HOSKEN Consolidated Investments (HCI) executive chairman, Johnny Copelyn, said he was heading off to Spain on a two-week walking holiday, and would on his return attend to the implications of SABMiller’s announcement that it was reviewing strategic options for its 39.6% stake in Tsogo Sun.
That there was little sign of the tension and urgency that characterised the battle for control of Tsogo Sun in 2005 and 2006 indicated that Copelyn believed HCI enjoyed an unassailable position as the major shareholder in Tsogo Sun. Or he might just have been bluffing.
Analysts reckon Copelyn is not bluffing, and point out that it would require a major, and possibly unjustifiable, commitment to challenge HCI’s relationship with Tsogo, which is underpinned by a 41% holding in the hotel and casino group.
Copelyn said he did not see any great urgency in making a decision on whether to buy the SABMiller stake if it became available.
But he said it would not make much sense for HCI to issue shares to fund a deal with a potential price tag of about R11bn.
“We’re a R16bn market cap company. The size of the rights issue required would have too much of a dilutive effect on our BEE partners.”
He said that as SABMiller had indicated several years ago that Tsogo Sun was noncore there was always a general assumption that it would be sold one day.
“You never know with these guys … but I presume there’s something happening now,” said Copelyn.
Tsogo Sun is the gaming, hotel and entertainment group that emerged out of Southern Sun Hotels.
Chris Logan of Opportune Investments believes there’s not much chance of SABMiller extracting a premium for its stake, and also that HCI will not be interested in building its stake much above its current 41%.
“HCI has done very well out of Tsogo, and will want to protect that. But it has what looks like an unassailable position … I can’t imagine anyone wanting to take on Copelyn over Tsogo,” said Logan, who suggested that an unbundling of SABMiller’s Tsogo Sun shares was one option that could be considered.
Johannes Visser of RECM said it was difficult to imagine what third party — local or international — would be interested in acquiring SABMiller’s stake.
He reckoned Copelyn would probably not want anything more than an additional 8% stake in Tsogo Sun.
“Copelyn is a shrewd allocator of capital and a good businessman. HCI has done very well out of Tsogo. It is still undervalued, but it won’t generate the same kind of returns that HCI has got from it,” said Visser.
He said SABMiller might undertake a book-building exercise, which would ensure that the shares came onto the market in a controlled manner. “HCI might participate in such an exercise.”
“Any investor acquiring more than a 5% stake would have to get approval from the Gambling Board.”
SABMiller would not confirm whether or not there was a pre-emptive agreement relating to the sale of its stake. A spokesman for the group did point out that the proposed review “may or may not result in us taking any action”.
The relaxed approach is in sharp contrast to the battle for control of Tsogo Investment Holdings, which dominated the news back in 2005.
A number of high-profile black empowerment parties pulled out all stops in a bid to get access to the rich profits generated by one of the most attractively placed hotel and casino groups in the country.
HCI emerged as the undoubted winner in that long drawn-out battle, whose victims included Johnnic and its two high-profile executives, Christine Ramon and Cyril Ramaphosa, as well as Fabcos, and some might say, occasionally the truth.
Business Times: Business Times – Ann Crotty