANNOUNCEMENT RELATING TO THE ACQUISITION BY SUN INTERNATIONAL OF 100% OF THE
ISSUED SHARES OF MAXSHELL 114 INVESTMENTS PROPRIETARY LIMITED (“MAXSHELL”) THE HOLDING COMPANY
OF PEERMONT GLOBAL PROPRIETARY LIMITED (“PEERMONT”, MAXSHELL AND ITS SUBSIDIARIES ARE REFERRED
TO AS THE “PEERMONT GROUP”) AND THE WITHDRAWAL OF THE CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION
Further to the cautionary announcement published by Sun International on the Stock Exchange News
Service (“SENS”) on 4 March 2015, the Board of Directors of Sun International is pleased to announce
that definitive agreements have been concluded between Sun International and the holders of
ordinary shares, preference shares and mezzanine debt in the Peermont Group in terms of which Sun
International, through its wholly owned subsidiary, Sun International (South Africa) Limited (“SISA”), will
acquire 100% of the Peermont Group (the “Proposed Transaction”).
2. OVERVIEW OF PEERMONT
Peermont was founded in 1995 under the name Global Resorts, was rebranded Peermont Global in
2003 and listed on the exchange operated by the JSE Limited (“JSE”) in 2004. Peermont was
subsequently delisted from the JSE in 2007 after a private equity-led buyout by a consortium led by the
Mineworkers Investment Company. During April 2014, the Peermont Group completed a restructure of
its debt and equity to create a more sustainable capital structure.
Peermont operates a portfolio of gaming and hospitality businesses in South Africa and Botswana,
owning nine casino resorts, including its flagship Emperors Palace casino resort, three stand-alone
hotels and one stand-alone casino.
Details of Peermont’s current operations are set out in the table below:
Gambling Hotel Slot Gaming
Property Location Jurisdiction Category Property Type Machines Tables Rooms
South Africa
Emperors Five, four and
Palace Kempton Park Gauteng three star Casino resort 1 724 68 667
Graceland Secunda Mpumalanga Four star Casino resort 311 18 98
Mmabatho
Palms Mafikeng North West Four star Casino resort 152 8 150
Khoroni Thohoyandou Limpopo Three star Casino resort 150 7 82
Rio Klerksdorp North West Three star Casino resort 274 11 70
Umfolozi Empangeni KZN Three star Casino resort 273 12 44
Frontier Bethlehem Free State Three star Casino resort 140 9 21
Mondazur* San Lameer, KZN - Four star Stand-alone - - 40
hotel
Thaba
Moshate Burgersfort Limpopo Three star Casino resort 150 8 82
Botswana
Grand Palm Gaborone Botswana Four and three Casino resort 150 15 337
star
Sedibeng Francistown Botswana - Stand-alone 50 - -
Casino casino
Mondior Gaborone - Four star Stand-alone - - 67
hotel
Metcourt Francistown - Three star Stand-alone - - 53
Lodge hotel
Total 3 374 156 1 711
* Currently the subject of a sale agreement with a third party
As at 31 December 2014, Peermont reported provisional revenues of R3 253 million and EBITDA of
R1 205 million (being earnings before interest, taxation, depreciation, amortisation, restructuring gains,
charges relating to the management long-term incentive programme and other non-cash items). The
Thaba Moshate casino resort in Burgersfort ("Burgersfort") is scheduled to be opened during April 2015 and is
anticipated to generate R40 million EBITDA in its first full year of operations. Emperors Palace
contributed R872 million of the EBITDA.
Key attributes of Peermont include its:
• Established and well-maintained assets and infrastructure;
• Experienced and highly regarded management team;
• Extensive hotel and conference facilities at Emperors Palace;
• Profitable business with strong cash generation - historic EBITDA margins in excess of 37% over both
five and ten year periods;
• Diversified portfolio that offers a number of strategic possibilities; and
• Further revenue and EBITDA growth expected from its newly built Burgersfort casino resort.
3. RATIONALE FOR THE PROPOSED TRANSACTION
The Proposed Transaction is aligned to Sun International’s strategy to enhance and leverage its existing
asset portfolio and to seek new growth opportunities:
- The acquisition of Emperors Palace provides Sun International with an opportunity to increase
gaming revenue from Gauteng, being the provincial jurisdiction with the highest gambling spend in
South Africa. Emperors Palace is one of the largest casinos in South Africa with an attractive
financial and operating profile. The property has an EBITDAM (being EBITDA before management fees)
margin of greater than 41%, which is well above the average of Sun International.
