Rank is worth substantially more than 150p per share ... - Rank Group
Rank is worth substantially more than 150p per share ... - Rank Group
Rank is worth substantially more than 150p per share ... - Rank Group
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the rank group plc<br />
<strong>Rank</strong> <strong>is</strong> <strong>worth</strong><br />
<strong>substantially</strong> <strong>more</strong><br />
<strong>than</strong> <strong>150p</strong> <strong>per</strong> <strong>share</strong><br />
Do not accept the Offer<br />
Entertaining<br />
people<br />
Entertaining<br />
for future<br />
value
Entertaining people since 1937<br />
Entertaining People<br />
Entertaining H<strong>is</strong>tory<br />
• The <strong>Rank</strong> Organ<strong>is</strong>ation was establ<strong>is</strong>hed in 1937 by<br />
J Arthur <strong>Rank</strong> in Britain’s motion pictures industry<br />
• Throughout our h<strong>is</strong>tory we have been involved in a<br />
wide variety of le<strong>is</strong>ure retail and manufacturing activities<br />
• The desire to entertain <strong>is</strong> felt as keenly today in our<br />
Mecca Bingo, Grosvenor Casinos, Top <strong>Rank</strong> España and<br />
Blue Square brands as it was 74 years ago<br />
Entertaining Games<br />
• <strong>Rank</strong> moved into the gaming industry in 1961, when<br />
a number of its Odeon cinemas started providing games<br />
of bingo between screenings<br />
• <strong>Rank</strong> moved into the casinos sector in 1990 and in<br />
2003 the Company entered the growing remote gaming<br />
and betting sector via the acqu<strong>is</strong>ition of Blue Square<br />
• Following the sale of the Hard Rock brand in 2007,<br />
<strong>Rank</strong> emerged as a focused gaming-based entertainment<br />
business<br />
Entertaining Brands<br />
• During its h<strong>is</strong>tory, <strong>Rank</strong> has presided over some of the<br />
world’s best known entertainment brands<br />
• The <strong>Group</strong>’s ‘gong-man’ logo remains among the most<br />
evocative images of entertainment in Great Britain<br />
• The development of loved and trusted brands remains<br />
central to <strong>Rank</strong>’s approach to entertaining its customers<br />
Entertaining People<br />
• The roll-call of those who have brought joy to our lives<br />
under the <strong>Rank</strong> name includes film directors Sir David<br />
Lean, Michael Powell and Sir Alfred Hitchcock; and<br />
actors and movie stars, Sir Laurence Olivier, Sir Michael<br />
Caine and Kenneth Williams<br />
• The Beatles and Bob Dylan were amongst the art<strong>is</strong>ts<br />
who <strong>per</strong>formed at <strong>Rank</strong> venues in the 1960s<br />
• We remain proud of our heritage and true to our<br />
founding spirit of entertainment<br />
Entertaining for Future Value<br />
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION<br />
If you are in any doubt about the contents of th<strong>is</strong> document or the action you should take, you should seek your own financial advice immediately from your stockbroker, bank<br />
manager, solicitor, accountant or other independent financial adv<strong>is</strong>er author<strong>is</strong>ed under the Financial Services and Markets Act 2000 if you are in the United Kingdom or, if you are<br />
outside the United Kingdom, from an appropriately author<strong>is</strong>ed independent financial adv<strong>is</strong>er.<br />
If you have sold or otherw<strong>is</strong>e transferred all of your <strong>share</strong>s in <strong>Rank</strong>, please send th<strong>is</strong> document as soon as possible to the purchaser or transferee, or to the stockbroker, bank or other<br />
agent through whom the sale or transfer was effected.<br />
Th<strong>is</strong> document <strong>is</strong> not for release, publication or d<strong>is</strong>tribution in, into or from any jur<strong>is</strong>diction where such release, publication or d<strong>is</strong>tribution would constitute a violation of the<br />
securities laws of such jur<strong>is</strong>diction.<br />
Th<strong>is</strong> document contains statements that are or may be forward-looking with respect to the financial condition, results of o<strong>per</strong>ations and businesses of <strong>Rank</strong>. These forward-looking<br />
statements include r<strong>is</strong>k and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors which could or may<br />
cause actual results or developments to differ materially from those expressed or implied by such forward-looking statements.<br />
Goldman Sachs International, which <strong>is</strong> author<strong>is</strong>ed and regulated in the United Kingdom by the Financial Services Authority, <strong>is</strong> acting exclusively for <strong>Rank</strong> and for no-one else in<br />
connection with the Offer and will not be responsible to any <strong>per</strong>son other <strong>than</strong> <strong>Rank</strong> for providing the protections afforded to clients of Goldman Sachs International, nor for<br />
providing advice in relation to the Offer or any other matters referred to herein.
