Sun International bids 9.4bn for Peermont

23 Mar 2015

Almost 20 years after the introduction of a new gaming dispensation in South Africa, the casino industry will effectively be reduced to two big rollers - Tsogo Sun and Sun International...

On the weekend, the latter unexpectedly proposed a R9.4bn buyout of debt-laden Peermont Global, which has the Emperors Palace casino in Kempton Park as its flagship asset.

Sun International bids 9.4bn for Peermont

The deal might be the last card played in consolidation of the casino sector - largely regarded as lacking growth due to brittle economic conditions and increased competition from gambling formats like electronic bingo and limited payout machines.

Most market watchers were taken by surprise at the Peermont offer, noting that in recent years, Sun International had shown a penchant for building a meaningful offshore presence in Latin America.

Sun International CEO Graeme Stephens said in a statement the transaction would align the company's strategy to enhance and leverage its existing asset portfolio and seek new growth opportunities.

Casino sector consolidation began in 2006 with Peermont's takeover of the Tusk Group. Three years later Tsogo Sun acquired Century Casinos' Blackrock and Caledon properties, and two years later it bought out Gold Reef casinos and resorts. Last year, Tsogo Sun was offered a 40% stake in Sun International's GrandWest and Worcester casinos.

95% ownership of the market

Market sources estimate that if the Peermont deal is approved by competition and gambling authorities, ownership of more than 95% of the casino market will be in the hands of Sun International and Tsogo.

Sun International said it could entertain the possibility of disposing of some of the smaller assets in the Peermont portfolio - which would help appease the competition authorities.

Sun International - which is part-settling the Peermont deal in scrip - has indicated it would need to raise up to R3.75bn in a rights issue and a rollover of about R3.68bn of Peermont's senior debt.

The merged entity would generate annual revenue of close to R14bn. Tsogo Sun's turnover for the year to end-March 2014 was about R11bn.

Stephens said the acquisition of Emperors provided Sun International with an opportunity to increase gambling revenue from Gauteng, where the gambling spend is highest and the market is dominated by Tsogo Sun, which owns Montecasino, Gold Reef and Silverstar casinos.

Peermont's results for the year to end December showed Emperors posting revenue growth of 9% and market share growing from 24.6% to 25.6%.

Source: Business Day

Source: I-Net Bridge

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