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Sun International's offer to buy out Real Africa may now be seen in a new light

June 19, 2006

Sun International's unsolicited offer to buyout shareholders in Real Africa Holdings (RAH) may now be seen in a new light.

Early on Monday morning RAH issued a long awaited pronouncement dismissing Sun International's 590c/share buyout offer as -neither fair nor reasonable - and urged shareholders to not to accept the offer.

While most companies facing a hostile advance from a predator resort rather lamely to the "fair and reasonable" debate, RAH has delivered some fairly compelling fundamental arguments to convince shareholders to fob off Sun International's offer.

RAH - which holds as its main investment minority stakes in a handful of Sun International casino operations - pointed out that its minimum value was 640c/share. That's around 8% more than Sun International have pitched in their buyout offer to RAH shareholders.

The 640c/share minimum value excludes any potential value that could be garnered from RAH's legal actions (damages of R327m are being claimed) against Sun International around a dispute over shares in subsidiary SunWest (which owns the GrandWest casino in Cape Town).

Generous payouts

RAH also indicated shareholders are set for a cash distribution of R280m - a payout equivalent to 77c/share.

And what's more RAH has revised its dividend policy to make provision for a semi-annual payout "equal to net cash revenues after expenses and capital requirements".

With RAH operating as an investment company, expenses and capital requirements are minimal - suggesting rather generous future payouts to shareholders.

RAH also advised that the sale of its non-core stake in fishing group Oceana is imminent, and that the entire proceeds from this corporate exercise would be earmarked for distribution to shareholders.

RAH also highlighted its "good track" record at unlocking value for shareholders, pointing out that over R1.2bn had been returned to shareholders in cash and (unbundled) shares since 2003.

Offer 'below fair value'

RAH executive director Danie Vlok said the board - after taking into account the opinion of the independent sub-committee and external financial advisers - recommended shareholders do not accept the Sun International offer.

"The offer was unsolicited and aims to acquire your company below its fair value."

Vlok added that RAH was on track with its strategy of being a focused investment company in select and high growth gaming assets.

"These assets are some of the best gaming assets in the country with plenty of growth and development potential."

There's merit in this argument, which even Sun International will acknowledge.

The big question, though, is whether the strong recommendation to RAH shareholders might come too late to fend off a doggedly determined Sun International.

Sun International recently reported that major RAH shareholders - Allan Gray (also a major shareholder in Sun International) and Coronation Capital - have already given irrevocable undertakings to support the buyout bid. Along with periodic forays in the open market, Sun International appears to have sewn up well in excess of 50% of RAH.

Monday's share price movements in RAH should provide some hint at how the market is perceives RAH management's case.

Source: MWeb

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