Gold Reef Resorts and Tsogo Sun Holdings have entered into an agreement to merge their respective gaming and hotel businesses, creating a pre-eminent gaming and hotel company in South Africa that will have a significant ranking, by market capitalisation, among listed emerging-market peers in the Europe, Middle East and Africa (EMEA) region.
The proposed merger, announced on Thursday, will be effected through an acquisition by Gold Reef of the Tsogo shares held by Tsogo Investment Holding (TIH) and Sabsa Holdings (Sabsa) in exchange for the issue of new Gold Reef shares to form a merged company, which will be listed on the JSE.
It is estimated that the enlarged group will be the 36th largest company on the JSE and the largest hotel and gaming company amongst its listed EMEA peers by market capitalisation.
The transaction will be effected through the acquisition by Gold Reef of the entire issued share capital of Tsogo Sun in exchange for the issue of new shares in Gold Reef.
SABMiller will exchange its 49% interest in Tsogo Sun for a 39,7% interest in the enlarged Gold Reef/Tsogo Sun business.
Gold Reef shareholders and investors will gain direct access to Tsogo’s quality gaming and hotel assets and all shareholders will benefit from the geographical and market segment diversification of the merged company, the companies said in a statement.
Attractive portfolio of assets
Steven Joffe, CEO of Gold Reef, said the merger gives Gold Reef shareholders direct access to Tsogo’s attractive portfolio of assets.
“It creates a company of significant scale and diversification across geographies and markets. As a larger and stronger company, we will be well-positioned to pursue attractive growth opportunities in new markets.”
Gold Reef will issue 889-million new Gold Reef shares as consideration for the acquisition of Tsogo resulting in TIH and Sabsa, the current Tsogo shareholders, owning 41,3% and 39,7% in the merged company respectively, with the remaining 19% being held by the current Gold Reef shareholders.
Based on the closing price of R19,25 per Gold Reef share on Friday 29 January 2010, being the last trading day prior to the release of the Gold Reef cautionary announcement, this implies a value of R17,1-billion for Tsogo. The merged company will therefore have an expected market capitalisation of about R21-billion.
Gold Reef shareholders on the register on the dividend record date will be entitled to receive the final dividend of not more than 65 cents per Gold Reef share in respect of the year ended December 2009, to be declared on or about Monday March 29 2010.
The merger is dependent on the fulfilment or waiver of certain conditions prior to implementation as well as the approvals of the competition authorities and relevant gambling boards. A circular containing full details of the proposed merger will be posted to Gold Reef shareholders in due course.
Due to Tsogo’s material shareholding in Gold Reef, an independent opinion relating to the fairness of the terms and conditions of the proposed merger is required. Gold Reef has appointed Grant Thornton to provide this fairness opinion.
On a preliminary basis, Grant Thornton has advised that the terms and conditions of the proposed merger are fair to Gold Reef shareholders.
The board and management of the merged company are currently under consideration and further details will be published in the circular. No redundancies at the operational level are expected from the merger, the companies said.
‘Significant entity’
Jabu Mabuza, CEO of Tsogo, said: “This transaction heralds the creation of a significant entity in the gaming and hotel industry and in corporate South Africa. The merger of two quality portfolios and listing on the JSE provides investors with exposure to diversified markets and geographies. We will look to capitalise on the new growth opportunities that this merger brings.”
“We believe this transaction is a great outcome for our shareholders to participate in a larger and more diversified group. It opens up a number of growth opportunities as well as improves access to capital and new talent. It is a win-win outcome for all concerned,” Joffe concluded.
Tsogo Sun is SABMiller’s South African hotels and gaming associate, with operations throughout Africa, the Middle East and the Seychelles and has interests in gaming resorts in South Africa, including Montecasino, Suncoast Casino and Entertainment World, The Ridge Casino, Emnotweni Casino, Hemmingways Casino, Caledon Casino and Century Casino.
Tsogo Sun also owns the Southern Sun hotels group, which is one of the largest hotel groups in South Africa and is also one of the largest timeshare operators in the country. By the end of 2010, the Tsogo Sun Group expects to operate 90 hotels with 14 438 rooms in nine countries across Africa and the Middle East.
Gold Reef operates resorts and entertainment complexes throughout South Africa, with an interest in the Gold Reef City Casino and Theme Park, Silverstar Casino, Golden Horse Casino, Goldfields Casino, Garden Route Casino, Mykonos Casino and Queens Casino. — I-Net Bridge