RANK IS WORTH SUBSTANTIALLY<br />
MORE THAN <strong>150p</strong> PER SHARE<br />
• Leading gaming brands<br />
• Excellent portfolio<br />
• Excellent track record<br />
•<br />
Proven management team<br />
• Well positioned for<br />
future growth<br />
• Financial strength to<br />
drive returns<br />
• Guoco <strong>Group</strong>’s Offer<br />
undervalues <strong>Rank</strong> and its<br />
prospects<br />
Well positioned in an<br />
attractive industry and<br />
markets<br />
Track record of<br />
out<strong>per</strong>formance and the<br />
right strategy to drive<br />
value<br />
Multiple options for<br />
future growth and value<br />
creation<br />
Cash flow generation<br />
and financial flexibility<br />
to deliver <strong>share</strong>holder<br />
returns<br />
Significant value <strong>is</strong> not<br />
being recogn<strong>is</strong>ed<br />
KEEP YOUR SHARES IN RANK<br />
DO NOT COMPLETE<br />
ANY FORM OF ACCEPTANCE<br />
3
Letter from the Chairman<br />
The <strong>Rank</strong> <strong>Group</strong> Plc<br />
Statesman House<br />
Stafferton Way<br />
Maidenhead<br />
SL6 1AY<br />
Dear Shareholder<br />
Thank you for taking the time to consider th<strong>is</strong> document, please read it carefully. It contains important information which<br />
we believe <strong>is</strong> of great significance to you. Guoco <strong>Group</strong> has made an offer which values your Company at only <strong>150p</strong><br />
<strong>per</strong> <strong>share</strong>. It <strong>is</strong> the belief of the Independent Directors that th<strong>is</strong> Offer <strong>substantially</strong> undervalues <strong>Rank</strong> and th<strong>is</strong> document<br />
explains why.<br />
Background<br />
Guoco <strong>Group</strong> has been a <strong>share</strong>holder in <strong>Rank</strong> since late 2007. On 6 May 2011, Guoco <strong>Group</strong> <strong>is</strong>sued an announcement that<br />
it had acquired an additional 11.6% <strong>share</strong>holding in <strong>Rank</strong> at a price of <strong>150p</strong> <strong>per</strong> <strong>share</strong> which increased its <strong>share</strong>holding to<br />
approximately 40.8%. As a result, Guoco <strong>Group</strong> was required under Rule 9 of the Takeover Code to make a mandatory<br />
offer for <strong>Rank</strong>. Th<strong>is</strong> Offer, at <strong>150p</strong> <strong>per</strong> <strong>share</strong>, <strong>is</strong> final and will not be increased. It represents a premium of only 0.8% to<br />
<strong>Rank</strong>’s closing <strong>share</strong> price of 148.8p on 6 May, the day of the announcement of the Offer, and 2.1% to <strong>Rank</strong>’s closing <strong>share</strong><br />
price of 146.9p on 5 May, the day immediately before the announcement of the Offer.<br />
Leading UK gaming business with an excellent portfolio of assets and brands<br />
<strong>Rank</strong> has an excellent portfolio of assets and trusted brands with a leading position in the UK gaming market. During<br />
2010, <strong>Rank</strong> entertained 2.5 million customers and hosted 22.4 million customer v<strong>is</strong>its. With a focus on the UK gaming<br />
market and the casino, bingo and online segments, we believe that <strong>Rank</strong> has the right foundation for an attractive long term<br />
growth strategy.<br />
Establ<strong>is</strong>hed track record which has created value<br />
In recent years <strong>Rank</strong> has undergone a transformation through the d<strong>is</strong>posal of non-core businesses and the creation of<br />
a focused gaming group. <strong>Rank</strong>’s management team has guided its businesses through a <strong>per</strong>iod of challenging trading<br />
