Author: Magnus Grimond
Rank, the Butlin’s to Tom Cobleigh pubs leisure group, yesterday surprised the stock market by announcing the sale for up to pounds 1bn of its 20 per cent stake in the Rank Xerox copiers joint venture some six months ahead of expectations. The deal, first mooted last August, prompted speculation that Rank’s chief executive, Andrew Teare, will mount a big acquisition, despite plans announced yesterday to return pounds 250m to shareholders by means of a share buy-back later this year.
News of the deal prompted a 26p rise in Rank’s shares to 448.5p, but analysts remained concerned that the group may be tempted to splash out. One said: “Rank with pounds 1bn is a bit like a child with a loaded gun. The group has been under pressure to pay back money to shareholders for some time. A quarter of a billion [pounds] is the least they could get away with and that’s why the shares have gone up.”
He said the group’s pounds 113m acquisition of Tom Cobleigh last September had been done at what looked a very high price. The group might now go after Surrey Free Inns, or another small pub chain, but he “wouldn’t put it past them” to have a go at something bigger, like Scottish & Newcastle’s struggling Center Parcs leisure village operation. At pounds 800m to pounds 1bn it “would be a very big chunk and if wiser heads prevailed, they wouldn’t go ahead with it”, he cautioned.
Yesterday’s deal involves Xerox Corporation, the American joint venture partner, paying pounds 500m on completion later this month and two further instalments of pounds 220m over the next two years. A further pounds 60m may be payable in 2000, depending on profits. The sale of the stake, which is in the books at pounds 930m, is expected to have a neutral effect on earnings this year. Rank said the balance of the initial consideration not used for the buy-back would be used to reduce debt, which was also around pounds 930m at the end of last year, and “to invest in its leisure and entertainment businesses”.
Mr Teare, who has raised around pounds 1.3bn from asset sales since his appointment last April, said the group could now get out of “disposal mode”. He added: “A big piece of historic baggage has been dealt with.”
Although Rank was seeking add-on acquisitions, he sought to play down talk of anything bigger, saying strict internal targets for return on capital meant they would steer clear of big, expensive deals.
The final sale of the Rank Xerox stake values the joint venture on a broadly similar basis to an earlier pounds 620m deal in February 1995 when Rank reduced its effective interest from 33 per cent to the current 20 per cent.
Last year, Rank hived that off into a subsidiary to maximise the tax benefits of the disposal.
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