| Tue 3 Jul 2001, 0:00 | | Restructuring Of Kersaf's Effective Interest In Su |
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Limited
KERSAF INVESTMENTS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1967/007528/06)
("Kersaf")
Restructuring of Kersaf's effective interest in Sun International Hotels
Limited
and the acquisition of the worldwide rights to the Sun International brand
name
Further to the cautionary announcement dated 15 June 2001 the directors of
Kersaf announce that:
* Kersaf, its 73,29% subsidiary Royale Resorts Holdings Limited ("Royale
Resorts") and its subsidiaries (collectively the "Group") have concluded
agreements (the "restructuring agreements") which, on implementation, will
result in the restructure of its 21,41% effective interest in Sun
International Hotels Limited ("SIHL") (the "restructure").
* The Group has acquired the worldwide rights to the Sun International brand
name from SIHL.
* The Group has procured its release from restraint of trade obligations,
thereby enabling it to expand internationally in the resort and gaming
business under the Sun International brand name.
* Through the restructure, the Group has achieved the ability to deal in
SIHL shares. Royale Resorts has undertaken to sell 2 000 000 SIHL shares
within the next 12 months (subject to certain extensions).
* The restructure will significantly simplify the Group's offshore corporate
structure.
1. Background to the SIHL relationship
During 1993 Royale Resorts formed a joint venture (the "SIIL joint
venture") with Caledonia Investments Plc ("Caledonia") and World Leisure
Group Limited ("WLG") (the Kerzner family investment vehicle) to develop an
international resort and gaming group through Sun International Investments
Limited ("SIIL").
In December 1994, SIIL merged its resorts and gaming interests with SIHL,
which had been formed to acquire the Paradise Island Resort in the Bahamas,
in return for a controlling equity interest in SIHL.
The current structure of Kersaf's 21,41% effective interest in SIHL is as
follows:
GRAPHIC: PLEASE REFER TO PRESS STATEMENT
2. Information on SIHL
SIHL is a resort and gaming group listed on the New York Stock Exchange.
Its interests include the Atlantis Resort on Paradise Island in the Bahamas,
on equity interest in Sun Resorts Limited (Mauritius) and a 50% interest in
the fees from the Mohegan Sun Casino in Connecticut (USA). SIHL also holds
management contracts for the Sun Resorts hotels in Mauritius and for the
Royal Mirage in Dubai.
The closing market value of SIHL shares as at 29 June 2001 was US$27,00
per share (approximately R216,00 per share). As at 29 June 2001 Kersaf
effectively held 21,41% (5 730 677 shares) in SIHL at which date the value
of Kersaf's effective shareholding amounted to US$154,7 million
(approximately R1 237,8 million).
3. Reasons for the restructure
At the time of the formation of the SIIL joint venture, the Group agreed
to restraint of trade obligations in favour of Caledonia, WLG and SIIL in
terms of which the Group undertook to limit its direct participation in the
resort and gaming business to the territory comprising Africa south of the
equator. As a consequence, projects elsewhere in the world were to be
pursued through the SIIL joint venture.
The maintenance and perpetuation of the SIIL joint venture structure also
resulted in the Group effectively being unable to deal in its holdings in
SIHL.
The Group has successfully repositioned itself to retain leadership of the
South African casino industry. With its existing operations, including the
recently opened Royal Livingstone and Zambezi Sun at Victoria Falls
(Zambia), the Group offers an excellent portfolio of full service hotels and
resorts in high demand locations. Whilst the Group will continue to seek
investment and management opportunities in southern Africa, the pre-
restructure restraint obligations precluded the Group from pursuing
opportunities elsewhere in the world. This was considered to be a
significant impediment to the Group's longer term growth prospects. The
restructure addresses this constraint and will serve the best interests of
the Group's stakeholders.
The rationale for the restructure is therefore to enable Kersaf to expand
internationally in the resort and gaming business through Royale Resorts, a
vehicle in which it has a 73,29% shareholding and the ability to direct
strategy and access cashflows. This is achieved through:
* The dissolution of the SIIL joint venture.
* The ability on the part of the Group to deal in its holdings in SIHL
shares in an orderly and structured manner.
* The release of the Group from its restraint of trade obligations on the
earlier of 30 June 2002 or the disposal by the Group of 2 000 000 SIHL
shares.
* The acquisition of the worldwide rights to the Sun International brand
name.
As part of the restructure both Rosegrove and SIIL will be voluntarily
liquidated. This will result in Rosegrove's effective 43,40% interest in
SIHL being distributed to Royale Resorts and Caledonia pro rata to their
shareholdings.
4. Principal terms of the restructuring agreements
* Securing of registration rights
The Group has secured registration rights for all of the Group's shares in
SIHL. Under United States Securities laws, registration rights are a pre-
requisite for a holder of shares to sell such shares pursuant to a public
offering within the United States of America.
* Sale by the Group of 2 000 000 SIHL shares
The Group has undertaken to sell 2 000 000 SIHL shares pursuant to an
underwritten public offer to be arranged by SIHL at the Group's request and
which must be completed by 30 June 2002 (the "sale"). The sale is subject to
certain exemptions (including standard underwriter's "out" and force majeure
"out" provisions). The 30 June 2002 date is, at Kersaf's instance, to be
extended if:
(i) SIHL is engaged in any corporate activity which would be material to
the public offering; or
(ii) SIHL is engaged in a registered public offering; or
(iii) the conditions to satisfy any underwriter "out" or force majeure "out"
provisions prevail.
The sale will take priority over any public offering or other disposal of
SIHL shares by either WLG or Caledonia.
