Grand Parade Investments (GPI), having been cold-shouldered by the market for years, is suddenly in play thanks to some chunky share purchases by casino giant Sun International and former international merchant banker Greg Bortz.
Hands are being dealt fast and furiously, and GPI shareholders, who have endured some rough patches in the past few years, will be the last to complain: the share price has surged about 25% in just a few weeks.
Says Bortz: “I am enthused by GPI’s future. For the first time in a long time there will be a clear pure play runway of visibility into the highest-quality gaming assets.”
This is what has been dealt … so far:
For the first time in a long time there will be a clear pure play runway of visibility into the highest-quality gaming assets
— Greg Bortz
In late September GPI told shareholders it had entered into a process that could result in the “potential sale of GPI and/or its underlying assets”. This was no big surprise, as GPI had, following the sale of its Burger King fast-food interests, told investors it planned to unlock value and return capital.
For instance, the group paid a special dividend of 88c a share and unbundled its stake in restaurant franchiser Spur Corp to shareholders — equivalent to about 37c a share.
But then a new jockey entered the race in late October. Bortz, who recently emerged as a backer for struggling horse-racing enterprise Kenilworth Racing, took an initial 27.88% stake in GPI via GMB Liquidity Corp.
Cape Town-based Bortz is no novice at deal-making. He founded Creo Capital Partners in the US, a private equity company that invests mainly in food and consumer-related industries, and is now a managing partner of Quiet Canyon Capital in the US. GMB is the South African arm of the Bortz family investment office.
Before the market could really fully digest developments, GMB’s stake in GPI was increased to 35.1%. This triggered a mandatory offer to GPI’s minority shareholders at 333c a share. GMB might speak for as much as 37% of GPI at this point.
Two days after confirmation of GMB’s mandatory offer, Sun disclosed it had taken a 10.56% stake in GPI. Then, earlier this week, Sun indicated it had bumped up that stake to about 21% after buying a chunk of shares from GPI’s largest shareholder, Value Capital Partners (VCP), for 350c a share. VCP, for the record, is also a major shareholder in Sun.
This won’t be the first time GPI shareholders have tussled for influence. Former executive chair and prime mover Hassen Adams steered GPI through two previous shareholder tilts — once in 2007, when a feisty Shaun Rai and the Cape Empowerment Trust took a disruptive position, and again in 2017, when a group of activist shareholders banded together to force structural and board changes.
Whether Hollywoodbets might find a home at GPI is another obvious question
The latest developments highlight the value of GPI’s remaining gaming assets. These comprise a 30% stake in limited-payout machine business Sun Slots, a 15.1% stake in SunWest — which operates the cash-spinning GrandWest casino in Cape Town — and a 15% stake in the Golden Valley casino in Worcester. All three gaming investments are controlled by Sun. GPI has been an empowerment partner for Sun since the late 1990s, even if the relationship was at times fractious.
Few would disagree that GrandWest and Sun Slots are Sun’s two best gaming assets, which makes GPI a more focused gaming play without the clutter of smaller and less profitable casino properties as well as the remaining leisure assets in Sun.
Sun, of course, would have been a natural buyer for all GPI’s gaming assets. As recently as 2019 it wanted to buy the outstanding 30% stake held by GPI in Sun Slots for R504m. Negotiations dragged on into the pandemic, then lapsed as Sun had to focus on its own debts amid a lengthy operational standstill.
Then it went quiet — until Bortz’s emergence as the largest shareholder in GPI. He has no doubt lit a bonfire under Sun. He has been reticent to comment on developments, but has indicated that GPI will remain a gaming investment company.
This is hugely intriguing, as Bortz has a penchant for horse racing and betting. Naturally, there has been talk in racing circles that Bortz could look to reverse Kenilworth Racing into GPI. Clearly that would be a development for the longer term, but it would bring an operational aspect to GPI as well as a diversity of gaming assets.
Even more interesting is that Bortz’s partner in Kenilworth Racing is well-known sports betting business Hollywoodbets, owned by racing industry doyen Owen Heffer. Whether Hollywoodbets might find a home at GPI is another obvious question.
Bortz is not wrong about the quality of GPI’s gaming investments. GrandWest, which has enjoyed an extended period of exclusivity in Cape Town, has been a perennial top performer among Sun’s casino properties. Sun Slots has also been a star performer for Sun, and was quickest out of the blocks in the race for profits when Covid restrictions were lifted.
According to Sun’s interim accounts to end-June, GrandWest was the second-best casino in the portfolio (behind Durban-based Sibaya) with revenue of R877m and earnings before interest, tax, depreciation and amortisation (ebitda) of R299m, earned at a margin of 38%. Sun Slots’s revenue of R717m turned into ebitda of R178m — which means Sun Slots is bigger than Sibaya on a revenue measure and more profitable than Sun’s Gauteng-based Carnival City casino.
So how will things play out at GPI?
Developments might remind punters of what transpired at Quantum Foods in 2020, when two rival bidders ended up with similar-sized stakes in the business. Management and strategic customer Astral Foods then stepped in by taking significant minority stakes to effectively end the impasse.
Though Bortz seems game at this point for giving GPI a new lease of life, pressure from Sun might eventually tell
Things might not be as clear-cut at GPI, though.
If Sun secures a stake of 25% in GPI, it will be in a position to frustrate Bortz by being able to block special resolutions.
Though Bortz seems game at this point for giving GPI a new lease of life, pressure from Sun might eventually tell. Sun could conceivably buy out Bortz’s stake, allowing an exit at an honourable premium.
Sun, on the other, might not want to stretch its balance sheet so soon after straining through lockdown and paying out an interim dividend of 88c a share. At last count Sun’s total debt was R6.6bn, with total liquidity available of R1.5bn.
Sun CEO Anthony Leeming is reluctant to be drawn on possible outcomes at GPI, and says the group will wait to see the outcome of GMB’s mandatory offer.
But he admits that Sun is buying assets it has long coveted. So far Sun has spent about R372m on GPI shares, which might worry some shareholders. But Leeming says the spending on GPI certainly won’t change Sun’s ability to pay dividends.
The most immediate question is what becomes of VCP’s remaining stake in GPI. According to GPI’s most recent annual report, VCP held 103-million shares — equivalent to a stake of about 21%. If Sun’s latest purchase of 36-million shares is subtracted, VCP still speaks for about 67-million GPI shares.
VCP could hedge its bets and hold onto its significant remaining stake, and perhaps play kingmaker in divining whether Sun or Bortz will be the best value enhancer at GPI.
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