Competition for Piggs Peak

Gold Reef, Tsogo merger to create giant gaming group

HCI to own 41% of merged group, which will be the 36 largest company on the JSE.

JOHANNESBURG (Reuters) - South African leisure group Gold Reef Resorts proposed a $2.23 billion all-share merger with SABMiller's Tsogo Sun unit to create one of the biggest casino groups in Africa, the Middle East and Europe.

Gold Reef will acquire Tsogo's entire issued share capital with its own new shares.

The deal values Tsogo at 17.1 billion rand based on Gold Reef's closing price of 19.25 rand on January 29 -- the last day before the release of cautionary announcements.

Tsogo, which runs Montecasino and Suncoast Casino, is also 51-percent owned by investment group Hosken Consolidated Investments.

HCI will eventually own 41.1 percent of the merged group, while Gold Reef will own 19 percent and SABMiller will exchange its 49 percent stake for a 39.7 percent holding in the new entity which will remain listed on the Johannesburg bourse.

"The merger will create not only a premier gaming and hotels company in South Africa but a business of significant scale ranking amongst the largest listed gaming groups in the EMEA area," SABMiller said in a statement.

Shares in Gold Reef, which operates casinos such as Silverstar and Queens Casino, fell 4.54 percent to 19.76 rand, but HCI jumped 4.90 percent to 75.53 rand by 1126 GMT.

"On the whole it seems like a very good deal and we believe that Gold Reef shareholders are just buying Tsogo Sun at fair value," De Wet Schutte, an analyst at Avior Research said.

"Long term it is a strategic play in that the new entity will now have a much bigger exposure to Gauteng gaming market and more exposure to the Western Cape."

SABMiller, whose shares were up 1.12 percent to 207.90 rand, said it will benefit from the diversification of the enlarged company's earnings and market segments.

The enlarged entity is expected to be the 36th largest company on the JSE with a market capitalisation of 21 billion rand.