Rank opts for trade sale of Deluxe film business as profits take a hit

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The Independent Online

The group, which has been trying to sever its last link with its celluloid heritage for the past 12 months, felt a demerged Deluxe would be too small to stand on its own. It had initially favoured spinning off Deluxe because that posed less risk to its existing contracts with the big film studios.

The news of the delay came as Rank issued a lacklustre set of half-year numbers that showed a drop in gaming profits on the back of weak sports margins at its online-betting site Blue Square. Its pre-tax profits slipped slightly to £71m from £72.4m on sales up 15 per cent to £870.5m.

The devastation wrought by Hurricane Katrina took the gloss off a better half for its Hard Rock arm, which reported a 40 per cent jump in operating profits. The hurricane destroyed a new Hard Rock Casino, which Rank's franchise partner had been due to open this week in Biloxi, Mississippi. Rank had invested $10m (£5.5m) in the $200m project. Its New Orleans Hard Rock Café, which it owns outright, was also badly damaged. In July, Rank was forced to shut its Hard Rock Café in Piccadilly, London because of a fire. "We're waiting for the locusts, frankly," Mike Smith, the chief executive, quipped.

Analysts estimated Deluxe Film was worth up to £550m. Given that the sale will hit earnings, putting pressure on the group to cut its dividend, they said the cash was likely to be returned to shareholders. But with the complications surrounding the deal, analysts warned there was a high likelihood of Rank pulling the process.

Mr Smith left himself room to rein back from the sale, saying: "It's not a cul-de-sac. Deluxe Film is still an important part of the group." He hopes investors will re-rate Rank's stock if it is focused on gaming given the forthcoming relaxation of Britain's rigid gambling laws.

The main hurdles to a sale are the change of control clauses in Deluxe Film's contracts with most of its customers. It is thought there are 10 interested bidders, spanning trade and financial buyers.

"A sale is likely to end up with film being part of a strategic grouping of similarly minded businesses," Mr Smith said. Deluxe Film reported a 5 per cent rise in operating profits to £29m. "Nothing has changed in the last seven months to make it a more difficult process," he added, but he declined to set a deadline for completing the sale.

Rank said it expects to complete the £50m sale of its Deluxe Media business, which helps the entertainment industry supply the market with content, by the end of the year.

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