SABMiller Agrees to Sell Interest in South African Tsogo Sun Holdings

Brewing company SABMiller ready to let go of massive stake in South African hotel and casino for over $1.1 billion.

SABMiller is the parent company of Miller Lite which has a long standing tradition in the brewing industry. Gambling news reports that it is considered to be the second-largest producer in terms of sales. The firm will look to refocus the main objectives of the business.

Tsogo Sun reportedly operates more than 90 luxury hotels spread across seven countries in Africa. They even gave properties in Nigeria and the Seychelles. Some of the more prominent facilities that they have are: Montecasino, Tuscany-themed hotel in Johannesburg, theater and a lavish casino complex.

Alan Clarke seems to be the man for the job

Alan Clarke has only been the CEO of SABMiller for around a year, however he seems confident his ideas can work out. In efforts to stop the downward financial spiral in the US and European markets, the company will seek to cut costs where they can. Under his stewardship, they will instead target developing economies in Latin America and Africa.

• Sale set to fetch $1.1 billion

• SABMiller CEO concentrating on core business

• Financial analysts believe there other great deals to pursue

It was reported back in April that SABMiller was interested in exploring options of selling its share in the South African firm. SABMiller brokered a merger between Tsogo Sun and Gold Reef Resorts Ltd. in 2011, which reduced their overall stage in the company from a high 49%.

SABMiller was initially found in South Africa where the first loyal customers were miners over a century ago. The brewing company controls the country’s beer industry, as around 90% of the market is attributed to them. However, due to numerous economic and political repercussions the firm has been looking at ways to raise capital for other areas.

Gaming and hotels not the core of the business

SABMiller’s chief executive highlighted that gaming and hospitality is not the center of their focus at the current time. “Gaming and hotels are not core to our operations and we have concluded that the time is right for us to exit our investment through a transaction which is beneficial to shareholders of both SABMiller and Tsogo Sun.”

Due to the viable South African gambling laws Tsogo was able to flourish, but SABMiller agreed to the sale primarily to raise funds for their main business projects that will have great potential in the future.”[The company wants to] reinvest the proceeds in our core growth businesses, including our African operations.”

Many industry experts believed that the brewing company would sell its stake in Tsogo in 2010, as there were strong speculations about SABMiller merging with Gold Reef Resorts. Clarke remarked, “The business has performed well over the years. The merger with Gold Reef Resorts in 2011, and the resultant listing on the JSE, has transformed Tsogo Sun.”

Analysts remain optimistic

Analyst at Morningstar, Philip Gorham, believes that the firm still has plenty of financially viable options in other parts of Africa. “There remains a lot of whitespace opportunity for them in Africa as well. Kenya is an opportunity. Their presence is quite patchy, and they could look to plug some geographic gaps.”

Johnny Copelyn is the chief exec of Hosken Consolidated Investments Ltd., which is the biggest shareholder of the gaming establishment with 47%. He indicated that the buy-back of the casino is a good plan and that the industry has a positive future., “We support Tsogo Sun in buying back the shares. It’s a good company. The industry has a good future.”

De Wet Schutte is an analyst at Avior Research firm based in Cape Town. He asserted his belief that Tsogo Sun has the financial means to repurchase its shares from SADMiller and still maintain its other ambitious projects, like a possible mobile casino site.

“There are wider implications in that it further entrenches HCI as the parent in Tsogo. The buyback won’t stretch Tsogo’s balance sheet, they’ve got ample capacity in the balance sheet to buy back these shares and still continue with the fairly large capex program.”