• SAB Miller to sell Tsogo Sun stake

SAB Miller has confirmed plans to sell its stake in Tsogo Sun for around USD1.09bn, marking its exit from the hotel sector.

The stake will be sold through an institutional placing and a USD260m share buyback by Tsogo Sun, strengthening the African operator’s position at a time when the region is growing in popularity.

Alan Clark, CEO, SAB Miller, said: “Gaming and hotels are not core to our operations, and we have concluded that the time is right for us to exit our investment through a transaction which is beneficial to shareholders of both SABMiller and Tsogo Sun.” The brewer will use the money raised to invest in its core growth business, including its African operations.

Tsogo Sun will use debt to fund the buyback of 130 million shares, which will be priced at an 18% discount to the price the institutional investors are prepared to pay for the larger group of 300 million shares.

The company’s board said that it felt the repurchase represented “a unique and attractive opportunity for Tsogo Sun to repurchase and cancel a significant number of ordinary shares on terms that are expected to have a positive impact on the company’s earnings per ordinary share and its black economic empowerment shareholding”.

Tsogo Sun CEO Marcel von Aulock told local South African press: “I suspect the vast majority of shares will be taken up by South Africans. They know the company well, and in the past have been discouraged from buying by the lack of tradeability in the share.” Prior to the sale, 90% of the company was in the hands of four shareholders.

Tsogo Sun has been expanding rapidly in recent months, in June buying a 25% stake in management company Redefine BDL for GBP8.1m. As previously reported in Hotel Analyst, the CEO said: “There is the potential for opportunities to deploy capital in attractive investments in the European market and the investment in Redefine BDL Hotels gives an ideal platform to achieve this.”

Tsogo Sun’s portfolio currently comprises over 90 hotels with more than 14,300 hotel rooms across all sectors of the market, from luxury to budget in South Africa, the rest of Africa and the Seychelles. The group described itself in its 2013 annual report as not following “the prevalent international trend of operating the business on an ‘asset light’ basis, and in South Africa, the portfolio philosophy remains to own all the components of the business”.

Although this portfolio philosophy was more capital intensive than the ‘asset light’ model, it said, “it allows substantially higher return on effort and in the long term retains control of the assets providing extended tenure and resilience through trading cycles”. The group said it would manage operations for third parties outside South Africa as a low risk option to enter new markets, “but in the longer term it would be preferable to own the operation and the property”.

The company has been bolstering its holdings in the casino sector, acquiring a 14% interest in both SunWest and Worcester, casino and hotel businesses in South Africa, for Rand2,185m (USD208m) from rival Sun International.

Interest in Africa as a location for expansion has been building in recent years, with the continent’s attractions best illustrated by Marriott International’s deal to acquire Protea Hotels for around USD200m. The transaction almost doubled the company’s rooms in Africa to about 23,000 and will help it expand further in the region.

As SAB Miller was getting out of African hotels, reports emerged that Accor was being evicted from Togo. According to Reuters, the company was told to leave the country immediately or face more than USD1.05m in daily fines. The order was thought to stem from issues around the renewal of Accor’s rental agreement for its beachside Sarakawa hotel in Lome, the Togolese capital.

“The decision took effect immediately and therefore Accor has no other choice to stop operations at the hotel,” the company said in a statement on Sunday, referring to an eviction order given on 11 July.

The exit comes as Togo’s ministry of economy and finance forecast GDP growth for the country of 6% this year, aided by its mineral deposits. Other operators are expected to move to fill the void left by the French company.


HA Perspective [by Chris Bown]: SAB’s exit is clearly driven by a need to get back to its core businesses, rather than any negative view on the South African hospitality market in general. The South African market saw overall spending growth of 14% in 2013, with room rates up 8.4%, report consultants PwC.

While the rate of revenue growth is set to drift gently lower over the next few years, it should still be at 10% in 2017, predict PwC. The economy is projected to see an average 3.6% GDP growth and domestic tourism growth will be boosted by overseas visitor numbers, helped by a softening rand, with the total expected to grow from 14.6m in 2013 to 17.6m in 2018.

Set against that demand, supply is forecast to grow just 1.3%, suggesting average occupancy will improve to 58.4% by 2018. It is five star hotels that are expected to enjoy the best growth, with PwC expecting occupancy for this segment to hit 83% in 2018, giving the segment the opportunity to sharpen prices. 

Meanwhile for Accor, the falling out in Togo is a minor glitch in its plans to expand in Africa; as was the loss of its Formule 1 presence in South Africa alongside Tsogo Sun, which its local partner opted to rebrand themselves last year. The group has more than 50 hotels across sub-Saharan Africa, with another 35 planned by 2020.

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