Rob Rose More stories of dirty tricks are emerging in the R11,4bn private equity buyout of casino owner Gold Reef — but now it’s HCI’s Tsogo Sun which is making the accusations.

In December, 99% of shareholders agreed to accept the Ethos private equity consortium’s offer for Gold Reef. But last week, Tsogo argued before the Gauteng Gambling Board that the deal should be vetoed as it raised questions over Gold Reefs “financial viability”, and minority shareholders were given a raw deal.

The gambling board has a lot of sway. It could scupper the second largest private equity deal in SA’s history because it doesn’t believe the consortium is a “fit and proper person”, or that it would be bad for empowerment.

But it isn’t only the gambling board that could throw a spanner in the works. The Securities & Regulation Panel (SRP) is probing the damaging allegations that have pockmarked this dispute.

The SRP approved the deal circular last year, but in light of the new claims of an alternative offer”, it has reopened its file.

“If something pops up from a deal we’ve already approved, we are duty bound to look at things again. In this case, we asked Gold Reef to alert shareholders to the discussions we are having, and now we’re open to hear anyone,” says deputy executive director Vivian Pitchers.

Though Pitchers says the SRP has not received any formal complaints yet, he adds that “certain parties have communicated with us”.

The key is Tsogo Sun’s claim that it placed a “proper offer” of R34,50/share in front of the major shareholders, which would have trumped Ethos’s R34/share offer. But Tsogo claims minority shareholders weren’t told of this other offer.

Why was this? According to Tsogo, not only would Gold Reef management have been included in the new company structure under Ethos, but chairman Maxim Krok was given a dubious R12m payment.

In the deal circular, Gold Reef discloses the R12m payment, but says the payment was “an expression of Gold Reefs gratitude for the significant role and contribution” Krok made to Gold Reef’s success.

Says Thogo Sun director Marcel von Aulock: “Shareholders are entitled to sell to whomever they want at whatever price they want. But they must treat all shareholders equally, and in that context, the payment to Krok must be investigated.* The implications of ‘Tsogo’s allegations, however, are that Krok took the R12m payment to sway him in Ethos’s favour and that he was compensated for accepting the R34/share price, rather than the R34,50 offer.

Their reasoning is this: Krok’s beneficial interest in his family’s shareholding in Gold Reef is 15,9m shares. If you were to pay an extra 50c a share on each of these shares (the difference between Ethos’s and Tsogo’s offer), it amounts to R8m, which works out to R7,2m after a 10% capital gains tax charge. However, the R12m payment to Krok works out to exactly R7,2m after a 40% income tax expense is deducted. Coincidence?

After the Gauteng gambling board hearing, Gold Reef issued a statement reiterating its claims that wat no stage during [the sale] process did the board receive an offer of R34,50 from Tsogo or a firm intention to make an offer from Tsogo”.

Instead, the consortium has painted a picture of Tsogo as a rival keen to exploit any regulatory process to sabotage Gold Reef, especially since it lost out on the deal.


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Source: Financial Mail – Rob Rose