Some real sharp op­tions

Can GPI barter as­sets with Sun In­ter­na­tional?

Finweek English Edition - - Companies & Markets - MARC HASEN­FUSS

SOME­THING SURELY MUST GIVE at Real Africa Hold­ings (RAH), the for­mer empowerment in­vest­ment pi­o­neer now po­si­tioned as a gam­ing in­vest­ment com­pany. As things stand, more than 90% of RAH’s is­sued shares are held by just two ma­jor share­hold­ers, leav­ing a rather small free float of scrip trad­ing on the JSE.

Gam­ing gi­ant Sun In­ter­na­tional owns 60,3%, with Grand Pa­rade In­vest­ments (GPI) – Sun In­ter­na­tional’s empowerment part­ner in the West­ern Cape – hold­ing an­other 30,57% in RAH. How­ever, the par­ties aren’t act­ing in con­cert. Far from it…

A few years ago Sun In­ter­na­tional was in­volved in a rather ac­ri­mo­nious buy­out at­tempt at RAH. A good num­ber of RAH share­hold­ers fobbed off its ad­vances, which meant the gam­ing gi­ant couldn’t ful­fil its aim of a 100% buy­out and delist­ing RAH.

Iron­i­cally GPI, just ahead of its list­ing in June this year, found far less re­sis­tance when it of­fered a scrip swap with RAH share­hold­ers, which in­cluded the El­ler­ine broth­ers, Pru­den­tial Port­fo­lio Man­agers and Blue Bay Fund Man­agers.

GPI has also bought RAH shares on the open mar­ket and Fin­week wouldn’t be sur­prised if such for­ays con­tin­ued in the months ahead.

What would be most in­trigu­ing is if GPI could snap up the re­main­ing mi­nori­ties in RAH, which would al­low the com­pany to delist from the JSE. Cur­rently, GPI is in a po­si­tion to make a scrip plus cash of­fer to RAH share­hold­ers. With Sun In­ter­na­tional hold­ing around 60% and GPI the bal­ance we could have a sce­nario per­fect for as­set bar­ter­ing.

RAH’s as­sets in­clude a 14,6% stake in the SunWestowned GrandWest casino (Cape Town), 8,1% of the Board­walk casino (Port El­iz­a­beth), 13,7% of Sibaya (Dur­ban) and 21,6% of Car­ni­val City (Gaut­eng). It also has stakes in the na­tional and re­gional man­age­ment com­pa­nies for the var­i­ous casi­nos.

We’d as­sume GPI might be keen to in­crease its share­hold­ing in the cash spin­ning Sun­West op­er­a­tions. If so, would there not be an op­por­tu­nity to en­gage Sun In­ter­na­tional with pro­pos­als to swap out the GPI stake in RAH in ex­change for ad­di­tional shares in Sun­West?

A big­ger hold­ing in Sun­West – widely re­garded as SA’s most prof­itable and valu­able casino – would cer­tainly add to GPI’s ap­peal. Ul­ti­mately, GPI could po­si­tion it­self as an en­try point for in­vestors to Sun In­ter­na­tional’s Cape casi­nos: GrandWest and the re­cently opened Worces­ter casino.

With a nar­row in­vest­ment fo­cus on two Cape casi­nos, GPI could also be free to pur­sue other gam­ing deals away from Sun In­ter­na­tional (but still re­main­ing Sun In­ter­na­tional’s empowerment part­ner in the West­ern Cape).

Aside from build­ing on its in­ter­ests in Lim­ited Pay­out Ma­chines (Thuo Gam­ing) and on­line gam­ing, GPI may even be able to make in­de­pen­dent casino ac­qui­si­tions. In that re­gard you’d think of Gold Reef Re­sorts – which twice has been in ne­go­ti­a­tions about a pos­si­ble takeover th­ese past 12 months. If Gold Reef Re­sorts is still open to suit­ors, GPI could find any one of that group’s West­ern Cape op­er­a­tions – The Gar­den Route and Mykonos casi­nos – quite en­tic­ing.

An­other out­side bet could be the Cale­don casino – owned by Nas­daq-listed Cen­tury Casi­nos – which, last time we looked, did not have an empowerment part­ner with di­rect op­er­a­tional eq­uity.

Of course, the over­rid­ing is­sue is whether Sun In­ter­na­tional is sore at GPI for op­por­tunis­ti­cally snap­ping up the shares it couldn’t gar­ner in RAH. Some ini­tial ten­sion be­tween the par­ties – headed by strong willed ex­ec­u­tives in the form of GPI’s Hassen Adams and Sun In­ter­na­tional’s David Coutts-Trotter – would be un­der­stand­able. It’s worth not­ing that Adams re­signed from the Sun In­ter­na­tional board in late Au­gust – which may well sig­nal ten­sions are still sim­mer­ing over RAH.

But ul­ti­mately RAH does have the cards that Sun In­ter­na­tional need to neaten up its cor­po­rate struc­ture and (re­vamp its empowerment ini­tia­tives at re­gional level. See Fin­week, Fin­week 18 Septem­ber, head­lined “A R750m call for Sun In­ter­na­tional”).

Come to think of it, GPI looks like it has its bets hedged with RAH. Whether bar­ter­ing with Sun In­ter­na­tional or hang­ing on to its RAH stake (where GPI must now be due board rep­re­sen­ta­tion) it’s still a winning hand.

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