GPI sells gaming assets to grow Burger King stores

Empowerment Group Grand Parade Investments (GPI) will be putting its money – R2bn to be exact – where its mouth is by backing its fledging Burger King franchise after on Tuesday announcing the sale of the bulk of its gaming assets.

The deal triggers an arrangement between rival gaming giants Tsogo Sun and Sun International, the receipients of GPI’s gaming assets, that could defuse potential hostilities if ever a second casino license is permitted in Cape Town, where Sun operates the highly profitable Grand West Casino.

The mechanics of the deal see GPI selling its 25.1% stakes in two Sun International casino’s – Sun West (which owns Grand West) and the Golden Valley casino Worcester – for R1.55bn.

Smaller legs to the transaction involve Sun buying GPI’s 24.9% interest in Dolcoast (owner of a 5.6% interest in Durban’s Sibaya Casino) for R130m, and also selling 70% of its profitable limited payout machine (LPM) business, in a staggered transaction spread over three years.

The initial LPM transaction involves a 25.1% stake, giving GPI almost R300m if a cash payment for the cancellation of a management agreement is included.  Aside from a 30% leftover stake in GPI Slots, GPI’s operational rump resides in its Burger King master franchise for Southern Africa.

GPI CEO, Alan Keet confirmed Burger King had been identified as a key priority  for growth, and that part of the proceeds would be applied to accelerating the roll-out of stores in South Africa and elsewhere in Africa.  “Our strategy is also to create further value through related food investments, with clear sygnergies to exploit where possible.  We’ll consistently investigate further opportunities.”

Market sources noted that if GPI did not want to be perceived as a cash shell the proceeds from its gaming assets would have to be mobolised into rapidly expanding Burger King and making more food-related acquisitions.

One source, who asked not to be named, reckoned that GPI now had the capacity to tilt at smaller fast food conglomerates such as Taste Holdings (where another empowerment group, Brimstone, is a major shareholder).

GPI chairman, Hassen Adams said: “GPI will be in a strong cash position as a result of these transactions and will be very well-placed to secure further quality investments given its balance sheet, BEE ownership credentials and strategic input.”

GPI’s decision to exit its gaming assets triggered an important secondary transaction, where Tsogo acquired an influential 40% stake in Sun West and Worcester by acquiring a 14.9% stake in each from Sun and a 24.9% stake in each from GPI.

This means that Tsogo will hold an influential stake (with board representation) in Sun West and in Worcester.

Sun International will remain the managing shareholder, with a 57% stake in both casino’s.

The arrangement means Tsogo Sun, which is South Africa’s biggest gaming group, now has a stake in all five Western Cape casino’s – controlling the Garden Route, Mykonos and Caledon Casino’s and having influence over Grand West and Worcester.

Gaming Sector sources said that the deal could avert a potential slowdown between Tsogo and Sun, if an existing casino license  was allowed to be transferred to Cape Town.  It seems highly unlikely that Tsogo would push to transfer one of its existing casino licenses to Cape Town, as this would undermine its substantial investment in Sun West, possibly by shaving as much as 40% to 50% off the revenue line.

If a second license for Cape Town materialises, a diplomatic solution could be to transfer the Worcester license, where both parties have interests.

Source: Business Day

Date: 14 May 2014