SENS Headlines
Acquisition of the Peermont Group and Withdrawal of Cautionary Announcement
SUN INTERNATIONAL LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1967/007528/06)
ISIN code: ZAE000097580
Share code: SUI
LEI: 378900835F180983C60
("Sun International" or the "Company" or the "Group")
ACQUISITION OF THE PEERMONT GROUP AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Sun International is pleased to announce the proposed acquisition of Peermont Holdings Proprietary
Limited ("Peermont" or "Peermont Holdings") (the "Proposed Transaction").
1. Introduction
The board of directors of Sun International ("Board") hereby advises shareholders
("Shareholders") that on 14 December 2023 ("Signature Date"), Sun International entered into
a sale agreement ("Sale Agreement") in terms of which it will acquire, through its wholly owned
subsidiary, Sun International (South Africa) Limited ("SISA"), all of the issued ordinary shares of
and any claims on loan account against Peermont Holdings from the shareholders of Peermont
Holdings ("Sellers") (collectively, the "Parties") for the Purchase Consideration, as defined and
fully described in paragraph 6 below, subject to the fulfilment or, to the extent legally permissible,
waiver, of the conditions precedent ("Conditions Precedent") set out in paragraph 9 below.
Peermont Holdings and its subsidiaries are referred to as the "Peermont Group".
2. Key Highlights
- Unique opportunity to acquire the world-class and highly cash generative Peermont
business
- Purchase price enterprise value of R7 300 million
- Implied acquisition EV/EBITDA multiple of 5.76x
- Fully debt funded with comfortable pro-forma gearing
- Expected to rapidly de-gear, allowing the combined group's equity value to significantly
increase
- 62.54% of Sun International shareholders have provided written indications of support for
the Proposed Transaction
3. Strategic Merits of the Proposed Transaction
- Land-based casinos, underpinned by the flagship Emperors Palace Resort, will enhance
the quality of earnings and cash flow generation of the Group
- Increase in the contribution of land based and online gaming revenue to the combined
group
- Opportunity to leverage off Sun International's proven SunBet management team's
expertise to accelerate and further grow the online and sports betting business through
extending the Group's omnichannel strategy across a scaled customer base
- Ability to leverage off combined synergies to drive margin enhancement opportunities and
capital efficiency
- Ability to conclude a transaction of scale, rapidly de-gear and maintain a dividend pay-out
- The combination of Sun International and Peermont provides a compelling equity story,
through increased scale, a larger enterprise value and greater capital markets visibility
4. Description of the Peermont Group
4.1. The Peermont Group is a leading hospitality and entertainment group of companies which
operates 11 properties located across the Republic of South Africa ("South Africa") and
the Republic of Botswana ("Botswana"), in addition to the online sportsbook, PalaceBet.
4.2. Founded in 1995, the Peermont Group has developed an excellent track record in the
design, development, management, ownership and operation of multifaceted integrated
resorts, including hotels, casinos, convention centres, retail centres, health spas,
restaurants, bars and other sport and entertainment facilities. This track record and
differentiated approach bodes well as a further addition to the Sun International stable.
4.3. The Peermont Group's flagship asset is Emperors Palace Hotel Casino Convention and
Entertainment Resort ("Emperors Palace"), a leading gaming destination in Gauteng
offering a world-class casino property, complemented by four unique hotels, a health and
beauty spa, various dining options, entertainment venues, including a state-of-the-art
cinema complex, and world-class conference facilities. Furthermore, it is ideally situated
close to the OR Tambo International Airport, a travel hub for those entering South Africa.
4.4. Emperors Palace represents a significant proportion of the value of the Peermont Group
and has achieved an average EBITDA margin (before accounting for management fees)
of c.40% in the past four years (excluding the 2020 financial year which was impacted by
the global Covid-19 pandemic). This is similar to the historical performance of some of Sun
International's largest casino operations and demonstrates the quality of the property.
