SABMiller to dispose 40% stake in Tsogo Sun

SABMiller CEO, Alan Clark said gaming and hotels are not core to our operations and we have concluded that the time is right for us to exit our investment through a transaction that is beneficial to shareholders of both SABMiller and Tsogo Sun.

Beer and soft drinks manufacturer, SABMiller (SAB) elaborated plans to sell its 40% shareholding in the gaming and hotels group, Tsogo Sun (TSH) — a move that may see Hosken Consolidated Investments (HCI) bolstering its stake in Tsogo.

Chief Executive of SABMiller Alan Clark, said in a statement: “SABMiller has been a supportive shareholder of Tsogo Sun since 2002, when we transferred our existing gaming and hotel assets into Tsogo Sun as part of a landmark Black Economic Empowerment transaction.

The business has performed well over the years. The merger with Gold Reef Resorts in 2011, and the resultant listing on the JSE, has transformed Tsogo Sun.

“However, gaming and hotels are not core to our operations and we have concluded that the time is right for us to exit our investment through a transaction that is beneficial to shareholders of both SABMiller and Tsogo Sun and to reinvest the proceeds in our core growth businesses, including our African operations,” Clark said in a statement.

SABMiller which warned in April it was reviewing its Tsogo investment — will dispose of its 39.6% (or R12bn) holding in Tsogo via an institutional share placement of 305-million shares to offshore and local investors‚ and facilitate a R2.8bn share buyback.

The share buyback will in effect see HCI’s stake in Tsogo increase from 41.3% to 47%. HCI has a penchant for the gaming sector‚ and is the controlling shareholder of alternative gaming group Niveus (which specialises in limited-payout machines and electronic bingo).

Market talk has long held that HCI was keen to up its stake in Tsogo‚ but might not have been keen to pay the market price.

The share buyback allows HCI to increase its stake without putting in extra capital‚ which is an important consideration since the company recently underpinned a R5bn rights issue for subsidiary Seardel.

Avior Research analyst De Wet Schutte said it would be interesting to see whether HCI pushed for full control of Tsogo by looking‚ in future‚ to taking its stake to 50%. However‚ it is understood HCI will not take part in the placement of SABMiller’s shares.

“Buying the SABMiller shares would be a very‚ very big decision for us and it’s certainly not something we could do out of the current borrowing capacity of the company‚” HCI CEO Johnny Copelyn was quoted as telling Bloomberg last month.

Tsogo CEO Marcel von Aulock said on Monday the arrangement was a “good deal all around” for shareholders. “We get to buy shares back at good discount to the placement price. Tsogo does not get stretched in the buyback exercise and won’t have to cut back on planned capital expenditure‚” he said.

Mr von Aulock said Tsogo not only bolstered its empowerment credentials through HCI’s stake‚ but the possible involvement of local and international institutions would help overcome the free float issue that has dogged it since listing.

More than 90% of Tsogo’s issued shares are in the hands of four shareholders‚ leaving a small float available for trade. Mr Schutte said a larger share float would be beneficial.

“At the moment they fall out of the universe of big institutional shareholders‚” he said

Mr von Aulock said the placement was a full investment offering‚ “almost like relisting Tsogo on the JSE”.

In a trading update on Monday‚ Tsogo said the relatively weak macroeconomic and consumer environment had continued to put pressure on trading in the first quarter to end June.

Tsogo said income grew 5% with growth affected by disruptions linked to the national elections and various expansion and refurbishment projects.