IF LAST Friday’s cautionary announcements released to the JSE are any indication, gaming and hotel group Tsogo Sun appears to be making a second bid to buy out the part of rival Gold Reef Resorts it does not already own — but without the drama of its first attempt.

Both Gold Reef and Hosken Consolidated Investments (HCI), which owns a majority stake in Tsogo Sun, released stock exchange announcements within minutes of each other stating they were in discussion with unnamed groups. While they did not say openly they were in talks, from their history it is likely.

Investors in Gold Reef appear to be betting on the deal going through, pushing the share up 9,1%, or R1,75 higher, to R21 on Monday. It is clear they are hoping for a substantial premium.

Tsogo’s first attempt for Gold Reef ended in a bitter struggle for control of the group, which resulted in both parties losing out. In 2007, Tsogo Sun offered R34,50 a share for Gold Reef but the offer was spurned by management in favour of a lower R34-a-share offer by a consortium including private equity group Ethos, Goldman Sachs and Gold Reef management.

Tsogo Sun was not willing to let the matter go that easily, complaining to the Securities Regulations Panel that then Gold Reef chairman Maxim Krok had received a R12m payment for accepting the lower Ethos offer. The allegations led to the Ethos deal’s collapse and Gold Reef trying to clear its name.

But Tsogo Sun continued to build up its stake in Gold Reef to about 24,99% of issued shares and 34,9% of the voting rights, including 15,01% from Gold Reef’s former empowerment partners in October 2008.

Tsogo Sun’s Marcel von Auerlock said last year the group would not go much beyond the 34,99% of voting shares as it would trigger a mandatory offer. JSE rules oblige a company to make an offer for the entire company once the 35% threshold is breached. With Gold Reef management holding more than 20% and Allan Gray 20%, any offer is likely to be rejected.

However, it now seems the hostilities have eased enough for the groups to hold a civil discussion over a possible sale.

This may be due in part to the fact that the Krok family, major shareholders in the group, are no longer directly involved in the running of Gold Reef.

Maxim Krok has emigrated to Australia and the family may be willing sellers.

One obstacle to securing a deal is gaining Competition Commission approval. If the deal succeeds, SA’s casinos will be in the hands of three main groups — Sun International, Peermont and Tsogo Sun — and London Clubs International, which owns Gauteng’s Emerald Casino Resort.

The deal will create SA’s biggest casino group with control over 12 casinos throughout SA.

The commission may be particularly concerned about Gauteng, where the new group will control close to half of the market with Gold Reef City, Silverstar and Montecasino. It is possible a deal will see one of Gold Reef’s Gauteng casinos being sold off.

Another obstacle, considering the group’s history, could be where Gold Reef’s management would go. It is doubtful that they will stay on in the enlarged group and they may even be buyers of one of the Gauteng properties.

An interesting issue will be the price paid. Even after Monday’s rally, Gold Reef’s share price is still some way off the R34 a share offered earlier. Economic conditions have changed, but investors will no doubt be looking for a premium due to Gold Reef’s rosy long-term outlook.

This is particularly so for investor Allan Gray, which last year bought a 20% stake from Casinos Austria at R16 a share. But if the premium is attractive enough, Allan Gray may be enticed to sell its stake rather than hold out for long-term benefits.

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Source: Business Day