London (Reuters) – Rank Group has agreed to sell its Hard Rock cafe and casino business for USD 965 million (492 million pounds) to the native American Seminole Tribe of Florida, which already makes 90 percent of its revenues from gambling.
Rank said on Thursday the sale of the rock music-themed chain would leave the company as a pure gaming group, focussing on Britain’s plans to open up its casino market from next year.
But analysts said it had sold the division too cheaply after the price was hit by the weakening dollar, and Rank’s shares fell. Analysts also were unimpressed by the scale of Rank’s plan to return some of the sale proceeds to shareholders via a 65 pence-a-share special dividend.
Rank Chief Executive Ian Burke said, „Our strong portfolio of gaming assets will enable us to take advantage of the long-term growth in the gaming market.“
Rank has shed British household names such as Butlins holiday camps, Odeon cinemas and Pinewood film studios in a drive to get rid of its image as an old-fashioned conglomerate.
Seminole Gaming, the main revenue earner for the Florida tribe, plans to expand the hotel and cafe business through key gateway cities around the world and hopes to expand Hard Rock casinos internationally, but not in Britain.
„We realise the power and longevity of this brand,“ Seminole Gaming Chief Executive Jim Allen told Reuters. He said the company will not alter the Hard Rock name or logo to highlight its Seminole ownership.
Nearly 3,300 Seminole Indians live in Florida reservations, descendants of a few hundred that escaped U.S. government attempts to relocate them in the mid 1800s. Besides earning money from gambling, the Seminole Tribe also produces citrus fruit, cattle and tobacco.
The tribe, which pioneered Indian gaming in the U.S. by being the first to open a high-stakes bingo hall in 1979, already manages two Hard Rock casino-hotels in Florida. It beat 70 other bidders, Allen said at a press conference in New York.
Thursday’s deal includes 124 Hard Rock Cafes as well as hotels, casino hotels and two Hard Rock Live! concert venues. It also includes Hard Rock’s collection of rock memorabilia, which fronts its cafes — including a David Bowie Fender guitar and Madonna’s black lace bustier.
But Rank shares closed down 4.1 percent at 255-1/2 pence, valuing the group at around 1.4 billion pounds.
Allen said the Seminole tribe, which is exempt from paying taxes on transactions that occur on its reservations, set up a corporation that will pay tax like any other.
Morgan Stanley analyst Lou Pirenc said the sale proceeds of 460 million pounds were well below his estimate of 593 million and the deal was 8 percent dilutive to earnings per share.
„Rank will return 350 million pounds to shareholders, which is likely to disappoint the market, which had expected that all of the proceeds would be returned,“ he said.
A source close to the deal told Reuters the value of Hard Rock had been eroded in recent weeks by the weakening of the dollar.
„There were many dozens of groups interested from the U.S., from Europe and Asia, from the gaming sector and restaurateurs and robust interest from private equity,“ said the source.
Analysts at ABN AMRO said: „The bulls will argue that such disposals put Rank even further in play (as an) industry consolidation target.“
Merrill Lynch was lead adviser to Rank on the deal.
Rank said group revenues had grown slightly in the 48 weeks to November 26 but that Scotland’s smoking ban in March had cut bingo revenues there by 15 percent.
„We do expect a similar impact in England and Wales,“ Burke said of a smoking ban planned there from the middle of next year.
Rank also said it had appointed Peter Johnson, chairman of Inchcape, as its new chairman to succeed Alun Cathcart, who retires from the board at the end of February.