| Mon 16 May 2011, 8:00 | | GPL - GPI - Salient features of the restructure |
|
GPL
GPL
GPL - GPI - Salient features of the restructure
GRAND PARADE INVESTMENTS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1997/003548/06)
Share code: GPL ISIN: ZAE000119814
("GPI" or "the Company" or "the Group")
SALIENT FEATURES OF THE RESTRUCTURE
- Consideration of R718 million for the sale of shares;
- GPI retains 25.1% in SunWest and 25.1% in Worcester;
- New beneficial long-term operating agreement with Sun International to manage
GrandWest Casino, Golden Valley Casino and the Table Bay Hotel;
- Cancellation fee for existing contracts of R67 million (after tax) to be
received;
- Reduced debt and improved risk profile;
- Improve dividend flow to shareholders:
- once-off special dividend; and
- future dividend capacity improved through reduction in gearing;
- Capital retained for investment into:
- other gaming assets, in particular technology gaming, with significant capital
growth potential; and
- new areas where GPI is able to take advantage of its BEE status.
1. INTRODUCTION
1.1. Further to the joint cautionary announcement dated 18 April 2011, the board
of GPI ("the Board") is pleased to announce that GPI entered into a binding
agreement with Sun International Limited ("Sun International") on 13 May 2011
("the Agreement") which governs the rearrangement of Sun International and GPI`s
common interests in certain of their shared investments ("the Proposed
Restructure").
2. DETAILS OF THE PROPOSED RESTRUCTURE
2.1. In terms of the Agreement, and subject to the fulfilment or waiver (where
appropriate) of the conditions precedent detailed in paragraph 7, the details of
the Proposed Restructure are as follows:
2.1.1. The SunWest Disposal
Sun International will acquire from GPI and its wholly owned subsidiary Business
Ventures Investments No 575 (Proprietary) Limited a 4.9% economic interest and a
0.1% voting interest in SunWest International (Proprietary) Limited ("SunWest"),
pursuant to which, GPI will subsequently hold 25.1% of the economic rights and
49.9% of the voting rights of SunWest.
2.1.2. The Worcester Disposal
Sun International will acquire from GPI a shareholding of up to 21.1% in
Worcester Casino (Proprietary) Limited ("Worcester"), pursuant to which, GPI
will subsequently hold 25.1% of Worcester.
2.1.3. The RAH Offer
Subject to the fulfillment and or waiver of the RAH Pre- condition, as set out
in paragraph 7 below, Sun International will acquire GPI`s entire 30.6%
shareholding in Real Africa Holdings Limited ("RAH") as part of an offer to all
the shareholders of RAH (other than Sun International (South Africa) Limited) in
terms of section 124 of the Companies Act No. 71 of 2008, as amended ("the RAH
Offer").
2.1.4. Restructure of Management Arrangements
The existing management contracts currently in place between SunWest and Western
Cape Casino Resorts Manco (Proprietary) Limited ("WC Manco") and Worcester and
Winelands Casino Resorts Manco (Proprietary) Limited ("Worcester Manco") will be
cancelled on the implementation date (but effective from 1 July 2011) in
exchange for a cancellation fee. The amount of the cancellation fee is based on
the present value of the cash flows from 1 July 2011 to the expiry dates of the
management contracts and will be paid to the respective management companies. WC
Manco and Worcester Manco will distribute these proceeds as dividends to their
respective shareholders.
The distribution to be received by RAH by virtue of its 25.3% shareholding in
National Casino Resort Manco (Proprietary) Limited ("National Manco"), a 50%
shareholder of WC Manco, will be taken into account in the value attributed to
RAH as set out in paragraph 5.2 below.
In addition, the management agreements between Sun International Management
Limited ("SIML") and SunWest (in respect of GrandWest Casino and the Table Bay
Hotel) and Worcester are to be cancelled and replaced with new management and
royalty agreements.
2.1.5. Release of GPI`s Lock-in Obligations
GPI is to be released from all empowerment lock-in obligations. This will
ultimately result in the unbundling of the GPI SPV Trust and the GPI BBBEE
Trust, following which unit holders will receive GPI shares which they can trade
freely.
