Some real sharp options
Can GPI barter assets with Sun International?
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.