Rank may put Hard Rock cafes up for sale

Reuters, July 4, 2006

Rank may put Hard Rock cafes up for sale
Tue Jul 4, 2006 10:15 AM BST

By Dan Lalor

LONDON (Reuters) – Rank Group may sell its iconic Hard Rock business in what could mark the final break-up of a leisure conglomerate that once spanned Odeon cinemas, Pinewood film studios and Butlin’s holiday camps.

“Hard Rock continues to trade strongly and is entering a new phase of its development. Accordingly, we have decided to conduct a review of … strategic options,” Rank <rnk.l> said in a statement on Tuesday.

Analysts said a Rank reduced to just a gaming business spanning bingo halls and casinos could effectively be setting itself up to be taken over as investors prepare for a relaxation of Britain’s gaming laws.

At 9:45 a.m., Rank shares, which hit a 4-1/2 year low at 197.25 pence last Thursday, were up 2.1 percent at 202.5 pence to value the business at 1.18 billion pounds.

While Rank has shed British household names, it has still suffered criticism for being an old-fashioned conglomerate.

Now its Hard Rock music memorabilia restaurants may be up for sale after a first half in which like-for-like revenue grew 8 percent at company-operated cafes worldwide with total sales up 6 percent in the 26 weeks to June 25.

Rank owns about 70 Hard Rock cafes and around 50 are operated under franchise.

Hard Rock, which has branched into hotels and casinos, accounted for 30 percent of Rank’s 810 million pounds revenues in 2005, and made an operating profit before exceptional items of 34.8 million pounds, 28 percent of the group total.

UBS analyst Julian Easthope valued the operation at 10 times 2006 EBITDA, or about 500 million pounds, saying Hard Rock was “performing well … benefiting from the re-siting of the New York unit. Franchise income is also strong”.

HARD CASH

Investec Securities analysts Matthew Gerard said in a broker note: “To our mind, any disposal of Hard Rock, which could be worth 520 million pounds … is a sensible strategic shift, raising funds for investment in UK gaming ahead of the deregulation of the industry over the next two years.

“Most of the bad news may now be in the price. Our ‘Reduce’ recommendation is under review,” he said.

Rank shares have underperformed the travel and leisure sector by 38 percent over the past 12 months.

Rank also said in a statement that a smoking ban in public places in Scotland introduced on March 26 had lopped 14 percent off revenue from its 14 Scottish bingo halls since, with admissions down 6 percent and “spend-per-head” down 9 percent.

Previously, bingo players, 46 percent of whom are smokers, would spend the intervals playing other games. Now, with a smoking ban in place in Scotland, many are stepping outside for a cigarette.

Overall, first-half revenue at Mecca Bingo fell 1 percent amid a 2 percent fall in admissions.

Rank said while it had grown first-half revenue in Grosvenor Casinos by 8 percent helped by an 8 percent rise in admissions, the start of the World Cup and warm weather in Britain in recent weeks had hit attendance although spend-per-head had improved.

Last Friday, Rank said it was in talks with a number of parties over the sale of remaining assets in its Deluxe Media Services unit, as it completed the sale of the unit’s UK DVD replication and UK distribution businesses.

Merrill Lynch International is advising Rank on Hard Rock.