Aiming for Higher Rank

Article excerpt

The 29p fall in shares of Rank Organisation to 374p on Thursday and Friday probably represents one of the best buying opportunities currently on offer among sizeable companies.

The price tumbled as stockbrokers frowned on Rank's sale of 40 per cent of its stake in the profitable Rank Xerox photocopier business for pounds 620m. That, said the bears, was nowhere near enough and overshadowed a buoyant set of annual results.

But the Xerox deal hastens the day when Rank will finally have to stand on its own two feet as a cash-generating leisure stock. And, with names like Odeon, Pinewood, Butlin's, Mecca and Hard Rock Cafe to conjure with, it could soon be a bid target.

The flame of corporate diversification has flared back into life with the news that Rank has turned its pounds 20m investment in Xerox into pounds 1.5bn, even though that is half a billion less than the most optimistic analysts were hoping for.

The windfall will strengthen the hands of directors as they strive to hold on to cherished diversification projects. However, their boardroom opponents will be quick to point out that the spectacular success of the Xerox gambit has hit the headlines onlybecause Rank is selling part of its stake. The remainder is likely to be cashed in, but perhaps not for a few years. Michael Gifford, Rank's chief executive, has never made any secret of his wish to cut the group's dependence on Xerox, which has long muddied the stock market's perception of Rank. His reason for not ditching the entire holding in one go was reported to be that he did not want too much cash on the balance sheet.

Nigel Hicks, the Rank watcher at stockbrokers Panmure Gordon, argued that one reason for Mr Gifford not wanting to be overflush with cash was that it would make Rank more attractive to a predator.

Mr Gifford countered that the complex scheme whereby Rank legitimately avoided paying capital gains tax on its mighty profit required that it did not sell its entire holding, which it has been whittling away at for more than 30 years. …