Gold Reef and Tsogo Sun to merge at last
Business Day
19 February 2010

Julius Baumann

After three years of gaming group Tsogo Sun’s futile attempts to take full control of rival Gold Reef, the groups yesterday announced they had agreed to a R21bn merger.

Despite hostilities in the past, the groups have put aside their differences, working late into Wednesday night to thrash out the deal.

The merger will be effected through Gold Reef’s acquisition of Tsogo Sun from holding group Tsogo Sun Investments Holdings (TIH) and SAB in exchange for the issue of new shares in Gold Reef. TIH is a subsidiary of, HCI while SAB owns 49% of the shares in Tsogo Sun.

Gold Reef will fund the transaction through the issue of 888,26- million new shares. Based on Gold Reef’s closing price of R19,25 a share on the day before the group announced they were in talks, that values Tsogo Sun at R17bn. Gold Reef’s market capitalisation at that price is about R5bn.

The new entity, to be listed on the JSE, will become the 36th largest group on the stock exchange and become one of the world’s larger gaming and leisure groups, with 14 casinos across SA and 90 hotels across Africa and the Middle East.

The deal will for the first time provide investors direct access to Tsogo Sun’s assets, which include gaming and entertainment complex Montecasino in Johannesburg and Southern Sun Hotels.

Previously, investors had to acquire HCI shares to benefit from Tsogo Sun’s portfolio.
Tsogo brings seven casinos and more than 90 hotels with 14438 rooms, while Gold Reef has seven casino properties.

Together the group will control 50% of the Gauteng gambling market with Silverstar, Gold Reef City and Montecasino.

The transaction will give Tsogo the opportunity to unlock further value from Gold Reef’s properties and create a large and strong group able to explore further gaming and hotel opportunities outside of SA.

Marcel von Auerlock, Tsogo’s finance director, said there were several opportunities. “However, we are not in a rush and will first need to bed down the merger.”

The deal is expected to take six to nine months to achieve shareholder approval and clear all the regulatory hurdles. Von Auerlock does not foresee any big obstacles to integration as most properties operate independently.

In order to succeed, the deal will need the approval of the Krok family, which owns 26,07% of Gold Reef and Allan Gray with 23%. Tsogo Sun already held 24,99% of issued shares and 34,9% of the voting rights.

“Both the Krok family and Allan Gray have given an undertaking that they will approve the deal,” said Von Auerlock.

Once the deal is concluded the Krok family will hold 6,59% of the enlarged group and Allan Gray 5,97%. TIH would hold 41,33%, and SAB 39,71% of Gold Reef. Von Auerlock said the new management would be made up from both groups of executives.

Von Auerlock said the new group would have debt of R5,5bn and revenue of about R8bn.
In the six months to September 30, Tsogo Sun generated revenue of R2,9bn and earnings before interest, tax, deductions and rentals of R1,1bn.

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