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SABMiller Considering Options for Tsogo Sun Stake

UK-based brewing and beverage company, SABMiller is considering its stake in African hotel and casino company, Tsogo Sun. The brewery has a 39.6 percent stake in the company, valued at R10.9 billion.

Tsogo Sun Considered a Non-Core Business

SABMiller is reviewing its 39.6 percent stake in Tsogo Sun and deciding whether or not to take action. Its Tsogo Sun investment is its only non-beverage business in its portfolio. They own brands that include Black Label, Castle Lite and Peroni.

"This investment is not considered to be core to the beverage operations of SABMiller and therefore we are reviewing our strategic options for the shareholding," the company announced in a statement.

According to Richard Farnsworth from the SABMiller media team based in London, "It's our only non-core asset in SABMiller; I guess the time was right." In addition, he stated that the company would soon decide on the future of two of its directors who sat on the board of Tsogo Sun.

SABMiller Assessing its Options

Hosken Consolidated Investments (HCI) owns approximately 41 percent of Tsogo Sun. According to Jean Pierre Verster, an analyst at 36One Asset Management, it is not surprising that SABMiller is reviewing its stake in its non-core business; however it will find it difficult to sell its stake if that is the decision it makes.

"SABMiller will find it difficult to sell their stake to one buyer because a buyer will be reluctant to buy a minority stake with another shareholder already owning 41 percent of the shares, meaning HCI has a blocking stake for any special resolutions," he clarified.

On top of this, if they find a single buyer for a stake that is larger than 35 percent, according to JSE rules, they would then need to make an offer to minorities for the remaining stake in the business. According to Verster, one option for SABMiller would be to unbundle the stake to SABMiller shareholders. Another option would be to sell its entire stake to HCI. Other than these two options, it will be difficult for the company to sell its stake.

"The only option that could be left is for SABMiller to sell their stake to HCI. HCI does not have sufficient financing to buy the whole stake right now, but the proceeds of the Seardel rights issue, which will flow to HCI in the form of a loan repayment, will assist in this regard."

He suggested that HCI may unbundle some of the Tsogo Sun stake in order to reduce an 80 percent stake.