The South African land-based casino operator, Tsogo Sun, is now closer to purchasing a stake in Sun International's Western Cape casinos. After a meeting, and subsequent approval, from the Sun International Employee Share Trust scheme's shareholders, Sun International and Tsogo Sun can continue to move forward with a partnership deal. The approval was granted just ahead of the deadline this weekend.
Tsogo Sun Purchase of Western Cape Casino Stake
The Johannesburg company, Tsogo Sun, has plans to buy a 10% stake in the Sun International-controlled Sunwest International and Worcester Casino. Sun International operates the GrandWest Casino and the Golden Valley Casino. Sun International had announced earlier this month that, along with Grand Parade Investments, it would be selling a 10% stake in the casinos.
Tsogo Sun has plans to buy the 10% stake for an amount of around R675 million. The first payment of R37.5 million has already been made, and a further 18 monthly cash payments will be made until the payment is complete.
While Sun International has received full shareholder permission to go ahead with the sale, Grand Parade is still waiting for final shareholder approval before it can go ahead with the deal. Grand Parade has until the end of June 2016 to get this approval. Sun International has said that if Grand Parade does not go through with the deal, it is prepared to sell a further 10% stake to Tsogo Sun, selling a total of 20% of the company to the Johannesburg based casino operator.
South Africa's struggling economy has had an effect in most sectors, including that of the casino industry, showing only 0.6% growth in revenue. Sun International noted that growth was far below the inflation level, In addition to this, positive growth in overseas assets, such as Monticello in Chile, was used to offset the lack of growth in South African assets.
Analyst De Wet Schutte Comments on the Deal
Last year, the Competition Commission blocked Tsogo Sun's purchase of a stake in Sun International in the Western Cape. With Tsogo Sun being the largest casino and hospitality company in South Africa, the Commission had expressed a number of concerns regarding the deal.
An analyst from Avior Capital, De Wet Schutte, commented on the upcoming deal between Sun International and Tsogo Sun, noting: "The new deal is structured to achieve a number of specific imperatives for all parties involved."
He further noted that Sun International had made the decision to "diversify their casino exposure in South African and arguably removing relocation risk in the Western Cape."