Hotel and gaming group Sun International (SUI) has fired another salvo in the war of words between itself and Real Africa Holdings (RAH) over its plans to acquire the shares in RAH it does not already own.
Sun International currently owns 55% of RAH shares.
In an announcement to the market, Sun International said that it had increased its offer from 513 cents to 530 cents per share, which was 21% higher than the closing price of RAH shares - adjusted for the 77 cents per share dividend distribution paid by RAH in July - prior to the date when the intention to acquire RAH in March 2006. It believed this to be "a fair offer".
The offer closes at noon on September 15.
"A premium of this level compares favourably with average premiums paid in public offers in South Africa," Sun International said.
It announced that it had notified the RAH board of directors of its intention to reconstitute the board by removing the current RAH directors and appointing Sun International nominated directors.
Sun International said that in assessing the value of Afrisun Leisure Investments, RAH applied discount rates ranging from 10.6% to 11.5% on estimated free cash flows in valuing the casino investments, which were significantly lower than discount rates generally used to value listed companies.
"These discount rates don't take the appropriate risk into account and have not factored in the recent increases in interest rates," it asserted.
It said that RAH had valued its interests in National Casino Resort Manco and Gauteng Casino Resort Manco by capitalising dividends at a rate of 4.5%.
According to Sun International, these management companies distribute their total earnings by way of dividends and therefore the basis of using a dividend yield in valuing these operations is inappropriate and overstates their values.
In addition, the above companies' management contracts expire around 2013, yet the valuation assumption assumes that this revenue continues in perpetuity.
"RAH has not taken into account in their valuation the ongoing listing and corporate costs . . .The present value of these ongoing costs (assuming that
the 2006 level of costs are incurred in the future) of approximately 125 million rand (or 35 cents per share) has not been factored into RAH's valuation."
Sun International argued that if RAH's valuation of the underlying casino investments in which Afrisun holds an interest was incorporated in Sun International's own valuation, this resulted in a valuation for Sun International of approximately 120 rand per share. With Sun International currently trading at 96 rand per share, the implied valuation represented a 25% premium.
Regarding Afrisun's legal claim against Sun International (South Africa) Limited (SISA), it said that SISA intended to defend the merits of this claim and was also of the view that the basis on which Afrisun Leisure had quantified its alleged damages claim was fundamentally flawed.
On RAH's announcement on Tuesday of plans to enforce pre-emptive rights contained in a shareholders' agreement concluded between Afrisun, SISA and GPI in relation to their shareholding in SunWest, it said that a memorandum of understanding (MOU) was entered into between Sun International, GPI and others.
"The MOU is conditional inter alia on a waiver of pre-emptive rights by the shareholders of SunWest, including Afrisun. The MOU will not be implemented without these waivers and accordingly there is no intention to dispose of shares in SunWest which triggers any pre-emptive rights in favour of Afrisun."
It went on to note that the liquidity of RAH shares was limited and as it now held more that 55% of RAH shares, the tradability would likely be reduced further.
"Shareholders should also consider that the current share price is largely underpinned by the offer and may not sustain this level after the closing of the offer.
"RAH is an investment holding company and the rating of investment companies historically trade at a discount to their underlying valuation."
I-Net Bridge
Publisher: I-Net Bridge
Source: I-Net Bridge
