| Thu 7 Sep 2006, 14:00 | | Sun International - Announcement to shareholders o |
|
SUI
SUI
Sun International - Announcement to shareholders of RAH
Sun International Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1967/007528/06)
Share code: SUI
ISIN:ZAE000070678
("Sun International")
Announcement to shareholders of Real Africa Holdings Limited ("RAH")
Sun International has made an offer to acquire all the issued share capital
of RAH and currently controls 55% of the RAH shares.
SUN INTERNATIONAL"S OFFER
Sun International has increased its offer from 513 cents to 530 cents per
share, which we believe is a fair offer. The revised offer is 21% higher
than the RAH share"s closing price (adjusted for the 77 cents per share
dividend distribution paid by RAH on 24 July 2006) prior to the date when
we first announced our intention to acquire RAH in March 2006. A premium of
this level compares favourably with average premiums paid in public offers
in South Africa.
RAH"S VALUATION
When considering the RAH opinion on the offer price, as set out in the RAH
circular dated 19 June 2006, subsequent announcements released by RAH and
the RAH published results for the year ended 31 March 2006, Sun
International is of the view that the following factors are relevant to RAH
shareholders:
* In assessing the value of Afrisun Leisure Investments (Proprietary)
Limited ("Afrisun"), RAH applied discount rates ranging from 10,6% to
11,5% on estimated free cash flows in valuing the casino investments,
which are significantly lower than discount rates generally used to
value listed companies. These discount rates don"t take the
appropriate risk into account and have not factored in the recent
increases in interest rates.
* RAH"s interests in National Casino Resort Manco and Gauteng Casino
Resort Manco have been valued by capitalising dividends at a rate of
4,5%. These management companies distribute their total earnings by
way of dividends and therefore the basis of using a dividend yield in
valuing these operations is inappropriate and overstates their values.
In addition, the above companies" management contracts expire around
2013, yet the valuation assumption assumes that this revenue continues
in perpetuity.
* RAH has not taken into account in their valuation the ongoing
listing and corporate costs (amounts of R11,8 million for the year to
31 March 2006 and R23 million for the year to 31 March 2005 were
incurred by RAH). The present value of these ongoing costs (assuming
that the 2006 level of costs are incurred in the future) of
approximately R125 million (or 35 cents per share) has not been
factored into RAH"s valuation.
* RAH referred to "significant expansion projects currently underway
at the GrandWest, Carnival City and Sibaya casinos". While the
GrandWest expansion is significant, the remaining expansions are less
material in the context of the total valuation.
IMPLIED VALUATION OF SUN INTERNATIONAL
If RAH"s valuation of the underlying casino investments in which Afrisun
holds an interest is incorporated in Sun International"s own valuation,
this results in a valuation for Sun International of approximately R120 per
share. Sun International is currently trading at a price of R96 per share
and therefore the implied valuation represents a 25% premium.
LEGAL CLAIM
The Afrisun claim against Sun International (South Africa) Limited ("SISA")
involves Afrisun seeking to void the transactions entered into between SISA
and Grand Parade Investments Limited ("GPI") and between SISA and Business
Venture Investments No. 575 (Pty) Ltd ("the GPI transaction") in June 2003
and to ask for certain consequential orders or in the alternative seeking
damages in respect of a maximum 5,5% shareholding in SunWest International
(Proprietary) Limited ("SunWest") which it contends should have been
offered unconditionally to it at a price of R75 per share.
Afrisun contends, amongst other things, that it has a damages claim to a
maximum of R311 million, based on 768 650 SunWest shares in dispute at a
value of R479 per share (as at June 2003) less the R75 cost of the shares
in terms of the GPI transaction.
SISA intends to defend the merits of this claim and is, in any event, of
the view that the basis on which Afrisun Leisure has quantified its alleged
damages claim is fundamentally flawed.
In arriving at the figure of R311 million, Afrisun is applying a "market
value" for SunWest of R479 per SunWest share as at 30 June 2003. However,
the RAH valuation of SunWest in its own annual financial statements for the
financial year ended 31 March 2004 was approximately R108 per SunWest
share.
EXERCISE OF PRE-EMPTIVE RIGHTS BY AFRISUN
RAH has notified its shareholders in its announcement of 5 September 2006
that Afrisun intends to enforce pre-emptive rights contained in a
Shareholders" Agreement concluded between Afrisun, SISA and GPI in relation
to their shareholding in SunWest and in terms of the Articles of
Association of SunWest.
A Memorandum of Understanding ("MOU") was entered into between Sun
International, GPI and others. The MOU is conditional inter alia on a
waiver of pre-emptive rights by the shareholders of SunWest, including
Afrisun.
The MOU will not be implemented without these waivers and accordingly there
is no intention to dispose of shares in SunWest which triggers any pre-
emptive rights in favour of Afrisun.
RAH"S APPROACH TO EMPOWERMENT
RAH has stated in its recently published annual report that it "remains
committed through its business partnerships" to empowerment. This is
inconsistent with the actions of its subsidiary Afrisun, which has actively
pursued acquisitions of our empowerment partners" shareholdings and this
latest claim continues to frustrate Sun International"s efforts to enhance
the empowerment status of SunWest.
These considerations have been a factor in Sun International"s decision to
acquire the RAH shareholding.
RAH SHARE TRADABILITY
The RAH shares have limited liquidity and with Sun International now owning
more than 55% of the RAH shares in issue, the tradability should be reduced
further. Shareholders should also consider that the current share price is
largely underpinned by the offer and may not sustain this level after the
closing of the offer.
RAH is an investment holding company and the rating of investment companies
historically trade at a discount to their underlying valuation.
RECONSTITUTION OF THE RAH BOARD
Sun International has notified the RAH board of directors of its intention
to reconstitute the board by removing the current RAH directors and
appointing Sun International nominated directors.
GAMBLING BOARD APPROVALS
The Western Cape Gambling and Racing Board has approved SISA"s acquisition
of the shares in RAH. The remaining provincial boards are expected to
deliberate on the transaction shortly.
CLOSING DATE OF OFFER
Shareholders of RAH are reminded that the closing date of the offer is
12h00 on Friday, 15 September 2006. Shareholders who sell their shares to
Sun International will be paid within five business days of acceptance.
DIRECTORS RESPONSIBILITY STATEMENT (Rule 20.3 of the Code on Takeovers and
Mergers of the SRP)
The directors of Sun International and SISA accept responsibility for the
information contained in this announcement. To the best of the knowledge
and belief of the directors of Sun International and SISA (who have taken
all reasonable care to ensure that such is the case), the information
contained in this announcement is in accordance with the facts and does not
omit anything likely to affect the import of such information.
Sandton
7 September 2006
Investment Bank
(Investec Corporate Finance)
Attorneys
(Hofmeyr)
Sponsor
(Investec Bank)
Date: 07/09/2006 02:00:10 PM Produced by the JSE SENS Department