2.2. It should be noted that each of the aforesaid transactions will be
indivisibly inter-related with each other in that if any one or more of the
aforesaid transactions are not implemented, for any reason, then none of the
other transactions shall be implemented.
3. BACKGROUND, RATIONALE AND PROSPECTS
3.1. SunWest owns and operates the GrandWest Casino and the Table Bay
Hotel. It also owns a stake in the Cape Town International Convention Centre.
These are premiuim hospitality assets in the Cape Town metropole area.
3.2. Worcester owns and operates the Golden Valley Casino which is located in
Worcester and provides guests with an intimate gaming, hotel and leisure
experience.
3.3. GPI, indirectly through its wholly owned subsidiary Utish Investments
(Proprietary) Limited, owns 30.54% of RAH, an investment holding company listed
on the JSE Limited ("JSE") with exposure to assets in the form of Sibaya Casino,
Carnival City Casino, SunWest and various regional management companies. GPI
also owns a 0.03% direct shareholding in RAH.
3.4. GPI`s current lock-in obligations, as agreed with Sun International in
terms of an option agreement of 17 August 2007, stipulate that for the duration
of the lock-in period (until 30 June 2012) GPI is required to maintain a black
shareholding of at least 35.0%, and that such black shareholders may only
dispose of their shares in GPI to other suitably qualified black persons.
3.5. The removal of GPI`s lock-in requirements will allow GPI to release those
of its black shareholders currently participating in the lock-in structure from
their restriction agreements in advance of the June 2012 lock-in expiration
date, and in so doing further empower such GPI shareholders.
3.6. The management agreements in respect of the GrandWest Casino and the Table
Bay Hotel currently expire on 31 December 2015, and the management agreement in
respect of the Golden Valley Casino expires on 30 April 2016. The new royalty
and management agreements as contemplated in terms of the Proposed Restructure
will significantly reduce the management costs to the casinos. GPI has always
maintained that Sun International is the premier operator of casinos in South
Africa and believes that the casinos are well served under its management.
3.7. The Proposed Restructure clearly defines the terms of the relationship
between GPI and Sun International and allows GPI to further its own gaming
interests independently, particularly with regard to the operation of its
Limited Payout Machine ("LPM") business.
3.8. The Board believes that the Proposed Restructure provides GPI with the
opportunity to realise a fair value for its investments in RAH and the portions
of SunWest and Worcester that are being sold.
The Board believes that the Proposed Restructure will leave GPI in a strong
position in that it will continue to hold significant interests in established
businesses that are highly cash generative. GPI will also continue to operate
and expand its own gaming assets in the form of the high-growth LPM business.
After completion of the Proposed Restructure GPI will have the financial
capability which, together with its existing broad based black economic
empowerment ("BBBEE") credentials, will allow it to take advantage of new
investment opportunities. GPI`s new investment strategy will extend beyond
gaming activities. In order to harness the full benefits of the Proposed
Restructure, the Board has developed a three- tiered strategy as set out below.
3.8.1. Gaming and Leisure Investments
This will involve the holding and management of established, cash
generating assets including SunWest (25.1%), Worcester (25.1%)
and, through Dolcoast Investments Limited, Sibaya Casino (3.9%).
GPI aims to reduce the gearing that it holds against these assets
in order to pass through a greater portion of the dividends received
from these investments to GPI shareholders.
3.8.2. Gaming and Other Operations
GPI`s vision of becoming a major and respected force in the gaming and leisure
industry in Africa remains. The Company will continue to focus on controlling
and operating high growth gaming assets that are expected to be self-funding and
show potential for significant capital growth. This will include GPI`s existing
LPM business, particularly in Gauteng where it has recently acquired an LPM
licence. GPI also intends increasing its involvement in
technology based gaming and investing in other forms of gaming. The Board
believes technology gaming is an area of major growth potential and will strive
to ensure that GPI is well positioned to take advantage of opportunities in this
segment of the gaming industry. GPI also intends pursuing controlling interests
in non-gaming operating businesses where GPI is able to capitalise on its
expertise in management services.
