Rank completes break-up with £430m sale of Deluxe Film arm

By Julia Kollewe
Thursday 29 December 2005 01:00

The leisure group Rank has finally severed its last link with its celluloid heritage after clinching the long-awaited £430m sale of its Deluxe Film arm to the billionaire financier Ron Perelman's MacAndrews & Forbes holding company.

The sale, announced in New York after the market closed on Friday, completes the break-up of the group started by chief executive Mike Smith in 1999, and spurred speculation about a looming bidding war for the bingo and casinos group. The remaining legacy of its Hollywood past had made Rank too diverse for some potential suitors.

A City analyst said: "It's pretty much open season on Rank. But I doubt they will be sold for anything like the current share price [of 314.5p.]" The company is thought to have been approached recently by the betting shop chain William Hill about a possible all-share merger, but the talks were called off. Apart from other rival gambling groups, private-equity firms such as CVC are tipped to come knocking on Rank's door.

Rank is also close to selling off its Deluxe Media business, which makes and distributes videos and DVDs, for its recently written-down book value of £23m. That means it is finally able to focus on its core leisure activities - Mecca bingo halls, Grosvenor casinos and Hard Rock cafes - after trying to offload the Deluxe businesses for more than a year. Rank opted for a sale rather than the initially favoured demerger of Deluxe because it felt that a spun-off unit would be too small to stand on its own.

The main hurdles that had to be overcome in the sale of the film services arm were the change of control clauses in its contracts with its customers, including the top Hollywood studios.

The Deluxe film unit is one of the world's biggest film replicators for the movie industry and attracted bid interest from 10 parties, spanning trade and financial buyers. The list was later whittled down to about three, with Mr Perelman emerging as the preferred bidder in December. The billionaire businessman, whose fourth wife is the Hollywood actress Ellen Barkin, has in the past snapped up businesses such as the Technicolor film empire and the cosmetics giant Revlon. He said: "Deluxe is a terrific business and a world-class brand." Deluxe's current management team, led by Cyril Drabinsky, will stay on to run its day-to-day operations.

Rank, founded by the devout Methodist J Arthur Rank, who believed in cinema as a way to spread the word, was for many years a leading UK film producer and cinema owner. It branched out into bingo, hotels and holiday camps in the 1980s and 1990s but has since sold off many of those businesses.

Rank said it would return some of the Deluxe Film sale proceeds to shareholders, but part of the money will go towards reducing the company's £24m pension fund deficit. The group will announce details alongside its annual results on 3 March. A spokesman said: "The quantum of earnings will be lower going forward, so it would be inappropriate to carry on with the same level of pension fund deficit."

Analysts were somewhat reserved in their judgement on the sale, whose price matched their expectations, noting that while it makes Rank a more focused leisure group, it will hit earnings and may threaten the dividend. Analysts at Investec said they would slash their 2006 forecast for pre-tax profit to £134m from £173m.

The deal is expected to complete early in the new year and still needs clearances from Canadian and Spanish anti-trust authorities, as well as the approval of Rank's shareholders.

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