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SUN INTERNATIONAL LIMITED - Proposed disposal by Sun International of a 14.94% equity interest in Sun Dreams S.A. and cautionary announcement

Release Date: 30/04/2019 15:30
Code(s): SUI     PDF:  
 
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Proposed disposal by Sun International of a 14.94% equity interest in Sun Dreams S.A. and cautionary announcement

SUN INTERNATIONAL LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1967/007528/06)
Share code: SUI
ISIN: ZAE000097580
("Sun International" or “the Company”)


PROPOSED DISPOSAL BY SUN INTERNATIONAL OF A 14.94% EQUITY INTEREST IN SUN DREAMS S.A. AND
CAUTIONARY ANNOUNCEMENT


1.     BACKGROUND

       Sun Dreams, a subsidiary of Sun International, is a leader in the gambling and hospitality industry in Central
       and South America, which includes Panama, Chile, Argentina, Colombia and Peru. Sun Dreams operates a
       number of casinos, hotels, as well as entertainment and food and beverage facilities throughout its
       subsidiaries in Latin America (“Latam”).

       Sun International holds 64.94% of the issued share capital of Sun Dreams, while Nueva Inversiones Pacifico
       Sur Limitada (“Pacifico”) holds the remaining 35.06% of the issued share capital.

       Pacifico has expressed an interest in participating equally with Sun International in Sun Dreams regarding Sun
       Dreams’ future growth and operational strategy in Latam and elsewhere. In this regard, the parties share
       common views regarding the business, and the industry in which Sun Dreams operates, including the
       challenges and opportunities, which the company could capitalise on in Latam.

       Pacifico has made an offer, which the Company has accepted, to acquire 14.94% of Sun International’s
       shareholding in Sun Dreams (“Proposed Disposal”), which would result in each party holding a 50% equity
       interest in Sun Dreams.


2.     RATIONALE FOR THE PROPOSED DISPOSAL

       The Proposed Disposal will align the parties’ interests in Sun Dreams to pursue growth opportunities as well
       as launch an Initial Public Offering (“IPO”) in Chile. Sun International has negotiated a right of pre-emption
       over Pacifico’s shares in the event that Pacifico decides to exit its interest in Sun Dreams.

       As a consequence of the Proposed Disposal, Sun International has an opportunity to realise a portion of its
       investment in Sun Dreams. The proceeds from the Proposed Disposal will be used to reduce Sun
       International’s debt in Latam and in South Africa, further strengthening its balance sheet and reducing
       interest costs.


3.     SALIENT TERMS OF THE PROPOSED DISPOSAL

       On 29 April 2019, Sun International, acting through its Chilean subsidiary, Sun Latam SpA, entered into a share
       sale agreement (SSA) with Pacifico, whereby Sun International agreed to dispose of 14.94% of its equity
       interest in Sun Dreams S.A. (“Sun Dreams”) to Pacifico (collectively “the parties”), on terms and conditions
       more fully set out in the SSA and as summarised below.

                                                                                                         
     The salient terms and conditions of the Proposed Disposal, as set out in the SSA, are as follows:-

     •      Sun International has agreed to dispose of 1 994 899 ordinary shares held by the Company in Sun
            Dreams, representing 14.94% of the issued ordinary share capital of Sun Dreams, to Pacifico,
            whereafter both Sun International and Pacifico will each own and hold 50% of the issued ordinary
            share capital of Sun Dreams;
     •      the closing date which will be the effective date of the Proposed Disposal will be on or before 31
            October 2019 provided that all of the suspensive conditions set out in the SSA have been fulfilled (or
            where appropriate waived) by the parties (“the closing date”);
     •      the Proposed Disposal will be subject to the standard warranties and indemnities associated with
            transactions of this nature, as well as the fulfilment (or where appropriate waiver) of the suspensive
            conditions set out in this announcement and more fully described in the SSA; and
     •      the Proposed Disposal and the SSA will be governed by and interpreted according to the laws of Chile,
            with all disputes being finally settled under the Rules of Arbitration of the International Chamber of
            Commerce, sitting in Santiago, Chile.


4.   PURCHASE CONSIDERATION

     The purchase price of the Proposed Disposal is $85.8 million (“Disposal Consideration”) and may be adjusted
     either up (maximum of $20 million) or down (maximum of $7m) based on the actual EBITDA multiple achieved
     on the IPO of Sun Dreams. No adjustment will be made to the Disposal Consideration in the event that the
     IPO referred to below does not take place on or before 6 March 2020.


5.   IPO OF SUN DREAMS

     In order to capitalise on the growth opportunities in Latam, the parties are pursuing an IPO of Sun Dreams on
     the Santiago Stock Exchange, which may include an offer in terms of Rule 144 A and Regulation S of the United
     States of America’s, Securities Act of 1933, as amended.


6.   EFFECTIVE DATE OF THE PROPOSED DISPOSAL

     The Proposed Disposal by Sun International to Pacifico will become effective on the closing date.


7.   NET ASSET VALUE OF AND PROFITS ATTRIBUTABLE TO SUN DREAMS

     The book net asset value of the shareholding held by Sun International in Sun Dreams as at 31 December
     2018 (being the date of the most recent published financial results), was US$260 million.

     For the year ended 31 December 2018, Sun Dreams generated revenue of US$ 388 million, EBITDA of US$ 99
     million and profit after tax of US$ 19 million.


8.   SUSPENSIVE CONDITIONS TO THE PROPOSED DISPOSAL

     The Proposed Disposal is subject to :

     •      there being no material litigation brought against the parties, which could prevent the consummation
            of the Proposed Disposal; and


                                                                                                          
      •         the obtaining of all regulatory and other third party approvals (to the extent that the same may be
                required or waived), including but not limited to the relevant gambling board and stock exchange
                approvals.


9.    CATEGORISATION OF THE PROPOSED DISPOSAL

      The Proposed Disposal is classified as a Category 2 transaction in terms of Section 9.15 of the JSE Listings
      Requirements and accordingly will not require Sun International shareholder approval.


10.   CAUTIONARY ANNOUNCEMENT

      Shareholders are further advised that the Company has entered into discussions and negotiations with certain
      other parties regarding the potential IPO contemplated in this announcement, which if successfully concluded
      may have a material effect on the price of Sun International’s securities. Accordingly, shareholders are
      advised to exercise caution when dealing in Sun International’s securities.


By order of the board of the Company


Sandton
30 April 2019


Financial advisor and sponsor to Sun International
Investec Bank




                                                                                                       

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