Bottles of Castle Lite beer sit on the production line after labeling at the company's Alrode depot in Johannesburg, South Africa, on Thursday, Oct. 14, 2010. SABMiller Plc , the world's second-biggest brewer, has made no approach to buy Groupe Castel's African beer business, according to the unit's chief financial officer. Photographer: Nadine Hutton/Bloomberg

Johannesburg - SABMiller was reviewing its 39.6 percent stake worth R10.9 billion in hotel and casino operator Tsogo Sun as it was the only non-beverage business in its portfolio, the world’s second-biggest brewer said yesterday.

The company said: “This investment is not considered to be core to the beverage operations of SABMiller and therefore we are reviewing our strategic options for the shareholding.”

It said there could be no certainty that the review would result in SABMiller taking any action. Richard Farnsworth from the SABMiller media team in London said there was not a lot that the company could say at this stage about the Tsogo Sun announcement. “It’s our only non-core asset in SABMiller, I guess the time was right.”

He said SABMiller would make a further announcement on its decision regarding the future of its two directors who sat on Tsogo Sun’s board.

The group, which owns brands such as Peroni, Castle Lite and Black Label, also released a trading update for the past year to March, which indicated that its South African operations were facing a challenging trading environment.

The group’s net producer revenue for the full year grew by 3 percent and group net producer revenue per hectolitre increased by 2 percent. Total beverage volumes increased by 2 percent, it said.

Jean Pierre Verster, an analyst at 36One Asset Management, said it was not a surprise that SABMiller was reviewing its 39.6 percent stake at Tsogo Sun as it had always been a non-core business.

Verster said SABMiller was left with limited options if it planned to sell its stake.

With Hosken Consolidated Investments (HCI) already owning about 41 percent of Tsogo Sun, it would be difficult for SABMiller to sell its stake to anyone else.

“SABMiller will find it difficult to sell their stake to one buyer because a buyer will be reluctant to buy a minority stake with another shareholder already owning 41 percent of the shares, meaning HCI has a blocking stake for any special resolutions,” he explained.

In addition, a single buyer of a stake larger than 35 percent would have to make an offer to minorities for the rest of the business, according to JSE rules.

Verster believed SABMiller would not be able to sell its stake to anyone other than HCI, unless it managed to do an institutional placement of the shares with a group of asset management companies, which would attract a steep discount.

He pointed out that another option was for SABMiller to unbundle the stake to SABMiller shareholders.

However, this option would be a lower probability as the stake only represented about 1 percent of SABMiller’s market capitalisation and the brewer was an international company with shareholders around the world, who might not want the Tsogo Sun shares.

“The only option that could be left is for SABMiller to sell their stake to HCI. HCI does not have sufficient financing to buy the whole stake right now, but the proceeds of the Seardel rights issue, which will flow to HCI in the form of a loan repayment, will assist in this regard.”

Verster said should HCI buy this stake, it might want to unbundle a portion of the Tsogo Sun stake, because “they may not want 80 percent but possibly would prefer 51 percent in order to balance the size of their investment in Tsogo Sun relative to the rest of their portfolio.”

On the issue of a possible 400 job cuts at its soft-drinks subsidiary, ABI, the group said this had been part of a long-term plan to improve the business’s performance. It had already started fruitful talks with the Food and Allied Workers Union.

The shares fell 2.21 percent to R537.77 on the JSE yesterday. - Business Report