Consolidation in South Africa’s Gaming and Leisure Sector Discussed

An article written for SA Commercial Prop News examines the gathering momentum towards a long awaited consolidation in the listed gaming and leisure sector of the JSE Securities Exchange. It predicts that mergers have the ability to deliver bigger and more liquid funds, which would lead to more attention by fund managers.

The South African gambling sector is no stranger to consolidations and they continue to happen in a highly concentrated landscape. According to the piece, if one disregards the Emerald Resort and Casino owned by London Clubs International, the local casino scene in South Africa is divided among three major companies, namely Sun International, Tsogo Sun and Peermont. Other players in the field include Grand Parade Investments, Niveus, RECM & Calibre, SABMiller and Trematon Capital Investments. The smaller companies, however, are minor stake holders in casinos or sports betting, slots or bingo operations.

The article highlights some of the asset-shuffling that has taken place in recent years. In late 2013, Peermont entered into unsuccessful talks with GPI, which would have seen the latter take over the debt-ridden group.

Analysts also believe that if SABMIller, major stake holder in Tsogo , sells its part in the group, as it signaled it was interested in doing last month, it will be snapped up by Hosken Consolidated Investments, the biggest shareholder in Tsogo.

The article also examines how Tsogo Sun, the country’s largest gaming group, has a stake in all five of Western Cape’s casino, with control or major influence along the Garden Route, Mykonos, Caledon, Grandwest Casino and Worcester. This is due to a number of deals, including Tsogo’s proposed acquisition of a 40% stake in Sun International’s two Western Cape casino, Sun West and the Golden Valley.

The piece queries why Sun International would “allow a rival to snap up a meaningful stake in its lucrative Western Cape operations”.

It also provides an answer: “The arrangement removes a potentially costly clash between Sun and Tsogo over a second casino license for Cape Town – a matter which has been aired, though not officially promulgated by the Cape Town city council.”

A new casino that is closer to Cape Town could affect GrandWest’s business by up 5o 50%, and Sun International doesn’t want its advantage compromised by a rival Tsogo casino.

“Talk around the gaming tables is that the investment and development cost of the second license might have dulled Tsogo’s enthusiasm for transferring one of its three existing Western Cape licenses to Cape Town,” concludes the piece.