eBusiness Weekly
Zimbabwe Stock Exchange listed entities Dawn Properties Limited and African Sun Limited, are looking at going back to their original settings where the latter owned all the hotel properties that are now owned by the former.
The two companies used to be a single entity with African Sun, then known as Zimsun owning most of the hotel properties it operated from, including Elephant Hills Hotel in Victoria Falls, and Hwange Safari Lodge in Hwange National Park, Zimbabwe.
Apart from the hotels, Dawn Properties also owns Dawn Property Consultancy, which offers professional real estate services including property development.
The two companies were, however, demerged in 2004 with Dawn Properties separately listing on the ZSE.
The demerger saw the leisure group transferring its 10 hotel properties to the new company.
African Sun remained a tenant and would pay rentals to Dawn Properties on turnover basis.
The then chief executive officer Shingi Munyeza, said the transaction would enhance group value that had been embedded in the hotel buildings that are dotted in strategic resort areas around the country.
While African Sun became a brand management company concentrating on hotel management, Dawn Properties went on to expand its scope in property development.
But with the coronavirus pandemic threatening the viability of both landlord and tenant, the major shareholder might be looking at re-merging the two and cut down on costs.
The major shareholder in both entities is a Mauritian investment holding company, Arden Capital Limited (formerly Brainworks Limited).
It owns 57,67 percent in African Sun and 66,81 percent in Dawn Properties.
Other African Sun shareholders could also welcome the benefits of the merger as it gives them an opportunity to diversify their earnings through property developments that are conducted under Dawn Properties.
A merger of the two could combine their strengths and streamline their costs as well as pad weak points in their offerings.
The merger could see a significant reduction in operating costs, with the group probably requiring one board and executive team. ZSE listing obligations can also be reduced while some costs can now be shared.
In separate cautionary statements the two companies announced plans for African Sun to buy 100 percent of dawn properties in exchange for equity for Dawn Properties shareholders.
“Shareholders of Dawn Properties Limited (“the Company or Dawn”) and the investing public are advised that the Company received an Offer from African Sun Limited (“ASL”) whereby ASL seeks to acquire a 100 percent of the issued share capital of Dawn.
“The Directors are currently evaluating the Offer and will communicate their recommendation to shareholders in due course,” reads the Dawn Properties cautionary statement.
“Shareholders are advised that African Sun Limited (“African Sun”) is in discussions with Dawn Properties Limited (“Dawn”) for the acquisition of 100 percent of the issued share capital of Dawn in exchange for African Sun shares based on an agreed price.
“It is the intention to apply to the Zimbabwe Stock Exchange for a voluntary delisting of Dawn Properties in terms of Section 11 of the Zimbabwe Stock Exchange Listing Requirements if the acquisition is successfully approved by its shareholders.
“Shareholders will be provided with further details regarding the transaction in due course,” reads the African Sun cautionary statement.
Covid-19 has left weaker companies in distress but once the situation settles, it could unleash a wave of mergers and acquisitions as larger, well-capitalised players and private-equity groups use the opportunity to grab up companies left vulnerable by the crisis at bargain prices. However, any merger strategy demands a clear vision and strong conviction about how an acquisition will drive enterprise value.
Achieving the necessary level of clarity and conviction can be difficult in ordinary times. In today’s risky and uncertain landscape, achieving strong clarity and conviction is nothing short of exceptional.
The Covid-19 disruption and adverse shock to performance in the hotel sector in recent months is unprecedented.
The World Travel and Tourism Council (“WTTC”) estimates that the COVID-19 pandemic could adversely impact travel and tourism by up to 25 percent this year, an equivalent of three months tourism activity.
As of May 6, 2020, African Sun had 31 907 room nights cancelled, being quite substantial for the business.
The Group anticipates continued disruption to travel and tourism in the months ahead, and forward visibility on the timing and shape of improvements in demand remains very limited.
However, the Group said it is taking decisive action to protect the core of its business until the crisis passes and travel resumes.
This could include merging with Dawn Properties.
As the two negotiate operational considerations that are likely to come into play are whether there are operating efficiencies that can be achieved through the acquisition, including increased shared services/staffing, shared sales and marketing costs and procurement activities.
They are also likely to consider whether there are further operational efficiencies that can be achieved by the expanded scale combined with a disproportionate decrease in corporate level expenses through consolidation of the two corporate platforms.
Once the strategic considerations are calibrated and potential targets identified, there is also need to assess the strength of the trademark portfolio.
This assessment includes understanding the scope and strength of, and possible threats to, the existing trademarks, and whether the reach or potential reach of the trademark portfolio could materially limit growth expectations.
While the path ahead for the local hotel sector remains uncertain, it is worthwhile for the two to capitalise on this historic moment by executing this merger.
