- July 6, 2015
- Posted by: admin
- Category: Tsogo Sun Holdings
A proposed reshuffle of casino ownership in the Western Cape market — which would have secured gaming and hotel giant Tsogo Sun a hand in all five provincial licences — was taken off the table at the weekend.
In May last year Tsogo proposed paying almost R2.2bn to acquire a 40% stake in SunWest — the owner of the cash-spinning GrandWest casino in Cape Town and the smaller Worcester casino — from its rival Sun International and its empowerment partner Grand Parade International (GPI.)
In Business Day’s article, the proposals would have given Tsogo — which already controls the Mykonos, Garden Route and Caledon casinos — influence over all five Western Cape casino licences. The deal was held up by regulatory issues, notably by the Competition Commission, which recommended in January this year to the Competition Tribunal that the deal be prohibited.
The companies initially aimed to clinch the transaction by May this year, but then extended the deadline to the end of August to take in the tribunal’s deliberations. On Friday evening all three companies issued SENS statements terminating the proposed transaction after it had become apparent the end-August deadline would not be achieved. The companies argued that the deal period could not be extended as the commercial metrics had changed. Sources speculated the development might suggest that the Competition Tribunal was likely to prohibit the deal.
Tsogo CEO Marcel von Aulock declined to comment further on developments, while Sun International also remained mum on the issue.
While the capitulation is a strategic setback, Tsogo and Sun International have plenty on their plates in continuing efforts to reshape their respective businesses. Tsogo recently hinted at unbundling and separately listing its sprawling property interests, while Sun International is in the throes of taking over smaller rival Peermont and furthering its advances in Latin America.
But casino industry insiders say the failed transaction at SunWest could have repercussions in the longer term if the Western Cape government followed through on suggestions for a second casino licence in Cape Town.
Initial speculation was that the proposed deal involving the GrandWest and Worcester casinos would help circumvent potential tensions that could arise between Tsogo and Sun International if the Western Cape government allowed an existing casino licence in the province to be transferred to the Cape Town metropole now that GrandWest’s period of exclusivity had ended.
The argument was that by sharing the spoils at GrandWest there would be little motivation for either Sun International and Tsogo to fork out the huge capital required for a new casino development in Cape Town at a time when the sector lacked growth impetus. Arguably the most affected by the decision to call off the deal is GPI, which now retains its significant minority stake in the GrandWest and Worcester casinos.
GPI, which also sold control of its alternative gaming assets (mainly limited payout machines) to Sun International last year, intended using the proceeds from selling its casino interests to fund the expansion of its fast food venture, Burger King. GPI CEO Alan Keet said that the company had been planning for this eventuality since November last year.
“We are happy to hold the casino assets, which generate lots of cash for us. If another opportunity comes along to sell these assets we, of course, will look at it.”
Keet stressed that the Burger King roll-out was never dependent on the proceeds from selling the casino interests. “I think shareholders that might have expected us to pay a special dividend might be disappointed. But we have alternative plans for funding expansion at Burger King and we don’t expect growth to be impeded.”
Source: Cape Business News