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A Last Chance for Rank

It is nearly the end of the road for the once all-mighty Rank Group, which was considered one time as the United Kingdom's biggest leisure and gaming group. The City expects that within the span of nine months, the once powerful conglomerate will vanish with the sale of its bingo halls and its casinos and will be only remembered in history that once upon a time, they were at the top of their field.

The 121 Hard Rock Cafes scattered across the world that Rank owns are now up for grabs on the market. Although the restaurant may look as a brand from the past, 54 million people each year are still lured by its charm and it still has a strong international appeal. The Hard Rock Cafes sale is expected to fetch up a whopping 540 million pounds on revenues of 244.7 million pounds.

Ian Burke, who replaced Mike Smith as Rank's chief executive announced that the company's advisers were looking at options for Hard Rock, although just four weeks ago it is understood that a leading private equity approached the board with a substantial amount for the Cafes in an attempt to beat the bidding frenzy that is sure to follow with the pending announcement. It was rejected because of indecision on the part of the board.

Rank's initial hesitation it seems, is gone now. Having sold its copying business, Deluxe Film, Rank is selling off the Hard Rock Cafes, which is one of its three biggest remaining businesses. The remaining other two are its casinos and the Mecca bingo halls.

Though its bingo arm, Mecca, is going through a trying period because of more competitors and the smoking ban.

The new chief executive, according to company insiders, is trying to increase the gambling arm of Rank by bidding licenses for new casinos and acquiring new online sites but the lure of hard cash from a big private equity firms will be really hard to resists.

Rank under Mike Smith, tried to penetrate the highend for years by acquiring bookmakers. But it was edge out by Charterhouse Development Capital on the Coral Eurobet acquisition because Rank did not bid aggresively for it, partly due to Mike Smith's reluctance. Charterhouse bid 840 million pounds - 10 million pounds more than Rank'a bid. In the end, the result of that decisiveness and aggresiveness on the part of Charterhouse was that it was able to sell Coral Eurobet last year for 1.3 billion pounds, making a staggering 560 million pounds in profits alone.

The gambling industry in particular seems to be in midst of an acquisition phenomena. Like the planned merger between Stanley Leisure and London Clubs with their casino businesses. On the other hand PartyGaming, a controversial online gambling site, acquired a sport betting business. A rumoured target for a takeover, online site, but the rumour is just denied by officials of the group.

William Hill and Ladbrokes, two of Rank's rivals, would be the likely bidders for the remaining businesses of Rank although the private equities may edge them out with this one.

An official from a rival commented that the matter is not that simple like the issues with trading and costs. Rank is saying that the smoking ban has a huge effect on the bingo halls, particularly Mecca and the World Cup has reduced the number of visitors. Hard Rock and Deluxe did not fit into the scheme of things and now with the two out of the way, Rank is there for the taking.

Private Equities could not move in for the bid until Deluxe is sold because of a complicated pre-emption rights. But now that it is out of the way, Rank might as well be a part of history.

J. Arthur Rank, who is the founder of Rank, is a man beloved of practitioners of cockney rhyming slang diversified his family's hugely successful flour milling business such as pubs,films, cinemas, etc.

The firm has been listed for 11 years and over most of that time the share price of the company barely moved up. The one thing that has moved is its slew of assets like the Pinewood Studios and Odeon cinemas, Tom Cobleigh pubs, Nightscene clubs and Butlins camps who were all sold under Mike Smith. Some say that the move is badly timed, but with 1.5 billion pounds in debts, he had little choice on the matter.

Rank shares slumped by a third last year even with good market conditions and failed to improved despite a huge 200 million pound buyback. With all of these, is it Rank's swan song before the curtain falls?


Thursday, September 14, 2006
Danny Hudson

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