- Peermont has raised objections to Sun International’s proposed relocation of its Morula licence
from the current site in Mabopane to Menlyn, Tshwane (“Menlyn Maine”) (as more fully described
in paragraph 4.4). In terms of a settlement agreement entered into between the parties as
described per 4.4, this objection has now been withdrawn.
- As a result of the Proposed Transaction, Sun International’s portfolio of South African assets will be
further diversified. This diversification has the effect of reducing Sun International’s reliance on its
GrandWest property in the Western Cape, which currently represents 27% of the Group’s EBITDA.
- Sun International remains committed to its strategy of diversifying the Group’s portfolio to increase
exposure to offshore opportunities, in particular Latin America. While the Peermont portfolio of
assets will initially increase the proportion of the combined business that arises in Southern Africa, it
also opens the possibility of further restructuring of local assets, with a medium term objective of
creating a portfolio of fewer, larger, quality assets.
Sun International believes that the Proposed Transaction and the further restructuring possibilities that
may arise from it, will further enhance its position and scale as a leading hotel, resort and gaming
operator thereby enabling it to undertake larger developments and acquisitions internationally.
4. SALIENT TERMS OF THE PROPOSED TRANSACTION
4.1. Purchase Consideration
Sun International will acquire 100% of the issued ordinary shares of Maxshell and the preference shares
and mezzanine debt in the form of payment in kind notes issued by subsidiaries of
Maxshell, for a purchase consideration determined with reference to an enterprise value of
Peermont of R9 425 million (“Enterprise Value”), less net debt and certain capital expenditure and
working capital benchmark adjustments, if applicable (the “Purchase Consideration”), calculated
at the effective date of the Proposed Transaction, being the earlier of 31 December 2015 or
following the conditions precedent described in paragraph 4.5 below having been fulfilled or
waived, and the rights issue described in paragraph 4.3 below having been implemented. Given the anticipated
time frame (9 to 12 months) for implementation and closing of the Proposed Transaction, the Enterprise
Value can be referenced to Peermont's 2015 earnings (which are anticipated to be higher than the 2014
earnings, due not only to the opening of Burgersfort but also to organic growth in the existing business).
Sun International will assume all the debt currently within the Peermont Group and intends to
fund the Proposed Transaction as set out in paragraph 4.2 below.
Sun International intends exploring the possibility of disposing of certain of the smaller assets
within the Peermont portfolio following the closing of the Proposed Transaction. Should an agreement
be reached for the disposal of these assets prior to the transaction closing then Sun International’s
funding requirements will be reduced accordingly.
4.2. Funding the Proposed Transaction
The Proposed Transaction will be funded as follows:
R million
An issue of 10,416,667 Sun International shares at R120 per share
to the Peermont ordinary shareholders and the holders of 1 250
preference shares
The proceeds of an underwritten renounceable rights offer (the
“Proposed Rights Offer”) up to a maximum value of 3 750
A rollover of the estimated senior debt within Peermont 3 850
New estimated debt facility 575
Total 9 425
4.3. Proposed Rights Offer
Sun International will implement the Proposed Rights Offer once the Proposed Transaction
becomes unconditional. Details of the Proposed Rights Offer will be released on SENS at that
stage. Sun International has entered into an underwriting agreement with Investec Bank Limited
and Nedbank Limited in respect of the Proposed Rights Offer, whereby the Proposed Rights Offer
is fully underwritten.
4.4. Amendment to Sun International’s Morula Casino Licence
Shareholders will be aware that Sun International, through its wholly-owned subsidiary SISA,
applied to the Gauteng Gambling Board (“GGB”) to amend its Morula casino licence to,
amongst other things, provide for the relocation of the licensed premises from the current site in
Mabopane to Menlyn, Tshwane, in order to deliver the full potential of this casino licence to the
City of Tshwane and to the Gauteng Province.
On 31 July 2014 the GGB approved SISA’s application to amend Morula's casino licence thereby
permitting the relocation of the casino. The approvals, which are subject to certain conditions that
largely reflect the commitments made in the application, pave the way for Sun International to
commence planning and construction of the R3 billion development to be known as Time Square
at Menlyn Maine. Menlyn Maine is anticipated to generate EBITDA of R600 million and
management fees of R95 million, a significant increase from the Morula EBITDA of R16 million and
management fees of R7 million, as at 30 June 2014. Sun International, through group companies,
will hold an effective 74.9% of Menlyn Maine and will have the management contract.
