Race for Gold Reef approvals could prove to be cliffhanger
January 14, 2008

By Ann Crotty

Johannesburg - With just two weeks to go before the January 31 deadline, casino operator Gold Reef Group and the private equity consortium that wants to buy 100 percent of it might just have time to secure all the necessary regulatory approvals for the transaction.

On Friday, a spokesperson for the shareholders confirmed that if the deadline was not met and the Gold Reef shareholders and consortium members could not agree to an extension, then the deal was off.

The chances of meeting the deadline, although not impossible, have been considerably reduced by Tsogo Sun's intrusion into the regulatory process.

Tsogo Sun has raised a number of concerns about the financial viability of Gold Reef after the deal is implemented.

And at a Gauteng Gambling Board hearing on Thursday, it indicated that it would challenge in court the validity of any decision taken by the gambling board, because the board's members did not include, as required by law, a chartered accountant with five years' experience.

Board chairman Lloyd Mogotsi ended Thursday's hearing by saying interested parties had seven days to submit to the board further information on the transaction.

The board will then have a week to make its decision on the proposed sale. Hearings have also been scheduled this month at the Free State, Eastern Cape, Western Cape and KwaZulu-Natal gambling boards.

The competition tribunal has already given its approval to the transaction.

There was much discussion at the Gauteng Gambling Board's hearing about the financial viability of Gold Reef as a heavily indebted private equity company.

There was also discussion about a special R12 million payment made to non-executive chairman Maxim Krok.

Tsogo Sun explained why it had not made a formal offer at R34.50 a share, after it had heard about the R34 offer that the Gold Reef board had accepted from the consortium.

David Unterhalter, counsel for the consortium, told the gambling board that the R12 million payment to Krok was made by the Gold Reef board in recognition of his "extraordinary efforts during tricky negotiations", which had resulted in the offer price being increased to R34 a share.

It was because of this, and the fact that Krok was leaving the company, that the Gold Reef board had decided to make the payment, said Unterhalter.

The circular sent out to Gold Reef shareholders on October 5 said the board had made the payment "as an expression of gratitude for the significant role and contribution of Mr Krok to Gold Reef's success".

However, Tsogo Sun claims the payment was made to secure Krok's support, which was deemed vital, for the offer of 50c a share less from the consortium.

The Securities Regulation Code, which regulates takeovers, requires that all shareholders be treated similarly in a takeover, but it does not prohibit payments that are accurately and truthfully disclosed and where the issues are properly canvassed.

On why Tsogo Sun had not made a formal offer of R34.50 to Gold Reef shareholders, Marcel von Aulock, group strategic planning director of Tsogo Sun, told the hearing that it had become apparent that Gold Reef management, led by Merrill Lynch, wanted anyone but Tsogo Sun to acquire Gold Reef.

"Our earlier offer of R32 a share was taken around the world by Merrill Lynch; people told us that they wanted anyone but us; the Merrill-led management had gone hostile on us."

Because of this hostility, Tsogo Sun had approached the major shareholders directly, including Krok, with the offer of R34.50 a share and stressed that they did not want to engage with Merrill Lynch.

Krok had returned the following day and informed Tsogo Sun that the major shareholders would support the consortium's offer of R34 unless Tsogo Sun increased its offer substantially.

Tsogo Sun decided to walk away, Von Aulock said.

<< Back