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SUN INTERNATIONAL LIMITED - Proposed merger and withdrawal of cautionary

Release Date: 24/05/2019 16:16
Code(s): SUI     PDF:  
 
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Proposed merger and withdrawal of cautionary

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 MERGER BETWEEN SUN DREAMS S.A. (“SUN DREAMS”) AND CERTAIN GAMING ASSETS OF CLAIRVEST
CHILE LIMITADA (“CLAIRVEST”) AND INVERSIONES SAN ANDRES LIMITADA (“VALMAR”) (COLLECTIVELY
“MARINA”) AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT


1.     INTRODUCTION

       Shareholders are referred to the Stock Exchange News Service (“SENS”) announcement released on the
       Johannesburg Stock Exchange (“JSE”) on 30 April 2019 when shareholders were advised that Nueva
       Inversiones Pacifico Sur Limitada (“Pacifico”) had made an offer, which the Company has accepted, to acquire
       14.94% of Sun International’s shareholding in Sun Dreams, which would result in each party holding a 50%
       equity interest in Sun Dreams.

       Sun International and Pacifico’s strategic intent is to build a casino and hospitality group with critical mass in
       Latin America (“Latam”), which can capitalise and develop future business opportunities in South America,
       Mexico and the United States of America while at the same time, mitigating future challenges and risks to the
       business and concentration of assets in any one country in Latam.

       In order to capitalise on these growth opportunities in Latam and elsewhere, Sun International and Pacifico
       (collectively the “Sun Dreams shareholders”) have entered into a binding Memorandum of Understanding,
       incorporating a term sheet (“MOU”), with Clairvest and Valmar (“the Marina shareholders”), which subject
       to certain suspensive conditions being fulfilled, or where applicable waived, will result in a merger (the
       “Proposed Merger”), between Sun Dreams and Marina (“the Merged Entity”).

       In addition, the Sun Dreams shareholders and the Marina shareholders (collectively “the parties”), have
       agreed that once the Proposed Merger has been consummated, they will consider an Initial Public Offering
       (“IPO”) of Sun Dreams, on the Santiago Stock Exchange in the near future, in order to further unlock the
       strategic intent highlighted above.


2.     BACKGROUND TO MARINA

       2.1.   Clairvest

              Founded in 1987, Clairvest is a Toronto-based private equity management firm with over Canadian
              $2.0 billion of equity capital under management. Clairvest manages its own capital and that of third
              parties, through the Clairvest Equity Partners Limited partnerships and one of its primary areas of focus
              is the gaming industry.

       2.2.   Valmar

              Valmar is a real estate family company founded in 1969, which has been involved in the development
              of housing and neighborhoods in Concepcion, the second largest city in Chile, for the past 50 years.
              Valmar Invests in and develops construction solutions for the Chilean market, which has included joint
              ventures and many other construction and real estate companies in the past.

                                                                                                              
              During the last 15 years, Valmar has expanded into different businesses such as IT, agriculture and
              forestry, although its main business remains real estate. In the last 10 years, Valmar has also
              significantly invested in casinos and hospitals and manages in excess of US$500 million in assets in
              total.

     2.3.   The Marina portfolio of properties comprises of:

                                                                                                  FOOD AND
                              CASINO                   HOTEL                                      BEVERAGE
                                                                                                  OUTLETS
            PROPERTY
                                                                   Convention
                              Slot         Table                                       SPA
                                                       Rooms       Centre
                              machines     games                                       sqm
                                                                   Delegates
            CHILE
                                                                    600 hotel
            Talcahuano           1385          50          120      800 conference        800            16
                                                                    centre
            Calama                485          21          148      600                   650            9
            Osorno                400          21           -       -                      -             6
                                                                    400 hotel
            Chillán               450          20          100      1500 conference       730            11
                                                                    centre

            Total                2,720        112          368            3,900          2,180           42


3.   RATIONALE FOR THE PROPOSED MERGER

     Over the past years, Sun Dreams has assembled an attractive portfolio of assets, which forms the basis to
     leverage its growth strategy in the region. Sun Dreams believes that in order to achieve further critical mass
     in Latam, the company needs to make acquisitions or merge its assets with another meaningful player in the
     region. In addition to expediting its growth strategy, a merger also mitigates risks to the business by
     diversifying its asset base.

     The Proposed Merger strengthens Sun Dreams’ position in Latam and affords Sun Dreams the opportunity to
     partner with Clairvest, which are experienced investors in casino assets. In addition, Clairvest will bring a
     wealth of experience and add value to the Merged Entity by growing the business.

     The Proposed Merger results in the creation of one of Latam’s largest gaming groups, which will have the
     profile, critical mass and balance sheet to expand throughout the rest of the continent, make meaningful
     acquisitions and take on larger projects. The Merged Entity will be structured with a relatively low level of
     gearing which will ensure that it is self-sustaining. The Proposed Merger should also unlock synergies between
     the combined Chilean properties as a result of its scale.




