JSE-listed empowerment investment holding company Grand Parade Investments (GPI) is returning to its initial roots to focus only on its gaming investments.
This follows GPI completely exiting its food businesses after unbundling its interest in Spur Corporation, selling Burger King South Africa and its loss-making stainless steel catering and refrigeration equipment manufacturer Mac Brothers in voluntary liquidation.
Read: Authorities greenlight Burger King sale
The unbundling of Spur announced this week involves the distribution of GPI’s 8 447 731 Spur shares, valued at more than R170 million at the current Spur share price, to GPI shareholders.
Not a suprise to shareholders
GPI CEO Mohsin Tajbhai said on Wednesday the company did communicate to shareholders in 2019 that it was on a drive to unlock value through a controlled sale of assets and was going to exit its food businesses.
Tajbhai said GPI was a very successful gaming business initially and ventured into foods, where it had a fair share of challenges.
He said the unbundling of Spur marks its complete exit from foods.
“We are now back to our roots. Over that period, we have also reduced debt, reduced head office costs and are essentially back to where we were before.
“We have got access to two of the best performing casinos in the country, we have a very low head office cost, we have low debt levels, and whatever dividends we receive from gaming now will be passed on to shareholders and management is still committed to unlocking value and we will still investigate ways [to] unlock value,” he noted.
GPI is now left with its 15% interest in SunWest, 15% interest in Golden Valley Casino and 30% interest in Sun Slots.
SunWest operates Cape Town’s GrandWest Casino complex in Cape Town.
Tajbhai admitted GPI’s first option was to sell its Spur interest but a sale would’ve had to have been at a significant premium because Spur, in GPI’s view, is trading below fair value.
He said if GPI had sold its Spur interest at current share price levels, certain GPI shareholders would have questioned why it had done so and not waited and got more for it.
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“We wouldn’t want to sell at these levels and prejudice our shareholders. We were looking to try and sell at a significant premium. Unfortunately we weren’t able to close the deal.
“By unbundling we leave the decision with the shareholders on what they want to achieve. We are not here to time the market,” said Tajbhai.
Spur share discount
“The unbundling also achieves our goal of unlocking value because the Spur shares that were held through GPI are at a discount, in excess of 20%, so [with] the unbundling of those shares [they] are now valued at market value,” he added.
“We have unlocked the value, which is what we said we would do, and the shareholders can decide whether they want to hold it for a longer period of time to see whether there is Spur upside in the future.”
Tajbhai is bullish about the future of GPI’s gaming interests, adding that the gaming businesses have done incredibly well.
“SunWest has done incredibly well. It’s been very resilient to the pandemic and now, with the restrictions having been lifted, we are seeing people getting back to casinos and those businesses will definitely do really well in the future.”
Burger King South Africa, which operates more than 90 fast-food restaurants across the country, was sold for R493.9 million and Grand Foods Meat Plant Proprietary Limited for R20.2 million to Emerging Capital Partners (ECP), a US- founded international private equity fund.
Read: Grand Parade loses appetite for Burger King
The transaction was finalised in November last year after an initial hitch with the Competition Commission, which prohibited the sale on public interest grounds because the shareholding of historically disadvantaged persons would drop from nearly 70% to zero.
It was finalised after the parties and the commission agreed to a revised set of conditions.
The completion of the Burger King transaction reduced GPI’s debt by R102 million in its financial year to end-December 2021 and resulted in GPI declaring a dividend of 88 cents per share, its largest to date.
Tajbhai said that in line with GPI’s strategy to unlock value and return capital to shareholders, it paid shareholders an 88c per share dividend through the sale of Burger King, and through the unbundling of Spur is returning an equivalent of 37c per share to shareholders.
“That is R1.25 per share that we are returning to shareholders,” he said.
Read: It’s war, says Grand Parade chairman
Tajbhai added that GPI currently has sufficient cash reserves, has reduced its debt and head office costs, and is in a good cash position.
He said GPI’s future strategy for its gaming interests does “not really” involve increasing its gaming interests.
He also said that if there is an offer on the gaming assets, GPI’s board would investigate it to see whether it is value-accretive for shareholders or not.
Shares in GPI rose 0.76% on Wednesday to close at R2.65 per share. Spur Corporation shares closed unchanged at R20.61.