A row is brewing over the sale of shares in Sun International worth R600-million to a black economic empowerment (BEE) consortium led by former North West premier Popo Molefe.
Three sources close to the deal, one of whom is from the government, said there were serious disputes within the North West Gambling Board about granting the transaction the necessary regulatory approval. Half the board did not agree to the deal.
They also claimed there had been attempts to stampede the board into approving the sale of the shares — which includes a generous R217-million discount — culminating in a decision by board chairperson Jay Pema to grant ”in-principle agreement” for the deal on behalf of the board this week.
It is alleged that no board approval for such a step was granted. Pema could not be reached for comment, despite numerous messages left on his cellphone.
Other board members contacted by the Mail & Guardian said they were not allowed to speak to the media.
The sources said that when the board was asked to consider the proposal on November 1, a decision was taken to appoint a subcommittee to investigate the BEE aspects of the deal.
However, before that subcommittee could report back to the board, Sun International issued a circular to shareholders detailing the proposal, though noting it was subject to the consent of the North West Gambling Board.
At a follow-up meeting with the board on November 26, Sun International chief executive-designate David Coutts-Trotter and Molefe allegedly demanded that the board take a view on whether the transaction was approved in principle, despite board members noting that no due diligence investigation had yet been done.
Sun International CE Peter Bacon told the M&G this week: ”In anticipation of the Sun International AGM, which was due to be held a few days later on November 29 2005, the board was requested to express an opinion as to whether the empowerment transaction would satisfy our casino licence condition, which requires such a transaction. The board then confirmed its in-principle approval, subject to probity considerations.”
Pema, allegedly acting without an appropriate mandate, however, formally conveyed that approval only on Tuesday this week.
At the centre of the dispute is the nature of the consortium put together by Molefe and his Lereko group, which includes former minister for tourism and environmental affairs Valli Moosa, and Molefe. The two each hold 31% of Lereko and are picking up the shares at a discount worth about R18-million to each of them.
Lereko has an effective 28% share in the deal to buy 7% of Sun International, worth about R608-million. Funding of the R390-million balance payable (after the R217-million discount) will be provided by bank loans.
Other shareholders in Lereko are Lulu Gwagwa, former chairperson of the Independent Development Trust; businessman Eric Molobi; Airports company boss Monhla Hlahla; presidential spokesperson Murphy Morobe; former presidential adviser Titus Mafolo; and former Strategic Fuel Fund chairperson Seth Phalatse.
Another small member of the consortium is Balapeng Investment Holdings, in which Molefe’s wife Kobote has a 30% stake. Other partners include Tsutsuma, led by businessman Bushy Maape, and Phodiso, owned by a grouping of about 60 black doctors. Sun International has also set aside a portion of the deal for a community development trust — and well as nearly half of the overall allocation for a scheme for black managers as well as a broad employee share trust.
Critics say the make-up of the consortium is contrary to the spirit of the terms of the sale of shares in Sun International originally held by the North West Development Corporation.
The shares were inherited from the old Bophuthatswana homeland, where Sun International first built its fortune. In 2003, the provincial government was required by gambling legislation to divest its shares. The shares were bought by Sun International, but a term of the sale was that Sun International (then called Kersaf Investments) would have to ensure an ”appropriate level” of empowerment, which had to include one or more ”approved entities”.
These were defined to mean previously disadvantaged individuals or groups that ”shall be resident or situated in the North West Province”.
Although the BEE consortium is at pains to highlight its North West credentials, board members reportedly pointed out that neither Molefe nor Valli Moosa live in the province.
Said one source close to the genesis of the original share sale: ”When the shares were originally sold, the intention was that the people of North West, where Sun International built its empire, should benefit broadly. When this current deal was done, there was no public advertising to call on local communities and groups to express an interest. Instead it emerges more as a deal driven by whom you know and how well you know them. It looks like the shares were simply warehoused until Molefe left office.”
Bacon told the M&G this was categorically not the case and defended the broad-based nature of the consortium.
”The empowerment transaction is, in fact, broad-based across many groups of North West beneficiaries. Lereko, the company in which Dr Molefe holds an interest, is only one of five North West-based participating entities, which collectively will hold a 51% interest in Dinokana, the company which is acquiring the 7% equity interest in Sun International.
”One of these participants will be the North West Development Trust, which will benefit, among others, the youth, the infirm and the disabled in the communities around Sun International’s operations in the North West Province.”
He said about 7 400 Sun International employees would participate in the equity acquisition through the Sun International Employee Share Trust. In addition, the Sun International Black Management Trust would be formed to participate in the equity take-up.
Bacon said there was no requirement to advertise for interested BEE participants. ”Various BEE groups made approaches of own accord. All these approaches were considered and those with the best-suited structures were included in the final consortium.”
Molefe dismissed criticism of the deal, saying categorically that: ”There is nothing unethical about this transaction.”
He denied there was any conflict of interest, saying he had never had anything to do with regulating gambling in the province during his tenure as premier and had interacted with Sun International as premier on the same basis he had interacted with many other businesses active in North West.
He said that after stepping down from politics he had approached Sun International this year about forming a consortium to take up the BEE stake: ”Sun International didn’t approach me, I approached them.”
Asked why Lereko had been chosen as ”lead partner” in the process, Molefe said it was understandable that business would want to use individuals recognised for their integrity and leadership track record. He said others involved in the proposed transaction had also supported his leadership in putting the deal together.