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Rank Group has launched a £250m ($392m) indicative bid for Gala Coral’s casino division. If successful, Rank would become the largest casino operator by number of venues in the UK.
Rank has 36 casinos, while Gala has 25. The company hopes to broaden the appeal of the Gala venues to under-35s and women, as it has been doing with its own casinos, according to a person close to the company.
“Rank is against the old idea of [a casino having] just gambling tables and a few slots – they are trying to bring casinos into the mainstream so people increasingly see it as a valid night out,” the person said. “[It’s] much more in the entertainment vein rather than the gambling vein.”
According to Rank about 5 per cent of British adults go to a casino, compared with 12 per cent in France and 28 per cent in the US.
Gala’s casino business generated earnings before interest, tax, depreciation and amortisation of £26.7m in the year to September 2011, on revenues of £134.4m. Rank, which has about £30m in net cash, would fund the deal with a mixture of cash and debt.
Paul Leyland, analyst at Investec, said £250m was at the upper end of a “sensible” range, and that the potential acquisition would make commercial sense.
“A deal should add a lot of value in our view,” he said. “Given it can be funded out of existing resources, its easy to see how it can be quickly earnings enhancing … there’s immediate synergies in management and … there’s investment potential.”
Rank’s Grosvenor casinos division, which plans to have 45 casinos by 2015, accounted for more than a third of group revenue in the first half of 2011 and two-thirds of the company’s £29.5m operating profit in the period. A deal would see Rank, 74 per cent owned by Malaysia-based Guoco, leapfrog Malaysian business rival Genting, which has 46 UK casinos.
Gala Coral, which has net debt of £2.1bn, has been seen as vulnerable to predators since it was taken over by its creditors in a restructuring deal in 2010. In its full-year results last September Gala reported a post-tax loss of £643.4m, mostly due to exceptional costs.
In November a ruling by Europe’s highest court found in favour of Rank’s claim that it overpaid bingo tax to the UK government by £253.4m going back to 1973. Shares in Rank closed up 4.1p at 131.1p.