Sun down on bid

Sun International

Value Capital Partners and Allan Gray have rejected a bid by Nueva Inversiones Pacifico Sur (IPS) for a majority stake in Sun International.

The move came as the company announced plans to cut staff and sell properties as part of an overhaul in the wake of the pandemic.

IPS is Sun International’s partner in Latin America and owns around 35% of Sun Dreams, Sun’s Latin American subsidiary which operates casinos and lodging facilities across Chile, Colombia, Panama, Peru and Argentina. The two came together in 2016, when Dreams merged with Sun’s Latin American business to create Sun Dreams.

In April last year Sun International announced plans to sell a 15% equity interest in Sun Dreams to IPS, taking its stake to 50%. The deal failed to materialise and the two have been in litigation since. 

Value Capital Partners, which has a 20% stake in Sun International, said that the offer to buy a 50.1% stake at R1.5bn ($86.06m) undervalued the company, adding that it did “not believe a sale at artificially depressed prices is in the interest of existing shareholders”. Allan Gray holds 23.8%. 

The R22 per share offer was at a premium of almost 50% premium to Sun International’s closing price the day before their offer became public, but 50% below Sun International’s peak of about R47 nine months ago. The approach included an offer to underwrite at least half of a R1.2bn rights issue and provide a bridging loan to ensure liquidity during the ongoing crisis.

Sun International CEO Anthony Leeming said: “It is surprising and unfortunate that IPS chose to go public with an unsolicited announcement that is neither an offer nor a firm commitment to make an offer. By sharing a non-offer with media they have created confusion and led to speculation in our share. They have not even discussed the offer with our major shareholders and had they done so, as we have, they would have realised their proposal has little chance of success.

“Our full focus right now is on pushing ahead with our proposed rights offer. Like most businesses the world over we have been negatively affected by the lockdown, but we are on the verge of reopening. We have a strong brand and quality offering so we are confident that we will soon regain lost ground.”

Leeming said that Sun has previously received several similar unsolicited, non-binding proposals from IPS. 

IPS co-founder and chairman, Claudio Fischer, said: “We have written to the board to consider proceeding with us, as we believe Sun International has an attractive portfolio of properties in Africa and Latin America, which need to be protected against the devastating economic impact of the Covid-19 pandemic.

“Our proposal provides an alternative transaction structure with more favourable terms than those included in Sun International’s general meeting circular, dated 12 June 2020, indicating [its] intention to launch the Proposed Rights Offer.”

Sun International has outlined a recovery plan which included raising R1.2bn from shareholders, selling surplus land to raise R380m and cutting 12% of its staff. The company was forced to close its hotels in March, due to the pandemic. Hotels and casinos can now reopen - although consumption of alcohol remains forbidden - but South Africa is not expected to reopen its borders until September. 

The company said: “The restructure will be a difficult process but is vital for the long term survival of our hotel and resort properties, given the difficult environment that they will be facing. In a number of cases we will require gaming board approval.

“The Covid-19 pandemic is having a material negative impact on the macroeconomic environment with notable implications for the South African GDP outlook and a slow domestic recovery.

“Although trading conditions are going to be challenging, we are confident that, with the appropriate level of support from shareholders and lenders, the company can trade through this crisis.”

Insight: The wranglings at Sun International are by no means limited to the company and we can expect to see variances of this all over the world as groups stagger about looking for cash to shore themselves up as opportunism becomes the way of the world. Think you can pick up a hotel-shaped bargain? Might as well give it a shot.

The efforts by IPS to pick up Sun on the cheap do, however, remind us that Africa is very much on the sector’s minds at the moment, with both Radisson and Hilton shoring up their development teams on the continent in recent weeks. Some of the faces were familiar, but then that's the way of it.

What IPS has done is draw attention again to Sun, which undertook another rights issue two years ago. At the same time Accor and Katara Hospitality set up a $1bn Africa-focused investment fund, which it said would target greenfield projects, brownfield projects and conversions of existing hotels through acquisitions. One of the issues affecting would-be growth merchants in Africa is the lack of stock to buy after Marriott bought Protea in 2014. Expect some possible enthusiasm around Sun.