BY FRIDAY we’ll know how successful Tsogo Sun has been on its roadshow to drum up support from local and international investors for the purchase of the 300 million Tsogo shares being sold by SABMiller.

The fascinating part of the deal is the proposed repurchase by Tsogo of at least 130 million shares from SABMiller at a maximum price of R21.50 a Tsogo share.

The R21.50 represents an 18% discount on the price at which Tsogo was trading ahead of last week’s announcement.

The fact that the price has remained at that level since the bullish restructuring announcement reflects the share’s current poor level of liquidity.

If the institutional investors are enthusiastic about the outlook for Tsogo and are comforted by the likelihood of increased tradability in the share they might be prepared to consider a higher placing price.

This will be good for SABMiller and great for Tsogo, which has locked in the R21.50 and so will get an even larger discount. But if there is some dramatic, unexpected development within the next few days and investors suddenly lose their appetite for leisure stocks, SABMiller might struggle to get a placing price of even R20.

An 18% discount on this would reduce the per share repurchase price to just over R16 and enable Tsogo to re-purchase 170 million shares with its R2.8-billion kitty.

Of course, if something that dramatic happened SABMiller might not want to continue the exercise — or Tsogo might not want to spend so much money repurchasing its own shares.

It is a remarkably smart deal and, given that HCI will be the biggest single beneficiary, it’s hardly surprising that it has Johnny Copelyn’s fingerprints all over it.

Source: BDLive – Ann Crotty