3.8.3. Other Investments
GPI finds itself in a favourable BBBEE space, being significantly broad based,
listed and, through this deal, with significant capital available for
investment. The third element of GPI`s strategy will be to maximise its
financial capacity by pursuing an approach focussed on investing in key sectors
where GPI can utilise its BBBEE credentials and existing customer base. This is
an important element of its future strategy as it will help to diversify GPI`s
income stream by including non-gaming related activities. The Board has
identified a number of opportunities which it is currently investigating.
4. CHANGE IN DIRECTORS RESPONSIBILITIES
4.1. The strategy outlined above will result in some internal reorganisation
within the GPI Group. In light of the increasing responsibilities to be
undertaken by the existing Chairman of GPI, Mr Hassen Adams, the Board wishes to
inform shareholders that Dr Norman Maharaj has been appointed as the Lead
Independent Director to the Board in line with King III and the Listings
Requirements of the JSE. Mr Hassen Adams will assume the role of Executive
Chairman of the GPI Group and will take charge of the group`s strategy going
forward. The effective date of the above appointments is 11 May 2011.
5. CONSIDERATION AND APPLICATION OF CONSIDERATION
5.1. The Proposed Restructure consideration ("the Consideration") comprises two
components which will be settled in cash once the conditions precedent referred
to in paragraph 7 have been fulfilled and the Proposed Restructure completed.
5.2. The consideration for each element comprising the Proposed Restructure is
attributed as follows:
1. Assets Gross Consideration
(Rm)
SunWest 251.8
RAH(1) 451.4
Worcester 15.2
Consideration for assets 718.4
2. Cancellation of management contracts (approximate) (2) 67.5
Total cash received by GPI 785.9
Notes:
(1) The value of RAH implies an RAH share price of R4.08 which will be increased
by the cash flows of RAH available for distribution plus a pro rata share of the
dividends to be received from RAH`s underlying investments, up until the date
that the RAH Offer is made, if applicable, in accordance with RAH`s prevailing
dividend policies (subject to funding and liquidity requirements).
(2) This amount includes the cancellation fee which will accrue to GPI through
its 50.0% holding in WC Manco, 5.7% holding in National Manco, its holding in
Worcester Manco and 30.6% holding in RAH, which holds 25.3% in National Manco.
RAH`s portion of the cancellation fee shall be paid to RAH shareholders in terms
of an increase to the share price referred to in note 1 above.
5.3. It is estimated that tax payable by GPI will amount to R8.0 million
resulting in net proceeds of R777.9 million.
5.4. The net cash proceeds from the Proposed Restructure will be applied towards
the repayment of debt and a special dividend to shareholders with the balance
being retained for the pursuit of certain new investment opportunities in a
manner in which the Board believes is optimal for the Company.
5.5. The Board`s aim is to ensure that GPI`s capital structure is such that cash
flow generated by its operating business can service its debt obligations and
that the dividends received from SunWest, Worcester and Sibaya can be passed
through to GPI`s shareholders. In line with this aim, the Board estimates that
R215.0 million out of a total of R366.0 million debt will be repaid as part of
the Proposed Restructure. The Board believes this will leave GPI with an
improved capital structure and greater financial flexibility.
5.6. Consistent with GPI`s strategy, the Board believes that a significant
portion of the cash proceeds from the Proposed Restructure should be distributed
to shareholders and intends to make a special dividend payment of 50 cents per
share subject to the successful conclusion of the Proposed Restructure and other
regulatory approvals. A further announcement setting out the full details of
such special dividend payment will be made in due course. Annual dividends will
continue in-line with the Company`s current dividend policy.
6. PRO FORMA FINANCIAL EFFECTS
6.1. The table below sets out the unaudited pro forma financial effects of the
Proposed Restructure on the earnings, headline earnings, adjusted headline
earnings, net asset value and net tangible asset value per GPI share.
6.2. The financial effects contained in the table below are the responsibility
of the Company`s directors and have been prepared for the purposes of
illustrating how the Proposed Restructure would have affected the relevant
financial ratios of GPI for the historic financial period indicated and are pro
forma only. Accordingly, such effects do not necessarily represent a true
reflection of the financial effects of the Proposed Restructure on GPI`s current
and future earnings and net asset value.
