RANK, the leisure operator behind Mecca Bingo and Hard Rock Cafe, will next week signal its intention to demerge its Deluxe film-processing unit and seek buyers for Deluxe’s media business.
The disposal of Deluxe, which is expected to value the whole Deluxe business at about £650 million, is tipped to be the first stage in a break-up of Rank, with analysts predicting keen interest in the remaining company from private equity firms.
Rank, which declined to comment, indicated in September that it intended to “separate” Deluxe, although it gave warning that the process could take several months to complete.
A broad outline of the break-up plan is expected to be given with Rank’s full-year results on Friday next week.
Rank’s brokers, Merrill Lynch and Deustche Bank, are expected to handle the share sale, which follows two previous failed attempts to offload the business.
Advertisement
One of the main issues that Rank has had to address before deciding on how to dispose of Deluxe has been the change-of-control clauses in its contracts with the major film studios. Rank has been engaged in detailed negotiations with the studios over the financial structure of the demerged Deluxe.
According to analysts, the flotation of the Deluxe film unit is expected to value the business at about £600 million. Nigel Parson, leisure and drinks analyst at Williams de Broë, predicted that the demerged Deluxe would carry up to £300 million of debt.
In order to make the flotation more appealing to investors, Rank is selling separately the less successful Deluxe Media arm, which makes and distributes videos and DVDs.
The sale, which is being handled by Goldman Sachs, is expected to raise at least £50 million. Canada’s Cinram, a rival manufacturer with customers including MGM and Warner Bros, is seen as a likely buyer.
The separation of Deluxe is just the latest in a long line of asset disposals since Mike Smith became chief executive of Rank, then an ailing leisure conglomerate, six years ago. During his tenure he has sold a number of mature businesses, including Odeon Cinemas, Pinewood Studios and Butlins, the holiday village operator.
Advertisement
Analysts believe that offloading Deluxe will spark interest from private equity firms in Rank’s remaining businesses, which include Hard Rock, Mecca Bingo, Grosvenor Casinos and Blue Square, an online bookmaker.
In a recent research note, Deutsche Bank, the group’s joint broker, said: “We expect a cash-generative Rank to be closely scrutinised by those more familiar with aggressively leveraged structures.”
Mr Smith has argued that a more focused Rank will itself be able to take advantage of acquisition opportunities. But observers believe that his failure three years ago to acquire Coral, the bookmaker, allied to the Government’s decision to scale back the scope of gambling deregulation, has put a strategic question mark over it.