Rank directors in shock resignation

Ian Burke (pictured), chief executive of Rank since March 2006, and Paddy Gallagher, finance director of Rank since June 2008, have unexpectedly resigned from the board with immediate effect leaving the company more vulnerable than ever to a proposed takeover, a statement to the stock exchange announced this morning.

This follows weeks of wrangling and shareholder confusion over a proposed takeover of the UK gaming group by Hong Kong-based Guoco Group.

“Following the announcement by the board yesterday in relation to the offer for the group by Guoco Group, Ian and Paddy have expressed to the board their view that, given the feedback received from institutional shareholders since the announcement, coupled with the advice from the group’s brokers’ in light of this feedback as to the possible level of acceptances of the offer, it is now more than likely that the offer will result in a cancellation of the listing of Rank’s shares on the Official List and the admission to trading of Rank’s shares on the London Stock Exchange’s main market for listed securities,” the statement read.

It added the Rank board was “convening urgently” to discuss these latest developments with its advisers and that a further announcement would be “made shortly”.

James Hollins, analyst at Evolution Securities, said Burke and Gallagher had felt their positions had become “untenable” following what he called the “flip-flopping” of recent days which involved rejecting the Guoco bid, in his view the correct recommendation, accepting it, the “forced recommendation”, and taking yesterday’s “pragmatic but inconclusive recommendation” to shareholders dependent on their risk/reward appetite.

“We think [they] felt their positions had become untenable, notably given there remains the risk that more than 75% of shares may be in the control of Guoco come 1pm on Friday 1 July,” Hollins said.

“This is not guaranteed (the effective holding was 56.8% on 27 June), although, with limited visibility on the likely actions of major shareholders, Guoco could end up with more than a 75% holding and de-list the shares, leaving the minority shareholders with a stake in a private company.

“Today’s news is likely to strengthen the case for shareholders to accept the Guoco offer of 150p (c23% below our fair value of 185p) before Friday, with the group facing an uncertain future both on the ultimate size of the stake of the majority shareholder and the personnel at the helm of the group to lead its ongoing growth strategy.,” he added.

On 6 May Guoco announced its £586m bid for the land-based and online gaming group, conditional on gaining acceptance from shareholders representing more than 50% of the stock, when its acquisition of the 11.6% stake of Malaysian casino group Genting Berhard’s stake took its total shareholding in Rank to 40.8%. Later that month Rank’s board advised shareholders to reject the 150p per share offer, which it said “significantly undervalued the company and its prospects”, however at the beginning of this month Guoco received a higher-than-expected acceptance from shareholders for bid, triggering a mandatory cash offer for Rank. On 6 June All Global Investments Limited (AGIL), a subsidiary of the investment group, announced it had gained acceptances for the offer from shareholders representing 15.6% of Rank’s issued capital. In combination with its existing 40.8% shareholding, this took total acceptance of the offer to 56.4%.

Just two weeks later on 24 June Rank admitted defeat in fighting off the takeover advising shareholders to accept a final offer of 150p per share, despite the bid “substantially” undervaluing the UK business. The group had, upon advice from Goldman Sachs, changed its recommendation to accept the offer, which represented less than a 1% premium on the share price when lodged on 6 May, because it could not guarantee Guoco would not cancel the listing if shares in public hands fell below 25%. This was despite Guoco announcing “its intention to maintain the listing of Rank’s shares”. The offer from Guoco, controlled by Malaysian billionaire Quek Leng Chan, closes at 1pm London time on 1 July.

Then, just yesterday Rank’s independent directors again changed their recommendation to shareholders after Guoco last Friday failed in Rank’s eyes to provide an “unconditional commitment” that it would either maintain the listing or keep the 150p per share offer open to shareholders for 18 months in the event it cancelled the listing.

Rank’s independent directors yesterday advised shareholders who feel uncomfortable with the risk of holding stock in a private company to accept the offer, and for stockholders more comfortable with the risk to reject the offer as undervaluing Rank.