                                                                                                        
4.   NET ASSET VALUE OF AND PROFITS ATTRIBUTABLE TO SUN DREAMS, MARINA AND BASIS OF VALUATION
     OF MERGED ENTITY

     For the year ended 31 December 2018, the Revenue, EBITDA and operating profit of the merging parties was
     as follows:

                      US$ million                           Sun Dreams          Marina
                      Revenue                                   388              114
                      EBITDA                                     99               33
                      Profit after tax                           19               14

     The above trading excludes Chillán (Marina asset) which has not yet commenced trading.

     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.

     The merger ratio in respect of the Proposed Merger has been based on a valuation of the Merged Entity taking
     into account the applicable EBITDA’s, term of licences, country factors, other assets and net debt. Based on
     the valuation, the Proposed Merger will result in Sun International holding approximately 31% of the Merged
     Entity, which reflects the full value of its investment prior to the Proposed Merger. This shareholding is
     calculated taking into account the disposal of Sun International’s 14.94% equity interest in Sun Dreams to
     Pacifico.

     In addition, and in order to align the equity interests, based on the enterprise merger ratio (i.e. before net
     debt), Sun International will have the option (for a period of 10 days following the merger) to acquire
     additional shares to increase its shareholding to 32% of the Merged Entity from the Marina shareholders. Sun
     International will therefore have a meaningful interest in the business that has strong growth potential and
     will actively participate in the growth strategy of the Merged Entity.

     The merger valuation may be adjusted by the parties following the Proposed Merger in accordance with the
     valuation true-up provisions contained in the binding MOU. Further details in this regard are set out in
     paragraph 5 below and will be contained in the circular to be posted to shareholders.


5.   SALIENT TERMS OF THE PROPOSED MERGER

     The salient terms and conditions of the Proposed Merger, as set out in the MOU entered into between the
     parties, are as follows:-

     •      both the parties will combine their businesses in Latam to form the Merged Entity that will own and
            operate, 11 Chilean casino licences and associated assets, 8 Peruvian casino operations and associated
            assets, an Argentinian casino licence and 60% of a Colombian licence;
     •      the valuation of Iquique (Sun Dreams asset) and Chillán (Marina asset) are subject to an adjustment
            based on the actual EBITDA achieved by these assets for the 12 month period starting 12 months
            following the official opening of new properties and the audited actual cost of construction of the new
            properties. Any adjustment will be settled between the parties as a price adjustment payable in shares
            of the Merged Entity;
     •      the Merged Entity will for the time being continue to be managed by the existing senior management
            team of Sun Dreams and will be the sole vehicle through which the parties develop their gaming
            business in South America;
     •      a right of pre-emption will exist between the parties in order to retain their ownership percentages in
            the Merged Entity and no party will be entitled to dispose of their equity interest in the Merged Entity
            for a period of 12 months following an IPO of Sun Dreams;
                                                                                                   
     •      the Proposed Merger will be subject to standard restraints, warranties and indemnities and minority
            protection clauses associated with transactions of this nature, as well as the fulfilment (or where
            applicable waiver) of the suspensive conditions set out in this announcement and more fully described
            in the MOU; and
     •      the Proposed Merger will be governed by and interpreted according to the laws of Chile.


6.    EFFECTIVE DATE OF THE PROPOSED MERGER

      The Proposed Merger will become effective on the date of fulfilment, or where applicable waiver, of the last
      of the suspensive conditions set out hereunder and in the MOU.


7.    SUSPENSIVE CONDITIONS TO THE PROPOSED MERGER

      The Proposed Merger is subject to the fulfilment (or where applicable waiver) of the following suspensive
      conditions:-

      •       the approval of the boards of directors and shareholders of the parties, as applicable, pertaining to
              the conclusion of the Proposed Merger and the entering into of definitive agreements containing
              terms and conditions substantially similar to those contained in the MOU;
      •       the parties conclude a due diligence exercise, the outcome of which is satisfactory to the parties;
      •       the lenders of the parties agree to waive the acceleration of any loans granted to these parties or the
              parties have secured finance, which shall allow them to repay those loans;
      •       no material adverse effect equal to or greater than US$50 million shall have occurred to, among
              others, the business, operations, assets, prospects or results of any of the parties; and
      •       the obtaining of all regulatory and other third party approvals pertaining to the Proposed Merger,
              including but not limited to the relevant gambling board and stock exchange approvals.


8.    CATEGORISATION OF THE PROPOSED MERGER AND SHAREHOLDER APPROVAL

      In terms of the JSE Listings Requirements, the Proposed Merger is classified as a Category 1 transaction and
      will require Sun International shareholder approval. Accordingly, a circular to shareholders will be posted
      within 60 days of the date of this announcement containing, among others, a notice of general meeting.


9.    WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT

      Shareholders are referred to the cautionary announcement dated 30 April 2019 and are advised that as the
      discussions and negotiations with the Marina shareholders have culminated in the entering into of a binding
      MOU regarding the Proposed Merger, caution is no longer required to be exercised by shareholders when
      dealing in the Company’s securities.


By order of the board of the Company

Sandton
24 May 2019


Financial Advisor and Sponsor to Sun International
INVESTEC BANK

                                                                                                          

Date: 24/05/2019 04:16:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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