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Rank in talks with Gala Coral

Rank confirms it is in talks to acquire Gala’s casino arm

Shares in Rank climbed after the bingo and casino group confirmed it is in discussions with Gala Coral over the possible acquisition of Gala’s casino business. Rank shares rose 3p, or 2.4%, to 129.8p this morning.

From casino banking to casinos? One of Gala’s senior executives is Andy Hornby, the former HBOS boss who steered the bank through its bailout during the financial crisis. He then became the boss of Alliance Boots but left last March because he was too stressed. In July, he joined Gala and took on the task of reviving its bookmaking arm.

The Sunday Times reported that Rank is in advanced discussions to acquire Gala Casinos for £250m. Analysts welcomed the move.

Vaughan Lewis and Jamie Rollo at Morgan Stanley said:

We estimate that the deal would enhance EPS by around 33%, and move casinos from c.50% of group profit to c.60% of group profit, improving the overall profit mix, we think. While we would expect that there could be some competition issues with such a deal, and it may take time to deliver synergies, we think such a deal makes sense financially and strategically.

Simon French and Lindsey Kerrigan at Panmure Gordon said:

This would be an excellent strategic move in our view, transforming the group into the UK’s largest casino group and not overly expensive on an implied historic enterprise value/EBITDA multiple of 9.4 times (prior UK casino transaction multiples range from 11.2-19.8 times). Assuming a £200m debt raise (the group had £55m of net cash at end December) then, pre-synergies, the transaction would enhance 2012 estimated earnings per share by 8.5% on a pro-forma basis, we estimate. With no other obvious buyer for these assets we would be surprised if the transaction did not happen and reiterate our Buy recommendation and 190p target price.

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