6.3. The pro forma financial effects have been based on the assumptions that:
6.3.1. for purposes of the earnings and headline earnings per share
calculations:
- the Proposed Restructure took place on 1 July 2010 and the results table below
shows the pro forma impact on the interim period for the six months ended 31
December 2010;
- finance costs of R9.2 million for the period up to 31 December 2010 that
accrued on the R215.0 million of borrowings which are estimated to be repaid,
have been reversed;
- transaction costs and breakage fees are estimated to be R18.6 million;
- the Consideration was received on 1 July 2010 and that such Consideration
(less R215.0 million of estimated debt repayment) earned an after tax return of
5.8% during the interim period ended 31 December 2010;
- the portion of the impairment of Worcester recorded in the interim financial
results for the six months ended 31 December 2010 that relates to the shares
being sold has been reversed;
- tax rates of 28% and 14% were applied to revenue and capital items
respectively, where applicable;
6.3.2. the adjusted headline earnings per share is prepared on the same basis as
headline earnings per share except that transaction fees and one-off non-
recurring items have been excluded;
6.3.3. for purposes of the net asset value and net tangible asset value per
share calculations:
- the Proposed Restructure was effected on 31 December 2010;
- available for sale fair value reserves on the investments sold were released
from equity and accounted for in the net profit for the period;
- The excess of the consideration received over the carrying value of the assets
disposed of, the share of the cancellation fees paid and received and any
impairments were recognised directly in equity.
Unaudited (1) Pro Forma
Before After Change
(cents) (cents) (%)
Earnings/(loss) per share (2) 4.75 2.66 (44%)
Headline earnings/(loss) per share (2) 11.56 12.05 4%
Adjusted headline earnings/(loss) per share (3) 12.00 12.72 6%
Net asset value per share (2) 384 376 (2%)
Tangible net asset value per share (2) 352 344 (2%)
Notes
(1) Extracted from the unaudited interim financial results of GPI for the six
months ended 31 December 2010.
(2) Based on a weighted average of 462,331,319 shares in issue during the
interim period ended 31 December 2010.
(3) Based on 456,511,319 shares in issue (excluding treasury shares of
5,820,000) at 31 December 2010.
7. CONDITIONS PRECEDENT
The Proposed Restructure is subject to, inter alia, the following conditions
precedent:
7.1. Approval by GPI shareholders of the resolutions to give effect to the
Proposed Restructure;
7.2. Approval by Sun International shareholders of the resolutions to give
effect to the Proposed Restructure;
7.3. Conclusion of the agreements to give effect to the Proposed Restructure,
including the necessary sale agreements for the sale of shares in Worcester and
SunWest, the new Management and Royalty Agreements and cancellation agreement
for the existing management contracts (collectively "the Transaction
Agreements");
7.4. Consent by GPI funders to release those shares, which will be sold as part
of the Proposed Restructure, from the cession and pledge agreements to which
they are currently subject;
7.5. To the extent required, regulatory approval from the JSE, the Takeover
Regulations Panel and the Competition Authorities; and
7.6. To the extent required, approval from the relevant Gambling/Gaming
Board(s).
The RAH Offer will be subject to the fulfilment of the pre-condition that by no
later than 15 December 2011 (or such other date as may be agreed to between Sun
International and GPI) the Transaction Agreements are to be signed and must have
become unconditional in accordance with their terms, save for any condition
relating to the RAH Offer becoming unconditional ("the RAH Pre-condition").
8. EFFECTIVE DATE
The effective date for the Proposed Restructure will be the date that all of the
conditions precedent, as referred to in paragraph 7, above may have been
fulfilled.
9. DOCUMENTATION AND CATEGORISATION
In terms of the Listings Requirements of the JSE the Proposed Restructure is
deemed to be a Category 1 disposal requiring shareholder approval. Accordingly,
a circular to GPI shareholders, detailing the terms of the Proposed Restructure
and convening a general meeting, will be posted to shareholders in due course.
10. WITHDRAWAL OF CAUTIONARY
The GPI cautionary announcement released on 18 April 2011 is hereby withdrawn.
Accordingly, GPI shareholders are no longer required to exercise caution when
dealing in the Company`s shares.
Cape Town
16 May 2011
Sponsor
PSG Capital
Legal Adviser
BVPG
Adviser
Leaf Capital
Date: 16/05/2011 08:00:07 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
