TO MANY South Africans, associating the Kerzner name with high taste seems a contradiction in terms. But such are the twists of fate in business that the people who brought you the dazzle of Sun City are about to bring you “eminent havens of elegance”.
In fact, the re-entry of the Kerzner name into SA is filled with all sorts of ironies.
The family company, Kerzner International, and Sun International SA, the hotel group that owns many hotels Sol Kerzner conceived, have been at each other’s throats in the recent past.
The arguments escalated into a bitter court battle over the terms of a restraint of trade agreement, which was recently settled out of court.
It seems that a surprising understanding has emerged between the groups, perhaps founded on the realisation that their SA business will not compete head to head, but may even be complementary.
The re-emergence of Kerzner group is a surprise in itself. A few years ago, newspapers were writing about the spectacular problems the group was facing following its aggressive US acquisition strategy.
At one point, Kerzner appeared to be replicating his SA successes in the US, the biggest and most competitive gambling market in the world, with investments in the Bahamas, Las Vegas, Atlantic City and Connecticut. This last investment was thanks to US gaming laws, which have a special dispensation for native Americans and the discovery that the Mohican tribe was more enduring than the book The Last of the Mohicans suggested.
A special dispensation was also a key reason for the success of the Bahamanian venture on Paradise Island, where the company has the distinct advantage that it is not required to pay tax.
When Kerzner bought the hotel in the mid-90s, it was bankrupt. As the hotel is by far the largest employer on the island, Kerzner was in a strong position to negotiate a good deal with the government, which he did with customary efficacy.
This hotel has turned out to be the trump in his hand. After doubling the capacity of the hotel to more than 2000 rooms, adding the kind of glitz many with which South Africans would be familiar, the hotel has started kicking out real money. It includes, for example, a water slide through a shark pool in a plastic tunnel.
The success of this hotel was a happy turn of events as the company’s other businesses were not wildly successful.
Kerzner was forced into a tactical retreat, selling first the famous Desert Inn hotel in Las Vegas and then the Atlantic City interests.
This was all accompanied by the kind of building frenzy that Kerzner appears to relish, with not only huge developments at Paradise Island, but also the rebuilding from scratch of Le Saint Geran in Mauritius.
Analysts now credit Kerzner International with having a unique investment in the Paradise Island hotel, which is huge and about to be expanded further. But they also criticise the group for being somewhat dependent on this investment with between 80% and 90% of revenue coming from the location.
This realisation appears to have resonated, and led to a focus on expanding into the highest end of the tourism market. The expansion will take place under the One & Only brand and under the management of Sol’s son Butch.
The company starts with an advantage in that it has already got a selection of high-end hotels in Mauritius, Dubai and notably a section of Paradise Island called Ocean Club. In total 11 properties are up and running or planned, including hotels in the Maldives and Mexico.
The Ocean Club development was developed at nearly $1m per room. “They though we were crazy,” says Butch Kerzner. Making money out of such an investment is a neat trick. But it appears to have worked and the company has gained a toehold in a growing new market.
“We have one-to-one relationships with many of our customers in this bracket,” says Butch Kerzner.
Tim Cohen, Business Day (Johannesburg)
