Rank Groupby Assif Shameen
05 July 2011
LD MOVIE FANS might remember the famous Gongman. Like the roaring lion that has long heralded the start of MGM's movies, a muscled man strikes a huge gong for films produced by British entertainment group Rank Organisation.
The 15-second cameo was no mean feat. Famous wrestlers and boxers once queued up to play the part of the anonymous gongman. One long-running gongman was reportedly the late legendary British heavyweight boxer Bombardier Billy Wells.
Like so many other Western icons that have been acquired by Asian companies over the years, Rank's famous Gongman recently week became part of a Malaysian-owned, Hong Kong based company.
Guoco Group, the Hong Kong listed flagship of Quek Leng Chan, on June 28 won control of Rank Group plc, the successor of Rank Organisation, when the listed British company's board suddenly threw in the towel and recommended that its shareholders accept Guoco's controversial takeover offer.
CEO Ian Burke and finance director Paddy Gallagher then suddenly turned in their resignations, claiming the firm was on the verge of delisting.
Corporate Britain was understandably aghast as the cave-in came after the two men had steadfastly held out for weeks, talking down the offer. British politicians and commentators have called for amendments to the country's takeover code to avoid minority shareholders being forced into a corner and short-changed.
Singaporeans remember Guoco Group as the company that sold its 72% stake in Hong Kong's Dao Heng Bank to DBS Group for $8 billion as part of a transaction that cost Singapore's biggest bank more than $10 billion in 2001. At 3.3 times price to- book, it is still one of the most expensive banking transactions in Asia. Guoco has used part of that huge bounty to buy stakes in other companies around the world and indeed paid some of it back to its shareholders as dividend.
For two years now, Guoco has been in the news as it has stalked mid-sized Hong Kong-based Bank of East Asia (BEA), which is controlled by the family of David Li, probably Hong Kong's best-known banker. Eighteen months ago, Guoco set tongues wagging when it increased its stake in BEA from 5% to 8%.
Li, a well-connected member of Hong Kong's elite, mustered just enough support to ward off an open challenge from Guoco, which has since gradually lifted its stake to 11%, compared with the Li family's direct stake of around 16%. As part of the move to shore up defences for the controlling Li family, BEA last year carried out a dilutive placement to shareholders allied to the CEO David Li.
Founded by J Arthur Rank, a British industrialist, Rank Organisation grew to become one of the largest entertainment groups outside the US. In the Gongman's heyday, Rank Organisation was one of the largest owners of cinema chains in the world. It also owned Pinewood Studios, the last of the big British movie studios, where many of the James Bond movies were filmed.
In the mid-1990s, Rank Group acquired the businesses of Rank Organisation and began disposing of its entertainment businesses to refocus as a leisure firm running its casinos and gaming operations. Among the leisure businesses it bought was Hard Rock, which operates cafes and casinos.
The Odeon cinema chain and Pinewood Studios were sold about nine years ago. By 2005, it had disposed of all its film and entertainment businesses. Also sold was the Hard Rock business.
Following its divestments over the years, Rank Group has morphed into a focused gaming company. It owns a chain of 30 casinos in the UK as well as two in Belgium, a bunch of bingo parlours across the UK under its Mecca Bingo subsidiary, and Blue Square, a growing bookmaking and Internet gaming business. It is the second-largest casino operator in the UK and the second-largest bingo-parlour operator.
Last year, it reported a net profit of £38 million ($75 million) on revenues of £545 million. Credit Suisse's London-based gaming analyst Matthew Gerard forecasts a net profit of £43 million on revenues of £571 million for this year and a net profit of £50 million on revenues of £605 million next year.
The Swiss investment bank estimates casinos now generate 45% of Rank Group's overall profits; bingo parlours, about 38%; with the bookmaking and online gaming businesses accounting for the rest.
Quek's Guoco has been stalking Rank Group for a while now. By early this year, it had amassed a 29.3% stake in the firm, or just under the mandatory trigger point. The secondbiggest shareholder of Rank Group was also another Malaysian group' casino operator Genting Bhd.
In early May, Genting sold its 11.6% stake in Rank Group to Guoco, whose stake rose to just over 40.9%, triggering a mandatory offer. On May 9, Guoco offered to buy out the 59% of Rank Group it did not own for 150 pence a share, a mere 0.9% premium over the company's then stock price.
The reaction from Rank Group's board was immediate. It asked minority shareholders to reject the lowball offer. Guoco's offer significantly undervalues Rank and its prospects, the board said in a statement. At the time, analysts said Guoco had deliberately avoided paying a premium for Rank Group's shares because it didnt want to increase its holdings and wanted to retain a London Stock Exchange listing for the firm.
After Guoco made its offer, stocks in London took a hammering in the aftermath of the Greek debt crisis. By June 27, 15% of minority shareholders had tendered their shares to Guoco, raising its stake to 56.9%. Then came the board's cave-in. Minority shareholders say the moves virtually forced them to accept a lowball bid for Rank Group to avoid ending up with worthless shares in a delisted entity.
Just two months ago, analysts were busy re-rating the company as a focused casino and bingo play and putting 12-month price targets that were 20% to 55% higher than the price that Guoco walked away with.
Rank's delisting is now all but certain. Yet, long after the sound of the huge gong has died down, the deal will continue to resonate. Minority shareholders need more protection in deals such as Rank's.
Source: The Edge Singapore
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