TSOGO'S BID FOR SUN INTERNATIONAL ASSETS IN PLAY

Casino heavyweight Tsogo Sun locked horns with the Competition Commission this week, with ownership of two lucrative Cape casinos at stake.

Tsogo wants to buy 40% of the casinos owned by competitor Sun International – the GrandWest casino in Goodwood and the Golden Valley casino in Worcester.

The commission, however, believes this will stifle competition in the Western Cape, and it is trying to block the deal.

Sitting in the witness box at the Competition Tribunal this week, the commission’s chief economist, Liberty Mncube, said the deal would not be “good for competition” as it would give Tsogo Sun a hand in all five of the Western Cape’s gambling licences.

Mncube said the move would give Tsogo insight into Sun International’s commercial activities and clear the way for “tacit coordination” between the two companies. Consumers would end up with higher prices and lower-quality service.

Tsogo Sun’s profits from those two casinos, the commission argued, would outstrip earnings from its Caledon and Mykonos casinos, diminishing any incentive for it to compete aggressively.

The real reason for the proposed deal, argued the commission’s advocate, Rafik Bhana, was “the need to curtail greater competition, which is on the horizon as a result of certain regulatory changes”.

Until now, the five casinos in the Western Cape were in a sweet spot, as they had paid “exclusivity fees” that allowed them to operate in a specific area without any competitors nearby. The exclusivity deal has largely ended (with the exception of Golden Valley), which means that, theoretically, rival casinos can now open in those areas.

At the moment, the only casino in Cape Town is GrandWest, but the Western Cape government has now recommended that a second casino can be moved into the city – where 80% of the gamblers in the province reside.

At the tribunal this week, Western Cape officials testified how Tsogo Sun initially wanted to set up a rival to GrandWest.

Harry Malila, deputy director-general of fiscal and economic services in the Western Cape, said Tsogo CEO Marcel von Aulock supported the idea, and then changed his mind.

Von Aulock’s letter apparently said: “We wish to place on record our support for the reported intention … [for laws so that] a second casino operator can relocate to the Cape metropole.”

But when Tsogo decided it wanted to buy 40% of Grand West, the commission argued, it suddenly changed tack.

Predictably, Sun International argued all along that a rival casino should not be allowed.

“They believed at the time that exclusivity was given to them forever,” Malila said.

Advocate Jerome Wilson, acting for the companies, said the relocation of another casino to Cape Town to increase competition was not relevant as there were no guarantees the proposal would be approved.

Source: Sunday Times – Business Times