Improper behaviour finding on Gold Reef set aside
Business Day
15 May 2009

Julius Baumann

GOLD Reef Resorts has won its high court challenge to set aside a Securities Regulation Panel (SRP) ruling of improper behaviour by the company in accepting a now failed R9,83bn buyout offer from private equity group Ethos in 2007.

The judgment this week means Gold Reef will escape a painful Gauteng Gambling Board investigation into its management and a R12m payment made to its chairman, Maxim Krok, in 2007.

Krok had hoped to dispose of his R500m stake in Gold Reef to Ethos before quitting the group and relocating to Australia.

“As the court has ruled in Gold Reef’s favour there is no reason to pursue an investigation into the company,” the board’s CEO, Benito Lekalakala, said yesterday.

The saga dates back to January last year when rival casino group Tsogo Sun, whose bid for Gold Reef was spurned by management in August 2007, took its complaint to the SRP, alleging Krok was given the R12m to persuade Gold Reef’s management to agree to a lower offer Ethos made for the company. The private equity group had offered R34 a share, or R9,83bn, for Gold Reef while in August 2007, Tsogo claims, it offered R34,50 a share for the company, which was turned down by Gold Reef. However, Gold Reef claims it never received a formal offer from Tsogo.

Tsogo also took its case to the Gauteng Gambling Board, which then threatened to probe the payment and management irregularities at Gold Reef. However, the board said it would await the high court ruling before deciding whether to proceed with an investigation.

In his ruling, Judge Percy Blieden said that “the SRP, in its findings, failed to take cognisance of the fact that whatever offer was made was made only to three shareholders and not to (Gold Reef)”.

“The offer would only come into existence if and when the three major shareholders furnished their irrevocable undertaking to support it. Until that occurred, no offer of any nature was made or would be made by Tsogo.” Blieden said the fact that Tsogo’s proposal was discussed at a board meeting on August 10, and that representatives of those major shareholders rejected the proposal, could not be construed as an offer.

“Had the SRP appreciated the argument of (Gold Reef), it would have found that there was no offer by Tsogo as defined in the code, and there was therefore no merit in its complaint. In my view, it misconceived Gold Reef’s contention by classifying it in the manner in which it did.”

In February last year, the Ethos bid collapsed when the SRP said that had it been aware of Tsogo’s allegations, it would not have given the Ethos transaction its blessing.

The SRP had said that while “we are unable to apportion responsibility, it is apparent that a responsibility must lie at the very least with Gold Reef’s management who formed part of the Bidco consortium”.

SRP deputy executive director Viv Pitchers said yesterday it would abide by the court’s ruling. Gold Reef CEO Steven Joffe refused to comment.

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