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SABMILLER COULD LET HCI GAIN CONTROL OF TSOGO

GLOBAL brewing giant SABMiller could offer investment conglomerate Hosken Consolidated Investments (HCI) a chance to take outright control of gaming and leisure group Tsogo Sun.

On Tuesday SABMiller said it was reviewing strategic options for its 39.6% shareholding in Tsogo Sun Holdings — which owns large casinos such as the SunCoast in Durban and Montecasino in Johannesburg and well-known hotels in South Africa and Africa.

SABMiller said Tsogo — which represented 1.2% of its more than R900bn market capitalisation — was not considered core to the beverage operations.

The brewer cautioned that there could be no certainty that the review would result in the company taking any action. Market watchers, however, reckoned SABMiller would not have disclosed a strategic review process if its executives had not already gone some way towards a firm decision on Tsogo.

Investment specialist Blue Alpha director Uys Meyer said Tsogo Sun was SABMiller’s only nonbeverage interest.

“The SABMiller board has changed in recent years, and I’m not sure what affinity the newer executives, especially those that are not SA-based, have for Tsogo.”

Mr Meyer speculated that SABMiller might have already identified new opportunities in Africa for which the proceeds from the sale of its Tsogo shareholding could be mobilised.

Most market watchers agreed that HCI, which holds 41.5% of Tsogo Sun, would be the odds-on favourite to take a significant portion of SABMiller’s shareholding.

Market sources suggested that SABMiller would not make things easy for HCI, or any buyer, and would want an attractive exit price.

Investment commentators also discounted the chances of SABMiller unbundling the Tsogo Sun shareholding, arguing that such an exercise would effectively remove the “king-maker” premium that should be accorded to its influential stake.

Other gaming firms, including Grand Parade Investments, Phumelela and foreign players, as well as private equity entities might covet a slice of Tsogo.

But HCI, which also controls alternative gaming group Niveus, has in recent years shown immense determination to build a commanding position in the casino sector. HCI, appearing to be comfortable with a fair slab of debt at its centre, has often highlighted the cash-generative qualities of Tsogo as allowing the investment company to service debt and pursue new ventures.

Although HCI showed incredible determination in building its gaming interests, it seems unlikely it will make an offer for SABMiller’s entire shareholding in Tsogo.

But SABMiller’s Tsogo stake is worth nearly R11bn compared with HCI’s market capitalisation of R18bn. HCI is already committed to underpinning a R5bn rights offer at media subsidiary Seardel.

Mr Meyer said it was most likely HCI would look to increasing its holding in Tsogo to 44%-50% to secure control. He suggested the remaining Tsogo Sun shares held by SABMiller could be easily placed with institutional shareholders in a book-building exercise.

“These shares would probably be placed in a morning,” he said.

Tsogo Sun said on Tuesday it was assisting SABMiller with its review and that further announcements would be made to shareholders.

CEO of HCI Johnny Copelyn had not responded to questions from Business Day by the time of going to press.

Source: BDLive – Marc Hasenfuss