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Send  Share  RSS  Twitter  21 Jun 2011

GAMBLING: Grand Parade Comes Up Trumps

 



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GAMING investment group Grand Parade Investments (GPI), which has deep roots in the Cape community, has played an empowerment trump card at Sun International to secure a deal that unlocks substantial wealth for shareholders and opens new deal-making horizons.

The man behind GPI’s inspired hand is Hassen Adams, a well known Cape Town businessman – who not too long ago was sparring rather aggressively with other GPI shareholders like Shaun Rai and Ragi Moonsammy.

Adams, who has a reputation as a tough and uncompromising businessman, showed the deftest of touches around three years ago when he persuaded several key minority shareholders at another gaming investment company, Real Africa Holding (RAH) to swop their shares in RAH for shares in GPI.

In essence that deal gave GPI – which owns significant stakes in Sun International casinos like GrandWest and Worcester – a 30% stake in RAH, which also owned significant minority stakes in various Sun International casinos like GrandWest, Carnival city, The Boardwalk in PE and the Sibaya casino in Durban.

The reason this little transaction is such a key development, is that Adams effectively signalled to Sun International that GPI was no longer content to trade solely on its status as a passive empowerment partner to the gaming giant. GPI wanted to be the master of its own destiny – a contention underlined by Adams’ determination to shift GPI into alternative gaming businesses like Limited Payout Machines (LPMs).

But even more importantly, GPI managed to wedge itself between Sun International and RAH. Only a few years before Sun International had tried to buy out RAH, but minority shareholder resistance saw the gaming giant only mustering around 60% of the shares.

Sun International, no doubt, would have liked to have quietly mopped up remaining minorities (as it did by extending its stake in RAH to 65%). But with GPI holding such a major slice of the issued shares it was a stalemate.

While Sun International initially seemed content to play a waiting game at RAH, it might have been Adams’ well documented (and well timed) comments around the management fee paid to Sun International at the GrandWest casino that might have sparked off recent action.

The suggestion was that GPI might be well capable of managing the GrandWest, where – after all – it held voting control through holding company SunWest.

What did transpire last month was that Sun International purchased a portion of GPI’s shares in SunWest (essentially the owner of GrandWest) and the Worcester casino with the parties also entering into new long term management and royalty agreements.

Sun International also bought GPI’s entire 30% stake in RAH – allowing the empowerment company to profit handsomely from a deal struck at markedly lower prices.

Sun International CE David Coutts-Trotter explained the deal would see GPI marginally reducing its economic interests in SunWest and Worcester while “still maintaining significant influence over these operations with Sun International continuing to provide management services on a long term basis”.

While Coutts-Trotter might be relieved that its uppity empowerment partner has been placated, Adams was “delighted that this future-changing deal will allow us to be truly masters of our own destiny”.

GPI does look like it’s in a good space. The nearly R800 million that will flow through from the transactions with Sun International not only mean the company can cull legacy debt – but it can also afford to pay out a special divided of 50c/share.

That dividend will be worth over R200 million – a major achievement considering that when GPI formed back in 1997 the company was worth a mere R28 million. In other words some of the early participants will be getting their initial investment back (and more) in the special payout.

With GPI managing to hold onto a meaningful stake in the cash spinning GrandWest casino, shareholders are virtually guaranteed a regular dividend stream.

A reinforced balance sheet and some ammunition for deals do present some challenges – especially from an expectant shareholder base. But CBN is encouraged to see that Adams – who now becomes the executive chairman of GPI – is not doggedly determined to stick to gaming investments (remembering GPI also has a significant presence in the Limited Payout Machine sector).

While Adams is talking up add-on gaming deals (perhaps on-line gaming and shifting the LPMs into Africa), there is also a commitment to diversify its investment portfolio by investing in a wide range of industries.

Adams notes: “This new war-chest will give us fantastic options to pursue new investments in other industries and alternative investments in the gambling industry.”

Investors that have used GPI as an alternative (or cheaper) entry into Sun International (and particularly SunWest) might be disappointed that the gaming element might be diluted.

But CBN believes GPI could join other influential empowerment ventures in the Cape – like Brimstone and Hosken Consolidated Investments – in offering a well capitalised, broad based empowerment offering.

And don’t think Adams – who has arguably squeezed the best possible result out of the Sun International arrangement – can’t swing a few interesting deals the way of GPI.


 
 
 
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