Rank Group said it's selling the 35-year-old business, which it has had on the block since July, to concentrate on U.K. gambling. Rank Group shares, however, slipped 4.6% on concerns Rank sold the asset too cheaply and that the businesses it's keeping are struggling.
Through its 124 cafes, six hotels, and two casinos, the rock memorabilia-themed chain posted $70 million in operating profit on $500 million in revenue last year.
Same-store sales at Hard Rock climbed 6% this year, with food and beverage sales up 7% and merchandise sales up 5%, Rank Group said.
The deal won't include the Hard Rock hotel and casino in Las Vegas, which in May was sold to boutique lodging operator Morgans Hotel Group Co., of New York, for $770 million in cash.
Merrill Lynch conducted the auction for Rank Group, and Goldman Sachs also advised Rank on the deal.
The Seminole Tribe already operates Hard Rock-brand hotels and casinos in Tampa and Hollywood, Fla., and in the past two years has become the dominant gambling force in Florida, according to a report in The Wall Street Journal.
The Seminoles have had contentious relations with Florida officials over the tribe's attempts to install full Las Vegas-style casino gambling at their casinos. The tribe also has been involved in litigation and has been a target of the Internal Revenue Service, which has stepped up its examination of tax-free bonds used by the Seminoles and tribes in California to build casinos, The Journal reported.
The tribe issued $415 million of tax-free bonds to build the Tampa and Hollywood casinos, which the IRS deemed illegal, according to the report. In October 2005, the tribe said it would issue $730 million in bonds to pay off the original tax-free bonds and consolidate debt, the Journal reported.
Cash return plan disappoints
Rank Group, meanwhile, said it would return 350 million pounds of the estimated 490 million pounds in proceeds in investors through a special cash dividend of 65 pence a share.
Analysts had been expecting Rank to get more money for Hard Rock and were disappointed in what the company is giving back to shareholders.
"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 to shareholders," said Lou Pirenc, an analyst at Morgan Stanley, in a note to clients.
The company's focus will turn to operating 113 bingo clubs in the U.K., 11 bingo clubs in Spain, 35 casinos in the U.K. and Belgium, and its Blue Square online and telephone betting operations.
"We have established clear plans to capitalize on the changes taking place in U.K. gaming in order to generate sustained growth in profits and improvements in our return on capital employed," Chief Executive Ian Burke said in a statement.
In the 48 weeks to Nov. 24, Mecca Bingo revenue slipped 1%, hurt by a smoking ban in Scotland, while Grosvenor Casinos' revenue has climbed 6% during that period.
Revenue growth for the casino operations slowed in the second half of the year, to 4% from 9%, on increased competition as a result of British deregulation.
"While the underlying performance of Grosvenor Casinos remains strong, a number of our casinos have been impacted by an increase in competition. Despite growth in consumer demand, the potential for oversupply of casinos in certain local marketplaces remains a concern," the company said.Learn More: News
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