Peermont had raised objections to the relocation of the casino licence, during the public
participation process and having considered the same, the GGB saw fit to approve the
amendments to the Morula casino licence. Subsequent to the approval being granted, Peermont
brought review proceedings in the High Court of South Africa (Gauteng Division, Pretoria) (“High
Court”), in which it sought to set aside the GGB approvals (the “Review”).
The parties have entered into an agreement for Peermont’s withdrawal of its review application in
the High Court. In the event that the Proposed Transaction is not successfully implemented and
Menlyn Maine opens to the public (or the licensed premises are relocated to a site
which is within a 5km radius of Menlyn Maine, and the relocated casino opens to the public),
Menlyn Maine will issue Peermont with a financial instrument that obliges Menlyn Maine to pay
Peermont a capital amount of R700 million, which may increase to R900 million in certain defined
circumstances (the “Note”). The Note has a term of 5 years bearing interest from the earlier of
commencement of the operations of Menlyn Maine and 31 December 2017 and is without fixed
terms of repayment but can be repaid at any time (without penalty) by Menlyn Maine. The Note is
guaranteed by Sun International.
4.5. Conditions Precedent
The Proposed Transaction is conditional upon the fulfilment or waiver of the following conditions
precedent:
- Approvals or applicable exemptions being obtained from applicable regulatory bodies,
where necessary, including the GGB, the financial surveillance department of the South
African Reserve Bank, the Takeover Regulation Panel, and competition authorities in the
jurisdictions in which the businesses of the Peermont Group operate; and
- The approval of the requisite majority of Sun International shareholders of the resolutions
necessary for implementation of the Proposed Transaction and the Proposed Rights Offer.
4.6. Net Assets Acquired and Profits Attributable to Those Assets
The net asset value of Peermont is approximately R2 928 million and the profit before interest and
taxation associated with these assets is R889 million as at 31 December 2014. The profit after
taxation associated with these assets is R 2 557 million as at 31 December 2014 (profit after
taxation includes certain once-off credits associated with the capital restructure undertaken by Peermont
in the 2014 financial year).
5. CATEGORISATION OF THE PROPOSED TRANSACTION
The Proposed Transaction is classified as a Category 1 transaction in terms of section 9 of the JSE Listings
Requirements, requiring shareholder approval. Further, in order for the Proposed Rights Offer to be
completed, certain amendments would be required to Sun International’s existing memorandum of
incorporation. Approval by the requisite majority of shareholders present and voting at a general
meeting of shareholders (“General Meeting”) to the various required resolutions will be sought by Sun
International.
6. SHAREHOLDER SUPPORT
Sun International has approached its major shareholders to determine support for the Proposed
Transaction. Shareholders representing 44.1 % of the total shares in issue (net of treasury shares) have
provided written undertakings to support the Proposed Transaction.
7. CIRCULAR TO SHAREHOLDERS
A circular, which contains further details of the Proposed Transaction, together with a notice of General
Meeting to vote on the resolutions required to implement the Proposed Transaction and the Proposed
Rights Offer, will be issued to Sun International shareholders in due course.
8. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Following the release of this announcement, the cautionary announcement as released on 4 March
2015 is hereby withdrawn and caution is no longer required to be exercised by Sun International
shareholders when dealing in their shares.
Sandton
20 March 2015
Investment Bank and Transaction Sponsor to Sun Corporate Law Advisers to Sun International
International Cliffe Dekker Hofmeyr
Investec Bank Limited
Sponsor to Sun International
Rand Merchant Bank (a division of FirstRand Bank
Limited)
Joint Underwriters for the Proposed Rights Offer
Investec Bank Limited
Nedbank Limited
Financial Adviser to Peermont Group Corporate Law Advisers to Peermont Group
Rand Merchant Bank (a division of FirstRand Bank Bowman Gilfillan
Limited)
Corporate Law Advisers to GoldenTree Asset Corporate Law Advisers to GoldenTree Asset
Management, LP Management, LP
Kirkland & Ellis LLP Webber Wentzel
Date: 20/03/2015 08:30:00 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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