4.5. Collectively, the Peermont Group's physical properties offer 3 349 slot machines, 152
gaming tables and 1 636 hotel rooms. The details of the Peermont Group's current
operations are set out in the table below:
Property Location Gambling Property Slot Gaming Hotel Rooms
Jurisdiction Type Machines Tables Category
South Africa
Emperors Kempton Gauteng Casino 1 695 69 Five, four 757
Palace Park resort and three
star
Graceland Secunda Mpumalanga Casino 271 16 Four star 98
resort
Mmabatho Mafikeng North West Casino 155 8 Four star -
Palms resort
Khoroni Thohoyandou Limpopo Casino 150 8 Three 107
resort star
Rio Klerksdorp North West Casino 274 12 Three 70
resort star
Umfolozi Empangeni KZN Casino 292 12 Three 44
resort star
Frontier Bethlehem Free State Casino 152 6 Three 21
resort star
Thaba Burgersfort Limpopo Casino 160 10 Three 82
Moshate resort star
Botswana
Grand Gaborone Botswana Casino 150 11 Four and 337
Palm resort Three
star
Sedibeng Francistown Botswana Casino 50 N/A 53
resort
Mondior Gaborone Stand- - - Four star 67
alone
hotel
Total 3 349 152 1 636
4.6. Peermont Holdings' consolidated historical earnings before interest, tax, depreciation and
amortisation ("EBITDA") was:
4.6.1. R1 056.2 million for the year ended 31 December 2022;
4.6.2. R549.0 million for the six months ended 30 June 2023; and
4.6.3. R1 165.5 million for the twelve months ended 30 June 2023.
4.7. Furthermore, as per Peermont Group management's estimates, the EBITDA from
continuing operations for the year ending 31 December 2023 is estimated to be R1 268.0
million.
5. Rationale for the Proposed Transaction
5.1. Sun International has, over the last six years, repositioned itself from a highly geared
hospitality and gaming group operating across several regions in Africa and Latin America,
to a simplified and locally empowered South African-focused, cash generative business
with disciplined capital allocation principles.
5.2. As per recent results, the Group generated EBITDA of R3 306 million and R1 571 million
for the year ended 31 December 2022, and six months ended 30 June 2023, respectively.
This strong performance has increased available capital, in the form of available
borrowings and cash, for the Group to consider long-term strategic initiatives.
5.3. The Group is now in the advantageous position of being able to utilise this available capital
to implement value accretive acquisitions at an attractive point in the cycle, and therefore
has identified certain opportunities in the South African market, including acquisitions of
scale such as the Proposed Transaction.
5.4. The Proposed Transaction represents a unique opportunity for Sun International to acquire
a group of gaming and hospitality assets of significant scale and quality, which is aligned
with Sun International's growth strategy, thereby enabling the Company to:
5.4.1. in relation to Emperors Palace, operate one of the largest, most cash generative,
high-quality casinos situated in a major metropolitan area which is least affected by
load shedding. With its unique proximity to the OR Tambo International Airport,
Emperors Palace offers a gateway to high net-worth customers from the rest of
Africa and abroad. This customer base will drive opportunities for synergies with the
rest of the Group's operations, including hotels and resorts, as well as the online
sports and gaming business, thereby creating large scale benefits for Sun
International;
5.4.2. bolster its omnichannel strategy by leveraging its current core operations to enhance
alternative gaming revenue streams through exposure to a broader customer base
and alternative revenue streams such as conferencing and hotels;
5.4.3. increase its scale of operations and market share in an attractive provincial
jurisdiction with the highest gambling spend in South Africa;
5.4.4. advance the Group's strategic intent to focus its portfolio on large urban casinos
with the ability to drive value-enhancing strategies across smaller regional assets
and online growth;
5.4.5. implement combined best practice across all operations to enhance potential cost
efficiencies and optimise capital expenditure utilisation; and
5.4.6. increase the depth at each of the Group's various staff and management levels while
bolstering the industry specific critical skills base.
5.5. The Proposed Transaction is envisaged to enhance the Group's online business platform
with opportunities for growth by extending Sun International's proven SunBet management
team's reach across the Peermont Group's assets. In addition, extending the Group's
omnichannel strategy across a scaled customer base unlocks operating leverage across
revenues, marketing reach, payment processing efficiencies and game liquidity.