If, at the time that the Group proposes proceeding with the sale, the
market value of the SIHL shares to be disposed of would be such as to
require Kersaf, in terms of the JSE Listings Requirements, to secure
shareholders' approval, approval would be sought prior to the implementation
of the sale.
* Achievement of "non-affiliate" status
In order for the Group to avail itself of certain exemptions under US
Securities Exchange Commission Rules, the transaction has been structured in
such a manner as to enable the Group to be constituted as a "non-affiliate"
of SIHL. The "non-affiliate" status will entitle the Group, after the expiry
of a period of 90 days from achieving such "non-affiliate" status, to sell
SIHL shares in the open market subject to certain contractual volume
limitations.
In order to achieve the "non-affiliate" status, the Group has agreed:
- that it will cease to have a representative on the SIHL board;
- to cede the voting rights attaching to the Group's SIHL shares to each of
WLG, Caledonia and CMS, pro rata in accordance with their respective
attributable interests in SIHL.
* Acquisition of the Sun International brand name
The Group has acquired the worldwide rights to the Sun International brand
name (on the terms more fully set out in paragraph 6).
* Restraint of trade
During the period before the earlier of 30 June 2002 and the consummation of
the sale:
- the Group has agreed not to compete with SIHL in relation to the resort,
hotel and gaming business (the "competitive business") in any part of the
world outside Africa;
- each of WLG, Caledonia and SIHL has agreed not to compete with the Group
in respect of the competitive business in Africa.
* Monetary consideration
In consideration for the acquisition by the Group of the Sun International
brand name (which includes trade marks, trade names, logos and domain
names), the Group's right to pursue the Egypt project (as set out in
paragraph 8), the release from the restraints of trade contained in the SIIL
joint venture agreement and the securing by the Group of registration rights
in respect of its SIHL shares, Royale Resorts will pay to SIHL an aggregate
amount of US$15 500 000 (approximately R124 000 000) of which:
- US$3 500 000 will be paid immediately in cash; and
- the balance, in the amount of US$12 000 000, will be discharged by the
issue of a promissory note by Royale Resorts to SIHL, secured by US$24 000
000 in value of SIHL stock, bearing interest at 9% per annum, payable
quarterly and maturing two years after the closing date of the restructuring
agreements. The Group is entitled to accelerate the repayment of the note at
any time prior to the note's maturity.
The directors of Kersaf and Royale Resorts are of the view that the
consideration of US$15 500 000 represents fair value.
5. Kersaf's interest in SIHL after the restructure
The structure of Kersaf's interests in SIHL, after the restructure and prior
to the sale of any SIHL shares, will be as follows:
GRAPHIC: PLEASE REFER TO PRESS STATEMENT
* Before the sale of any SIHL shares. After the sale of 2 000 000 SIHL
shares the 23,61% reduces to 16,13%.
6. The Sun International brand name and logo
During the tenure of the SIIL joint venture and the operation of the
Group's restraint of trade obligations, the Group's right to use the Sun
International brand name and logo was confined to southern Africa. In terms
of the restructuring agreements the Group, through Royale Resorts, has
acquired the remaining worldwide rights to the Sun International brand name
and logo.
Commensurate with the Group's acquisition of the Sun International brand
name and logo, SIHL, WLG, Caledonia and their respective affiliates will
cease to have the right to use the Sun International brand name and logo.
SIHL will be required during the one year period following the
implementation of the restructuring agreements, to re-brand its operations
so as to exclude use of the "Sun" and Sun International brand name and logo.
7. CMS option
Royale Resorts has granted CMS, Kersaf's partner in Royale Resorts, a five
year option to acquire at the then market value, up to 1 150 000 SIHL shares
for cash. The option is a requirement of CMS so as to allow CMS to acquire
their effective shareholding in SIHL from Royale Resorts (after the sale of
the 2 000 000 SIHL shares referred to in paragraph 4).
8. Future strategy
As the first step in the Group's international expansion strategy, Royale
Resorts' wholly-owned subsidiary Sun International Management Limited
("SIML") is at an advanced stage of securing management contracts in respect
of three hotels at a new resort development at Port Ghalib on the Red Sea
(the "Egypt project"). The lead investor and developer is the M.A. Kharafi
group of Kuwait, a construction and commercial group whose extensive
interests span the Middle East, Africa and Europe.
SIML will carry out the Egypt project under the Sun International name. In
terms of the arrangements with SIHL, the net profits of the Egypt project
are to be shared equally by SIML and SIHL.
The securing of the management contracts for the Egypt project will
position the Group to secure similar opportunities in North Africa, the
Middle East and elsewhere in the world under the Sun International brand
name.
The proceeds of the sale of SIHL shares will be utilised by Royale Resorts
to expand the Group's core hotel, resort and gaming interests
internationally.
9. Accounting treatment of The Group's investment in SIHL
Historically Kersaf has equity accounted its effective interest in SIHL on
the basis of its aggregate equity holdings in SIHL and the Group's influence
over SIHL via the SIIL joint venture control structure and its SIHL board
representation. Effective 1 July 2001, Kersaf will investment account its
effective interests in SIHL as a consequence of relinquishing its voting
rights and board representation.
10. Financial effects on Kersaf
The financial effects of the completion of the sale of 2 000 000 SIHL shares
will be announced to shareholders on the completion of the public offering
by SIHL on behalf of the Group.
Sandton
3 July 2001
Financial adviser and sponsor
ING BARINGS
Corporate adviser
CORPCAPITAL CORPORATE FINANCE
