Virgin accepts Rank as co-star

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The Independent Online
Virgin Group, a minority partner in the consortium tipped to win the MGM cinema chain, would welcome the involvement of Rank Organisation in its bid, with certain conditions.

Virgin, which is bidding with lead investor Reading Corporation of the US, is believed to be prepared to accept Rank as a joint minority shareholder provided there are no special distribution arrangements between Rank and the cinema chain, and as long as Virgin's stake is not substantially diluted.

MGM's 120 cinemas in the UK were put up for sale by owner Credit Lyonnais last year, and attracted several bids at the pounds 200m level. Rank bid in excess of pounds 200m but withdrew because of concerns that a deal would face scrutiny by the Monopolies and Mergers Commission.

Reading Corp, which is in exclusive talks likely to lead to a purchase of the cinemas by the end of the month, was approached by Rank last week. Having withdrawn its own offer, the British company - already owner of the largest chain of cinemas in the UK - is prepared to take a minority stake in the MGM houses, according to sources close to the sales talks.

Virgin is believed to be attracted by Rank's expertise in electronic point-of-sale technology for ticketing. It is also willing to see Rank help to finance the deal, which is likely to be highly leveraged and linked to MGM's cash flow performance over the coming years.

But Virgin is thought to be against seeing Rank take a leading role in the consortium, partly because of fears of Monopolies Commission intervention and partly in light of its long-stated opposition to concentration of ownership of cinemas.

Reading Corp, which is making its first foray into the UK market, may be open to a collaboration with Rank, one of Britain's oldest cinema exhibition companies. The US-based company, controlled by entrepreneur Jim Cotter, is one of America's largest privately controlled cinema exhibitors, and has recently launched a worldwide search, advised by merchant bank CS- First Boston, to expand overseas.

The MGM auction, which is being handled by SG Warburg, is scheduled to be completed by 30 June.

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