Sun International’s shareholder, the Chilean investment group, Nueva Inversiones Pacifico Sur (IPS) said that it made a formal proposal to the South African hotel and casino operator to acquire a majority stake. However, Sun International rejected the offer to acquire 50.1% out of hand. According to a number of news sources, the proposal from IPS was unsolicited & non-binding. The Chilean firm said that it would pay R22 per share, essentially valuing Sun International at R3 billion.
The offer pushed Sun International’s share prices up to R17.70 when the market closed this week. It should be noted that a year ago, Sun International’s share prices were trading at R50.34 & even six months ago, they were R40.53 a share.
Shareholders to Vote on Offer
While the Sun International board rejected the offer out of hand, an extraordinary general meeting has been scheduled for July 13th, for shareholders to vote on it (among other issues). The group’s second-largest shareholder, Value Capital Partners, has already stated that it will oppose the bid because of the low share price of R22. VCP owns around 20.2% of Sun International’s shares.
“While we are obviously pleased that other investors see the significant value in the business, as we do, we believe this proposed offer significantly undervalues Sun International, particularly when one considers that the price offered should include a control premium. We believe that the majority of the other shareholders of Sun International would be of the same view," said VCP CEO, Sam Sithole.
Sun International has been severely impacted by the pandemic and the company was not well-positioned to weather the coronavirus storm. Sun International has been forced to cut staff salaries and lay off many others as its casinos and hotels remained closed due to government lockdowns. IPS, in its offer, says that it will provide Sun International interim liquidity support should the offer become binding to the tune of R1.2 billion. Sun International’s board already said that it planned to raise R1.2 billion to improve liquidity and to reopen some of its facilities after lockdown is lifted.
Background to Proposal
IPS said that it entered into negotiations with Sun International regarding a proposal to acquire 50.1% several weeks ago. The group said that it sent a formal proposal to the board of directors on June 11th. The next day, Sun International told its shareholders that it intended embarking on a capital raising exercise. On June 13th, Sun International’s board ended negotiations with IPS.
“We have written to the board to consider proceeding with us, as we believe Sun International has an attractive portfolio of properties in Africa and Latin America, which need to be protected against the devastating economic impact of the Covid-19 pandemic,” noted IPS co-founder and chairman, Claudio Fischer. “Our proposal provides an alternative transaction structure with more favourable terms than those included in Sun International’s general meeting circular, dated 12 June 2020, indicating [its] intention to launch the Proposed Rights Offer.”
Partner in Latin America
IPS, owned by Claudio and Humberto Fisher, owns 35% of Sun Dreams, which is Sun International’s subsidiary in Latin America. Sun Dreams operates casinos and hotels across the continent, including Peru, Argentina, Columbia, Chile and Panama. The Fisher brothers were the original investors in Dreams, which merged with Sun International in 2016, leading to the creation of Sun Dreams. Last year, Sun International announced that it would be selling a 15% equity interest in Sun Dreams to IPS. This gave IPS a 50% stake in Sun Dreams.