Sun shareholders dismiss Chile offer
• Fischer brothers want African assets for portfolio • Offer undervalues group, says Allan Gray
Two major shareholders rejected as too low a R1.5bn bid from Nueva Inversiones Pacifico for a majority stake in Sun International, a move that tests the Chilean firm’s determination to add African assets to its South American portfolio.
The nonbinding offer came on Wednesday, hours after Sun International set out a plan to survive amid the economic uncertainty in the Covid-19 world, helping shares in the Johannesburg-based firm to stage a late-session rally to log their biggest one-day gain in almost a week.
But the stock pulled back on Thursday after Sun International’s two largest investors, Allan Gray and Value Capital Partners, which collectively have a 43% stake, snubbed the bid as significantly undervaluing their company. Sun International’s share price fell as much as 10% on Thursday, before closing just 0.17% lower at R18.07.
Chilean brothers Claudio and Humberto Fischer are determined to add African casino and hotels assets to their vast portfolio, which includes a salmon farm in South America. Nueva is a 35% shareholder in Sun International’s South American division, Sun Dreams.
Allan Gray portfolio manager Duncan Artus said if Nueva wants to buy Sun International’s shares, it can do so on the open market if it can find sellers, but the offer price undervalues the group. “As such we are not interested in the potential partial offer or selling any shares,” Artus said. “What it does highlight, in our view, is the depressed nature of the share price and its attractive portfolio of assets both in SA and Latin America.”
Allan Gray holds about 23% of Sun International.
Value Capital Partners (VCP) CEO Sam Sithole said the offer came with so many terms and conditions it was unlikely it could go ahead, adding that he was sceptical about its sincerity.
“I don’t think this is a serious offer; shareholders of Sun International are well aware of the long-term value of the group,” he said. “I think this is just a diversion, perhaps trying to take advantage of the group’s depressed share price.”
Under the partial cash offer,
Nueva plans to make a formal bid of R22 per share for a 50.1% stake in the company, plus a bridge loan and commitment to underwrite more than half of Sun International’s planned R1.2bn rights offer, it said in a statement on Wednesday.
The proposal is a 22% premium to Sun International’s closing price on Tuesday and it is pitched as an alternative to its sweeping operational overhaul aimed at building cash buffers to withstand the corona virus induced economic destruction.
Sun International CEO Anthony Leeming said the group had already consulted with a number of its largest shareholders, who were in support of the group’s turnaround plan, which was outlined before Nueva made its offer public on Wednesday.
Leeming remains sceptical about Nueva’s offer. “They said there is little chance of accepting the offer. Personally, I think there is no chance.” He added that it was unfortunate the nonbinding offer was made public, as it led to share price volatility.
Allan Gray and VCP rallied behind Sun International’s restructuring programme, which entails job cuts, land sales and a cash injection from shareholders. The company has secured a temporary waiver from lenders for some of its debt.
“We believe the company is taking the correct course of action under trying circumstances, by managing costs and engaging with lenders,” Artus said. “This will hopefully allow Sun International to emerge successfully post-reopening and continue the encouraging trends shown in the 2019 financial results.”
Sithole likewise said VCP supported the turnaround plan, adding that the management of Sun International had been “fantastic” at meeting shareholders’ expectations. “I think all the shareholders are fully behind them; they are doing a great job.”
Sun International also said Nueva had made unsolicited, nonbinding proposals before, which came to nothing as Sun International had a litigation claim against the group.
This relates to Sun’s proposed disposal of a 15% interest in Sun Dreams for about $86m (R1.5bn). This was not completed as some conditions were not met by a deadline for the transaction, and the matter is in arbitration. These details are subject to a nondisclosure agreement.