5.6. The Peermont Group has a demonstrated track record of success over the past 25 years,
including its participation in the development and management of Emperors Palace.
Peermont continues to be agile and responsive to the dynamic operating environment and
this agility will bolster the current operational excellence of Sun International and assist in
the smooth integration of the combined group's operations.
5.7. A large contributor to the success of the Peermont Group is its entrepreneurial
management team who are extensively experienced in the South African casino industry
together with a high performing staff base. Sun International is of the belief that the shared
expertise of the staff and management of the combined group will result in mutual benefits
and efficiencies post implementation of the Proposed Transaction. Further, the combined
group creates more opportunities for its staff through the creation of a larger group with
diverse operations.
5.8. The combination of Sun International and the Peermont Group is expected to generate
strong cash flows given the quality of the portfolio of diversified assets and provide returns
to Sun International's locally empowered South African shareholder base.
6. Purchase Consideration
6.1. The purchase price payable in cash to the Sellers will be determined with reference to an
enterprise value ("EV") of the Peermont Group of R7 300 million, less net debt and certain
Sellers' transaction costs and subject to capital expenditure and working capital
adjustments, if applicable, calculated at the Closing Date (as defined in paragraph 10.4
below) of the Proposed Transaction, estimated to amount to approximately R3 236 million
as at 30 September 2023 (being the last quarter end of the Peermont Group before the
Signature Date) and shall adjust according to movements in items such as net debt during
the period between the date of this announcement and the Closing Date ("Purchase
Consideration").
6.2. To the extent that the actual EBITDA achieved by the Peermont Group for the year ending
31 December 2023 is less than R1 235 million, the Purchase Consideration will be reduced
by the differential between R1 235 million and the actual EBITDA for the year, multiplied
by four.
6.3. The EV implies a transaction EV/EBITDA multiple of 5.76x relative to the estimated
EBITDA for year ending 31 December 2023 for the Peermont Group of R1 268 million, as
noted in paragraph 4.7 above.
6.4. The Company will withhold from the Purchase Consideration paid to the Sellers on the
Closing Date, an amount equal to R150 million as a provision for any adjustments to be
made to the Purchase Consideration in respect of net debt, normalised working capital,
capital expenditure and certain transaction costs, with any balance being payable to the
Sellers upon such amounts being finally determined with reference to the Closing Date of
the Proposed Transaction.
7. Capital Allocation
7.1. Sun International will effectively assume all the external debt owed by the Peermont Group
at the Closing Date (other than that debt settled as part of the Reorganisation described in
paragraph 8 below) approximating R4 024 million as at 30 June 2023. It is the intention of
Sun International to refinance these facilities from funding to be received from its existing
lenders.
7.2. The Purchase Consideration will be funded by new debt facilities, estimated to result in
Sun International's South African debt levels as at 30 June 2023 of R5 926 million
increasing to approximately R13 186 million, calculated on a pro forma basis, after the
implementation of the Proposed Transaction.
7.3. At the Closing Date of the Proposed Transaction, it is estimated that the gearing levels of
the Group will initially increase to approximately 2.6x, after which Sun International expects
de-gearing to levels below 2.0x, within approximately 24 - 36 months.
7.4. The Board remains committed to the continued return of capital to Shareholders and
therefore intends retaining the ordinary dividend policy of a 75% dividend pay-out ratio
when the net debt to EBITDA ratio is below 2.0x, and a reduced 50% pay-out ratio when
the net debt to EBITDA ratio is above 2.0x. It will, nevertheless, continue to proactively
assess the Group's performance and macro risk factors and is prepared to take a more
conservative approach to protect the balance sheet should the situation warrant it.
7.5. It is the Board's belief that the Proposed Transaction is in the best strategic interest of the
Group and its Shareholders and it is encouraged by the ability of the Group to conclude
an acquisition of this scale, while maintaining its dividend policy.
7.6. The financial information in this announcement has not been reviewed and reported on by
the Company's auditors.
8. Reorganisation
In order to implement, and as a condition precedent to, the Proposed Transaction, the Parties
will conclude an agreement in terms of which, Peermont Holdings and certain of its subsidiaries
will be restructured to reduce the overall complexity of the Peermont Group ("Reorganisation")
prior to its acquisition by Sun International.
