February 29, 2008 / 8:17 AM / 10 years ago

Rank pension deal fuels takeover talk

LONDON (Reuters) - Rank Group (RNK.L) unveiled plans for Britain’s biggest pension transfer deal on Friday paving the way for a potential takeover of the troubled bingo, casino and online gambling firm.

Cards and chips showing Rank's Blue Square Poker logo are seen in an undated handout photo. Gambling firm Rank said on Friday its hard hit bingo halls and casino were showing some signs of recovery, adding that it had transferred its pension plans to Goldman Sachs. REUTERS/www.newscast.co.uk

“This means that Rank gets the risk off its books... We view this as good news as it could be seen as removing a barrier to takeover,” said Merrill Lynch analysts.

The transfer of its 700 million pound pension scheme to Goldman Sachs (GS.N) will earn it least 20 million pounds, save it more than 30 million pounds in contributions and clears the way for a sell-off or splitting of the firm, according to analysts.

“A break-up now seems inevitable and the transfer of the pension is a start,” said analysts at Jefferies.

Rank has had a torrid time over the last year. Its bingo clubs have been hammered by a ban on smoking and the forced removal of nearly 1,000 lucrative slot machines, while its casinos have been hit by a surprise hike in tax.

The firm’s share price slumped more than 20 percent after a profit warning in October and in December it scrapped its final dividend and shelved 30 million pounds of projects as its woes continued.

Takeover speculation has been sparked by Asian gaming giants Genting (GENT.KL) and Guoco (0053.HK) and the Richardson property and haulage family, building big stakes in the firm over the past few months.

TOUGH YEAR

The Mecca bingo, Grosvenor casino and Blue Square firm reported profits slightly above recently slashed forecasts.

It said underlying full-year profit before tax reached 46.2 million pounds, higher than the 37.6-44.3 million forecast by 16 analysts polled by Reuters.

Bingo profits dropped 31 percent to 43.6 million and casino profits fell 17.6 percent to 29.9 million, a sharper decline than some analysts had predicted.

Rank said its bingo business had seen a modest improvement since December when it last reported, while there was no sign of things getting better at its casinos.

In the first eight weeks of the year, bingo like-for-like revenue fell 13.5 percent and casino revenue dropped 13.4 percent, while its fast-growing online business Blue Square saw like-for-like sales rise 14.9 percent.

    “We expect 2008 to be a challenging year for Rank,” said Chief Executive Ian Burke. “Our priority is to overcome the near term issues facing our businesses.”

    Hopes that Rank was over the worst and could now be in better shape to attract buyers sent its shares up a much as 6 percent, recovering some of the 10 percent it lost on Thursday. By 10:43 a.m. the stock rose 1.4 percent to 92-1/4 pence.

    Despite recent analyst concerns Rank said it expected to stay within borrowing terms with its banks.

    “Based on what we are seeing at the moment we are comfortable,” said Burke.

    The transfer of its pension scheme to Goldman Sachs’ Rothesay Life unit will also ease the pressure.

    It is the first deal by Goldman Sachs’ pensions buy-out team, which joined the increasingly crowded buy-out sector in 2006.

    CASINO ODDS

    Despite its recent woes, Burke said Rank would still bid for a handful of the 16 new generation casinos that got the green light from the government earlier this week.

    “We are interested in a small number... small in the context of 16 could be under 5, yes”

    He said the odds of all 16 being built were low however.

    “We don’t think many of them will be built because with the government’s increase in the casino tax last year a number of those potential locations are marginal.”

    Having lobbied the government intensely over the last couple of years the bingo industry is desperately hoping the treasury will change tax rules which currently hit bingo clubs twice.

    “It’s a government decision but we are hopeful,” said Burke.

    Reporting by Marc Jones; Editing by Louise Ireland

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