The Southern Sun hotel in Cape Town, South Africa, is owned and operated by Tsogo Sun. (Chris Hills/Flickr)
SABMiller Plc said Monday that it would sell its stake in South African hotel and gaming group Tsogo Sun Holdings Ltd. for $1.1 billion. The world’s second-largest beer brewer, which produces Grolsch, Peroni and Miller Lite beers, said that cash from the sale would benefit its beverage business development in Africa.
SABMiller turned to Hogan Lovells for legal representation on the deal while Tsogo Sun sought counsel from Magic Circle firm Linklaters and its South African alliance partner Webber Wentzel. Davis Polk & Wardwell provided legal counsel to SABMiller’s joint global coordinators and bookrunners.
As part of the sale of its 39.6 percent stake in Tsogo Sun, SABMiller said it would offload up to 305 million of its shares to South African and international institutional investors through a private placement while the other 130 million shares would be sold to Tsogo Sun in a buyback for about $260 million.
Tsogo Sun’s management began its roadshow on Monday, meeting with select institutional investors. The final number and price of shares will be decided after a book building process next week, the company said. The expected trade date of shares is July 21 and the settlement date is July 28. The deal is awaiting approval by Tsogo Sun’s shareholders.
SABMiller CEO Alan Clark said in a statement that “gaming and hotels are not core” to the company’s operations. “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 and to reinvest the proceeds in our core growth businesses, including our African operations,” he said.
SABMiller controls about 90 percent of the beer market in South Africa, and its South African subsidiary, SABSA Holdings Limited, makes up almost one-fifth of the company’s total earnings from beverage sales, according to the company’s annual report. South Africa is the second-biggest contributor to SABMiller’s product revenue behind Latin America.
The sale of its Tsogo Sun stake would give SABMiller more cash to maintain its market share in South Africa and seize business opportunities in other African countries, the company said. SABMiller has been aiming to expand its presence on the continent since last year but its efforts have been countered by surging inflation in South Africa, intense competition from Heineken NV and Diageo Plc (DGE) and the financial crisis in South Sudan and Zimbabwe, according to Bloomberg.
SABMiller has been considering selling its Tsogo Sun stake for months. Earlier in April, it announced a strategic review of its investment. The possibility of SABMiller selling the stake increased after Tsogo Sun merged with Gold Reef Resorts Ltd. in 2011, which reduced SABMiller’s stake from 49 percent to 39.6 percent.
Monday’s deal offers Hosken Consolidated Investments Ltd., which now owns about 41 percent of all shares, a chance to increase its stake to 47 percent and take outright control of Tsogo Sun.
Advising SABMiller on the deal is Hogan Lovells, with a team that includes equity capital markets partner Maegen Morrison, U.S. securities partner Peter Khol and corporate finance and M&A senior associate Fergus Gallagher.
The firm has had a long history of advising SABMiller, including on its $10.8 billion acquisition of Australian brewer Foster’s Group Limited, which completed in December 2011.
Tsogo Sun sought counsel from Linklaters and Webber Wentzel. Linklaters M&A partner Tom Shropshire led the U.S. law team while M&A partner Charlie Jacobs led the English law team.
Davis Polk provided legal counsel to SABMiller’s joint global coordinators and bookrunners on placing, with corporate partner Paul Kumleben and corporate associates Phillip Sharp and Bhupinder Grewal on the team. Kumleben has worked on SABMiller equity and debt deals since 1994.