9. Conditions Precedent
9.1. The implementation of the Proposed Transaction is subject to the fulfilment or, if legally
permissible, the waiver of, the following Conditions Precedent, by no later than 17h00 on:
9.1.1. 31 March 2024, an appropriate warranty and indemnity insurance policy being
concluded between SISA and the relevant insurance provider;
9.1.2. 31 March 2024, the requisite majority of Shareholders approving the ordinary
resolution ("Resolution") required in terms of the Listings Requirements of the JSE
Limited ("JSE") to give effect to the Proposed Transaction ("Shareholder
Approval");
9.1.3. 31 May 2024, the agreement to give effect to the Reorganisation ("Reorganisation
Agreement") being concluded and by 15 March 2025 or such other date as
extended from time to time ("Long Stop Date"), such agreement becoming
unconditional;
9.1.4. 31 July 2024, the lenders to Sun International consenting in writing to the Proposed
Transaction, as may be required under the lending agreements in place between
Sun International and its respective lenders;
9.1.5. 31 July 2024, the lenders to the Peermont Group consenting in writing to the
implementation of the Sale Agreement and the Reorganisation Agreement;
9.1.6. the Long Stop Date, to the extent required, the approvals of the Gauteng Gambling
Board being obtained;
9.1.7. the Long Stop Date, the necessary approvals from the Financial Surveillance
Department of the South African Reserve Bank being obtained; and
9.1.8. the Long Stop Date, the Proposed Transaction being approved, with or without
conditions, to the extent required, by:
9.1.8.1. the competition authorities in Botswana; and
9.1.8.2. the competition authorities in South Africa.
9.2. To the extent that any of the regulatory approvals are granted subject to any conditions,
then the relevant Condition Precedent shall not be fulfilled unless such conditions are
accepted in writing by the Party (acting reasonably) affected by such conditions, unless
otherwise agreed to in writing between SISA and the Sellers.
9.3. The relevant fulfilment dates for the Conditions Precedent set out above may be extended
either by written notice by one Party to the other or by prior written agreement between the
Parties, as the case may be, and the Long Stop Date will be automatically extended by 6
months if the South African Competition Commission has issued its recommendation by
the Long Stop Date, but the South African Competition Tribunal has not yet ruled on the
Proposed Transaction by that date. The Long Stop Date will be further extended to the
date which is 24 months after the date of the merger filing should an appeal of any decision
of a competition authority be required.
10. Other Terms of the Proposed Transaction
10.1. Warranties and Indemnities
As a Condition Precedent to the Proposed Transaction, SISA will procure an insurance
policy in relation to the warranties and indemnities on terms customary for a transaction of
this nature.
10.2. Break Fee
In the event that either the Group or the Sellers breach certain of their undertakings or
obligations under the Sale Agreement or fail to procure that certain Conditions Precedent
within their control are timeously fulfilled (including, but not limited to, in the case of Sun
International, not receiving Shareholder Approval as described in paragraph 9.1.2 above,
or for any Party acting unreasonably in relation to fulfilling a relevant Condition Precedent)
and the Sale Agreement fails to become unconditional as a result thereof, then a break fee
becomes payable, in the amount of R75 million if the Sale Agreement lapses within 90
days after the Signature Date ("Initial Date"), which amount shall be increased by an
amount equal to R16.7 million on the Initial Date and on the same day as the Initial Date
in each subsequent calendar month following the month in which the Initial Date occurs,
up to a maximum amount equal to R225 million.
10.3. Interim Period Conduct
Each of the Peermont Group and the Sellers shall exercise their respective voting rights
and otherwise use their respective commercially reasonable endeavours to ensure that,
during the period from the Signature Date to the Closing Date, the business will be carried
on in the ordinary and usual course.
10.4. Effective Date
The Proposed Transaction will close and take effect on the last day of the calendar month
in which the Sale Agreement becomes unconditional, provided that should that occur after
the twentieth day of the relevant month, then closing will take place on the last day of the
next calendar month ("Closing Date").
