End of the road for Emperors Palace buyout

The group announced on Wednesday (2 July) that it and Peermont had mutually agreed to terminate the proposed transaction.

The termination comes after the Competition Commission recommended that the Competition Tribunal reject the deal in October 2024.

Despite the recommendation, the Tribunal has final say and could have approved the transaction.

However, the stipulated dates for the tribunal hearing and closing arguments were set for 2 October 2025, which is after the proposed transaction’s longstop date of 15 September 2025.

A longstop date is a clause that gives a specific deadline for conditions to be met. Parties can generally terminate their agreement if the transaction isn’t completed by the deadline.

Given the mismatch in dates and the commission’s recommendation, Sun International said both parties agreed to terminate the deal immediately, ending almost two years of dealing.

Sun International originally announced its intention to acquire all of the issued ordinary shares and any claims on loans account of Peermont in December 2023.

Peermont is a major hospitality and entertainment group whose flagship property is the Emperors Palace Resort near Johannesburg’s OR Tambo International Airport.

Sun International, which owns Sun City, said that the acquisition represented a significant value proposition that would give it access to large gaming and hospitality assets.

At the time of the announcement, Peermont carried an enterprise value of R7.3 billion, including debt and equity, less cash.

The final offer would have been less net debt, certain transaction costs and subject to capital expenditure and working capital adjustments.

These were estimated to amount to roughly R3.2 billion in September 2023. 

Sun International noted at the time that the deal would bring one of the largest cash-generating casinos in a central metropolitan area into its stable.

This, however, proved to be its undoing.

Why the deal was rejected

In its rationale for rejecting the proposed buyout, the Competition Commission said the deal was likely to substantially prevent or lessen competition casino and gamling services in South Africa and in central Gauteng in particular.

“The merger significantly changes the structure of the national market by reducing the number of national casino operators from three to two,” it noted.

Importantly, post-merger, 92% of the casinos operating in South Africa would be owned by only two firms, it said, further increasing concentration in an already highly concentrated market.

“New entry into this market is unlikely due to the limited availability of casino licenses. In central Gauteng in particular, there are no unallocated casino licenses,” the commission said.

The commission said that Sun International would also end up owning and operating a number of casinos located in prime locations, giving it a significant competitive advantage over its competitors.

“In central Gauteng, the merger will reduce the number of casino operators from three to two and will remove Emperors Palace as an effective competitor to Sun International’s Time Square and Carnival City as well as Tsogo Sun’s Montecasino,” it said.

It raised concern that this would result in Sun International being able to retain a greater portion of bets staked by gamblers as a result of weakened competition.

Another issue would be the possible outcome of seeing the two remaining competitors—Sun Internatonal and Tsogo Sun—behaving co-operatovely instead of competing with each other.

“For instance, the two remaining casino operators in central Gauteng can reduce the level of winnings and reduce promotions in the knowledge that there will be no competitive response,” it said.

While the commission considered various remedies put forward by Sun International and Peermonth, it remained unconvinced, recommending that the deal be prohibited.

Issued on BusinessTech by Luke Fraser | https://businesstech.co.za/news/business/830246/end-of-the-road-for-emperors-palace-buyout/