SHARES in gaming and entertainment group Gold Reef Casino Resorts surged to a high of R29,20 before easing to close 10,56% up at R28,40 after the company said it may receive an offer that would value it at R11,6bn.

Gold Reef, which has a market capitalisation of about R9bn, said it was in “exclusive” discussions with a consortium of investors led by Ethos Private Equity Fund V. The consortium included Gold Reef’s existing empowerment partners, which hold just more than 25,1%, and management.

In May, its share price ticked upwards after it said it had received approaches from potential buyers and was in “exploratory talks” with selected parties.
Financial director Jarrod Friedman said the existing empowerment parties and management would reinvest in the new company and the empowerment stake would move up to 30%.

The consortium was expected to offer R34 per share for the company. Shareholders owning 76% of the company’s shares had irrevocably undertaken to vote in favour of the deal, should it take place at R34 per share.

Friedman said shareholders had agreed that the offer was attractive enough to give irrevocable undertakings and allow the consortium time to put a fully binding offer on the table.

However, Gold Reef Resorts said the undertakings would fall away if a firm offer that was 10% higher than the consortium’s offer was received and not bettered by the consortium.

Chris Gilmour, an analyst at Absa Asset Management Private Clients, said the company was the best performer in its segment and its share price had performed “phenomenally” over the past few years.

Gold Reef, which has operations only in SA, said in March it had achieved revenue of R1,5bn for the year to December. Almost R1bn of this was earned at its flagship operation, Gold Reef City.

Gilmour was concerned that the company was not diversified and that two-thirds of its revenue came from one operation, but said its latest casino, Silverstar, would be cash generative soon after opening.

Expected to open in the first quarter of next year , Silverstar would have 700 slot machines, 30 tables, as well as a hotel, restaurants and conference and entertainment facilities, Gold Reef said in March. The venture, which holds the seventh and final casino licence for Gauteng, would cost an anticipated R1,2bn, the leisure group said.

The complex would be the only one of its kind on Gauteng’s West Rand and was expected to show strong growth over the first three to four years before stabilising as a cash-generative operation.

Casinos were not very susceptible to economic downturns, and Gold Reef City would be less dependant on the economic cycle as it offered a range of offerings to the growing middle class. “The fact that the economy is growing provides a nice boost to them.”