11. Financial Information for the Peermont Group
11.1. The net asset value attributable to Peermont Holdings as at 30 June 2023 was
R2 100 million.
11.2. Peermont Holdings' consolidated historical net profit after taxation was:
11.2.1. R256.8 million for the year ended 31 December 2022;
11.2.2. R68.0 million for the six months ended 30 June 2023; and
11.2.3. R267.9 million for the twelve months ended 30 June 2023.
11.3. The above information was extracted from the reviewed consolidated interim results for
the six months ended 30 June 2023 and the audited annual results for the twelve months
ended 31 December 2022 of Peermont Holdings, both of which were prepared in
accordance with International Financial Reporting Standards and the Companies Act, No.
71 of 2008 (as amended).
12. Details of the Sellers and SISA
12.1. The Sellers of Peermont Holdings are as follows:
- certain funds and accounts managed by GoldenTree Asset Management LP, an
employee-owned global asset management fund;
- MIC Leisure Proprietary Limited, a 100% black-owned broad-based investment
holding company that was established by the Mineworkers Investment Trust;
- Peermont Holdings' shareholder trusts (Ekurhuleni Peermont Chambers of Commerce
Trust, Peermont Community Benefit Trust, Peermont Children's Trust, Peermont
Education Trust);
- members of Peermont Holdings' executive management team (Nigel Atherton, William
Gray, David Milne, Charl Fouche, Fihliwe Molefi, Ranjay Harripersadh, Clive Tavener);
and
- other minority shareholders (Vusumuzi Zwane, Mabelindile Luhlabo and DB
Consulting International CC (an entity controlled by Danisa Baloyi)).
12.2. SISA is the operator of casinos, hotels and entertainment facilities and is a wholly owned
subsidiary of Sun International (a level 1 B-BBEE contributor).
13. Irrevocable Undertaking and Letters of Support
13.1. Value Capital Partners Proprietary Limited, holding 26.04% of the issued share capital of
the Company, has provided an irrevocable undertaking to vote in favour of the Proposed
Transaction.
13.2. Shareholders holding a further 36.50% of the issued share capital of the Company have
provided letters of support to vote in favour of the Proposed Transaction.
14. Categorisation and Circular to Shareholders
14.1. The Proposed Transaction constitutes a Category 1 transaction in terms of the JSE
Listings Requirements and as such, requires that the Resolution/s be approved by more
than 50% of Shareholders present and voting, in a general meeting to be convened for
such purpose ("General Meeting").
14.2. A circular containing full details of the Proposed Transaction, together with a notice
convening the General Meeting of the Shareholders to consider and, if deemed fit, pass
the Resolution/s necessary to approve and implement the Proposed Transaction, with or
without modification, will be distributed to Shareholders in accordance with the timelines
under the JSE Listings Requirements.
14.3. No related parties as contemplated in the JSE Listings Requirements are involved in the
Proposed Transaction.
14.4. The Company confirms, for purposes of paragraph 9.16 of the JSE Listings Requirements,
that nothing in the constitutional documents of the Peermont Group will, in any way,
frustrate or relieve Sun International from its obligations in terms of the JSE Listings
Requirements.
15. Withdrawal of Cautionary Announcement
Further to the cautionary announcement published by Sun International on the Stock Exchange
News Service of the JSE on 27 November 2023, as the detailed terms of the Proposed
Transaction have now been disclosed, the cautionary announcement is hereby withdrawn, and
Shareholders are no longer required to exercise caution when trading in the Company's
securities.
Johannesburg
18 December 2023
Investment Bank, Corporate Advisor and Transaction Sponsor to Sun International
Nedbank Corporate and Investment Banking, a division of Nedbank Limited
Legal Advisor to Sun International
Cliffe Dekker Hofmeyr Incorporated
Tax Advisor to Sun International
Webber Wentzel
Competition Law Advisor to Sun International
Herbert Smith Freehills South Africa LLP
Financial Advisor to the Peermont Group
Rand Merchant Bank (a division of FirstRand Bank Limited)
Legal, Tax and Competition Law Advisor to the Peermont Group
Bowman Gilfillan Incorporated
Date: 18-12-2023 08:00:00
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