The Competition Commission has thrown cold water on Sun International’s R7.3bn bid to buy smaller rival Peermont and its flagship Emperors facility in Kempton Park, saying SA cannot afford to have more than 90% of the casino market in the hands of only two companies.
The matter will be settled by the Competition Tribunal, where Sun International and the commission will make their cases. Should the deal go ahead, the SA casino sector will be dominated by two JSE-listed companies, Sun International and Tsogo Sun, worth altogether R24bn.
The commission said in a statement on Sunday that the proposed tie-up, announced a year ago, would “substantially” lessen market competition, particularly in central Gauteng. “The merger significantly changes the structure of the national market by reducing the number of national casino operators from three to two.
“Post merger, 92% of the casinos operating in SA would be owned by only two firms, further increasing concentration in an already highly concentrated market. New entry into this market is unlikely due to the limited availability of casino licences. In central Gauteng, in particular, there are no unallocated casino licences. In addition, the merger will result in Sun International owning and operating a number of casinos located in prime locations, which will give [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 (now owned by Peermont) as an effective competitor to Sun International’s Time Square and Carnival City as well as Tsogo Sun’s Montecasino. This may result in Sun International being able to retain a greater proportion of bets staked by gamblers as a result of weakened competitive constraints, thus dampening competitive rivalry in central Gauteng.”
This is Sun International’s second bid for Peermont. In 2015, it offered R4bn, but the competition authorities wanted it to dispose of its Time Square casino in Pretoria or Peermont’s Emperors Palace to get the deal over the line. That condition resulted in Sun International walking away from the deal.
Sun International CEO Anthony Leeming said the company would put its case to the tribunal. “We are disappointed at [the commission’s] recommendation to prohibit the merger. While we wait for their detailed report we believe the concerns expressed to date are unfounded,” he said. “We believe there is still a good prospect of the tribunal taking a different view and approving the merger.”
The purchase offers the omnichannel gaming, travel and leisure group a rare chance to operate one of the biggest, most lucrative and best-quality casinos in a major city, as well as to purchase gaming and hospitality assets of considerable size and calibre. Peermont group’s physical properties include 3,349 slot machines, 152 gaming tables and 1,636 hotel rooms in SA and Botswana.
Gateway
Emperors Palace provided a gateway to affluent clients from overseas and the rest of Africa as it is near OR Tambo International Airport, said Peermont. By expanding the reach of Sun International’s established SunBet management team throughout the Peermont Group’s assets, the acquisition would improve the group’s online business platform. Sun International owns Sun City, Meropa Casino, Table Bay Hotel, the Wild Coast Sun and The Maslow Hotel.
The commission said it did not arrive at its recommendation lightly, having had 172 business days to investigate and decide after consulting all stakeholders. “The commission is also concerned that the merger is likely to result in the two remaining casino operators (Sun International and Tsogo Sun) in central Gauteng behaving co-operatively instead of competing with each other,” it said.
“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 ... Having considered the remedies tendered by the merging parties, the commission is of the view that the remedies do not adequately restore competition that would be lost due to the proposed merger.”
Sun International’s share price was R44.67 at close of trade on Friday or up 23% over the past six months.
With Kabelo Khumalo
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