[Cape Town, 13 May 2014] Grand Parade Investments (GPI) today confirmed three major transactions, each of which is not inter-dependent but is subject to certain conditions precedent:
1. GPI has entered into an agreement with Sun International and Tsogo Sun to dispose of its entire 25.1% interest in SunWest and entire 25.1% interest in Worcester Casino, to be implemented by means of a share buy-back by SunWest and Worcester Casino respectively, for R1.55 billion in cash.
2. GPI has entered into an agreement with Sun International to dispose of its entire 24.9% interest in Dolcoast, which indirectly owns a 5.6% interest in Afrisun KZN, trading as Sibaya Casino and Entertainment Kingdom, for R130 million in cash.
3. GPI has entered into an agreement with Sun International to sell up to a 70% interest in GPI Slots, a wholly-owned subsidiary. GPI Slots owns and operates Limited Payout Machines (LPMs). This transaction will be effected in three stages based on the financial results of GPI Slots for the financial years ending 30 June 2014, 2015 and 2016. The first acquisition will be for an initial 25.1% interest for anticipated proceeds of R276.6 million (equity and shareholder loans), plus a R20 million cash payment for the cancellation of certain management services provided by GPI to GPI Slots.
Chairman Hassen Adams said that in each of the transactions there was a significant upside opportunity to generate cash for reinvestment into both existing operations and new opportunities, which would enable GPI to accelerate its ambitious growth strategy.
“This deal in its totality signifies the coming of age of GPI. It has always been our dream to play a greater part in the South African economy but not at the expense of window dressing or playing second fiddle. As a BBBEE company our vision has been to control our own destiny and in doing so taking our large community-based shareholders along on the journey. It is incumbent on us as one of the pioneers of BBBEE to leave a legacy which we hope to do in the enabling environment created by these deals.”
The SunWest and Worcester Casino transaction will realise significant value for GPI shareholders and represents an excellent return on investment. As a result of the transaction, GPI will exit the Western Cape casino market while Tsogo Sun will acquire a 40% interest in both SunWest and Worcester Casino.
“GPI has been invested in SunWest and Worcester Casino for 16 years as Sun International’s initial BEE partner, and we would like to thank Sun for affording us this opportunity, and for mentoring us over this time. We believe that the timing and terms of the transaction fully support GPI’s strategy to pursue new high growth investment opportunities. Importantly, Sun International and Tsogo have the necessary financial capability, requisite BEE credentials, regulatory and industry knowledge to implement the transaction at a valuation that meets GPI’s expectations.”
The Sibaya Casino transaction is an opportunity for GPI to exit a minority investment at a compelling valuation. Importantly, GPI’s strategy is to acquire meaningful stakes in businesses to which it can add strategic value, and the investment in Dolcoast (and indirectly Sibaya Casino) no longer satisfies this criteria.
The GPI Slots transaction is an opportunity for GPI to maximise the long-term growth potential of GPI Slots and to realise significant and immediate value for shareholders. GPI has achieved considerable and rapid growth in GPI Slots but believes that given an evolving market, future growth would be best achieved through partnership. GPI will retain a stake of at least 30% in GPI Slots and will therefore benefit from the new growth opportunities afforded by partnering with Sun International, which brings a substantial local and international platform to the business.
Moreover, the GPI Slots transaction represents an opportunity to diversify GPI’s capital by deploying the proceeds into non-gaming assets, consistent with our stated intention to maintain a diversified portfolio of investments, both in terms of sector and stage of the asset life-cycle. The deal with Sun International will also ensure that GPI’s operational involvement in GPI Slots is appropriate to the stage of growth of the asset. The costs of holding the investment will therefore be minimised. It also represents an opportunity to lead the market in the development of new alternative gaming assets through collaboration with Sun International in GPI Slots.
“The casino landscape is changing and as a minority investor, we don’t believe we have sufficient influence over our own future. Our exit from interests in both the Western Cape and KZN casinos represents a good opportunity to realise great value for shareholders and focus the business on higher growth prospects. We have an excellent track record of delivering superior returns to shareholders and we are absolutely committed to this strategy,” said Adams.
CEO Alan Keet said that in particular, Burger King had been identified as a key priority for growth and part of the proceeds would be applied to accelerating the rollout of stores nationally and into Africa.
“Our strategy is also to create further value through related food investments, with clear synergies to exploit where possible. This has been evidenced to date through the manufacture and supply of kitchen equipment through our investment in MacBrothers and our joint venture with Excellent Meats. We’ll consistently investigate further opportunities.”
Importantly, GPI will retain a minimum 30% interest in GPI Slots and will therefore benefit from the new growth opportunities afforded by partnering with Sun International, which brings a substantial local and international platform to the business. GPI will also continue to focus on developing its gaming and betting machine manufacturing capabilities through its Grand Merkur subsidiary, and has ambitions to be the leading supplier of machines to the casino industry in South Africa.
Said Keet: “GPI will be in a strong cash position as a result of these transactions and will be very well-placed to secure further quality investments given its balance sheet, BEE ownership credentials and strategic input.”
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