Five directors to receive R200m interest free loan to buy company shares.

CAPE TOWN – A select group of Tsogo Sun directors will own 7.5 million shares in the company, or just less than 1%, if shareholders vote in favour of a resolution that allows the company to loan them the money to do so.

This opportunity comes as a result of South African Breweries’ (SAB) decision to sell its 39.6% stake in the hotel and gaming group, in the process creating liquidity in the tightly held stock. HCI holds 41% and individuals and institutions hold the remaining 19%.

According to a Sens released on Tuesday the Tsogo board is recommending that shareholders vote in favour of the loan to the five directors including CEO Marcel von Aulock; CFO Rob Huddy; Jacques Booysen, MD Gaming; FV Dlamini, group HR director and company secretary, GD Tyrrell.

Of the R200 million loan, R86 million will be loaned to Von Aulock, R47 million to Booysen, R27 million to Huddy and R20 million each to Dlamini and Tyrrell.

With the exception of Tsogo’s non-executive chairman and HCI CEO Johnny Copelyn, as well as its non-executive deputy chairman (and former CEO) Jabu Mabuza, no other director holds shares in the company. This is according to the company’s most recent annual report (2013).

Management will pay the full placing price for their shares. This price will be determined by the end of the week, when the bookbuild concludes. Via this process SAB Miller will sell up to 305 million ordinary shares to selected institutional investors for no more than R26.50.

“Supporting a management buy-in is a good move,” says Vestact analyst Sasha Naryshkine. “Shareholders should feel more confident knowing that management has a stake in the business and is incentivised to stay.”

“This is a company that gives nothing away for nothing,” says Chris Gilmour, analyst at Absa Wealth & Investment Management. “The directors, particularly Marcel and Jabu [former CEO] have done a fantastic job. They have never had any share-based recompense and the time is right to do so.”

Another analyst noted that the R200 million loan, while meaningful for the individuals involved, is insignificant in the scheme of a R30 billion company. “There are many other director deals around that are far more aggressive. That this one is not is indicative of the fact that board remuneration is being watched closely,” he says.

In a secondary placing, Tsogo Sun will buy back 130 million shares from SAB at a discount to the placement price. Tsogo will either pay 81.4% of the placement price, or R21.50 per share – whichever is lower. These shares, equivalent to 5% of the shares in the company, will be cancelled.

This buy-back is expected to have a positive effect on Tsogo’s BEE standing and on earnings per share.

It will see HCI’s stake in Tsogo increase from 41.3% to 47%. This is important to HCI. If one assumes management and HCI will vote together, HCI will effectively have control of the company. Bear in mind that roughly 8% of the shares in issue are non-voting treasury shares.

HCI’s stake is also highly relevant to Tsogo because it will improve its BEE standing. According to the company, new BEE codes would see it falling from a level 2 to level 7 BEE company. This is a worry considering the company is dependent on provincial government to renew its gambling licences.

The repurchase price and the number of repurchase shares to be acquired by Tsogo Sun, as well as the result of the placing, is expected to be announced on Friday.

Source: Moneyweb – Sasha Planting