It was announced more than a week ago that Sun International, South Africa’s second-largest casino operator, would purchase its competitor Peermont Group for the sum of R9.4 billion.
De Wet Schutte, an Avior Research analyst, commented that the deal was not a surprise, as Sun International has been interested in acquiring the other company for quite some time. Mr. Schutte pointed out that the purchase was finalized last week due to the fact that the two gambling operators eventually managed to negotiate the price and to solve certain related issues.
Graeme Stephens, CEO of Sun International, has been trying to boost the company by refining its structure and cutting particular costs. Furthermore, the gambling operator’s current business strategy includes reducing its operations in the Western Cape. The profits from this province account for 27% of what the company earns.
Sun International is also planning to increase its revenue from Gauteng, the South African province that annually generates the most substantial casino spend. An expansion of the business in Latin America is also among the company’s top priorities.
Peermont, which is the third-biggest casino operator in South Africa, had to cope with some serious issues throughout the past several years. In 2007, it was purchased by a private equity consortium for the sum of R7.3 billion. Subsequently, it was delisted from JSE Limited, which resulted in a huge debt. It was finally restructured in April 2014.
Uys Meyer, CEO of BlueAlpha Investment Management, said that the deal with Sun International will probably be a good thing for Peermont and its investors. Mr. Meyer also commented that its 14 properties will be an excellent addition to all the 12 casinos and 28 hotels that are currently operated by Sun International.
Experts have expressed concerns that Peermont’s sale will lead to South Africa having only two major hotel and casino operators – Sun International and Tsogo Sun. And this will most definitely result in a greater competition and more money being spent by both companies to cope with it.
Industry analysts also point to the fact that it will be hard for investors to decide which one of the two operators will be more profitable. Generally speaking, they are quite different.
Tsogo is more focused on its hotel operations and on expanding those in South Africa and Sun International is more concerned with consolidating its positions on the gambling market and introducing its services to other countries. In fact, the latter company is even selling some of its African venues.
Tsogo’s share price has gone up 1% over the past twelve months and the company’s market cap has reached a total of R26.7 billion. Executives announced that it is going to spend over R5 billion in order to consolidate its presence on the country’s gambling market.
Sun International’s share price, on the other hand, has increased almost 40% for the same period with a market value of almost R15 billion.
According to a report released last year by PricewaterhouseCoopers, gambling revenue in South Africa is expected to rise 35% to almost R30 billion by 2018. And casino revenue is predicted to total R20 billion.