conditions and economic uncertainty, and enabled them to make significant progress. The UK businesses have momentum<br />
in their o<strong>per</strong>ational and financial <strong>per</strong>formance and are executing a clear strategy based on a number of priorities:<br />
• Systematic use of data and customer feedback to inspire service and product improvements;<br />
• Capital investment to extend the reach and broaden the appeal of <strong>Rank</strong>’s land-based venues; and<br />
• Wider d<strong>is</strong>tribution of <strong>Rank</strong>’s brands via online and mobile media.<br />
These initiatives enabled <strong>Rank</strong> to deliver strong results in 2010 and to continue to drive impressive creation of value. Over<br />
the last three years, <strong>Rank</strong>’s <strong>share</strong> price has increased by 65% creating equity value of over £230m. When th<strong>is</strong> <strong>per</strong>formance<br />
<strong>is</strong> compared to an index of gaming peers or the FTSE 350, <strong>Rank</strong> has been the clear out<strong>per</strong>former – £1 invested in <strong>Rank</strong> on<br />
1 January 2008 <strong>is</strong> now <strong>worth</strong> £1.65 compared to the 88p it would have been <strong>worth</strong> if it had been invested in a UK gaming<br />
index and 93p if it had been invested in the FTSE 350.<br />
Your Company <strong>is</strong> well positioned with multiple opportunities for future growth<br />
Given the strength of <strong>Rank</strong>’s assets and brands, and the proven track record of its businesses in recent years, we believe<br />
that the Company <strong>is</strong> well positioned for the future through:<br />
• Clear strategy to deliver growth and value;<br />
• Customer insight to inspire service and product improvements;<br />
• Capital investment to extend the reach and broaden the appeal of <strong>Rank</strong>’s brands;<br />
• Wider d<strong>is</strong>tribution of <strong>Rank</strong>’s brands via online and mobile media;<br />
• Option over international expansion;<br />
• Evolving nature of the regulatory environment; and<br />
• Significant upside from confirmation of VAT proceeds received to date and further VAT claims that have yet to be<br />
settled.<br />
4
We believe that these opportunities are achievable and valuable, and that <strong>share</strong>holders will benefit from them if they retain<br />
their <strong>share</strong>s in <strong>Rank</strong>.<br />
Financial strength and flexibility to create value and deliver <strong>share</strong>holder returns<br />
Through a combination of the substantial cash flow generation within its businesses and the proceeds from several VAT<br />
claims, <strong>Rank</strong> has managed to reduce significantly its level of debt in recent years. Th<strong>is</strong> improvement in financial strength<br />
has given <strong>Rank</strong> the flexibility to continue to invest in its businesses and to deliver attractive returns.<br />
It has also allowed <strong>Rank</strong> to reinstate its dividend and to pursue a progressive dividend policy with a target level of<br />
dividend cover of 3.0x over the near term. By the end of the year, we expect the appeals process regarding the retention<br />
of VAT proceeds of £275m to be completed. Once clarity <strong>is</strong> received we will seek to move towards our capital structure<br />
policy target of around 2.5x net debt/EBITDA. Th<strong>is</strong> will be achieved through considering further investment in <strong>Rank</strong>’s<br />
businesses, growing returns to <strong>share</strong>holders and, where appropriate, strategically and financially attractive acqu<strong>is</strong>itions. We<br />
have also submitted further VAT claims for at least an equivalent value to the proceeds already received and we expect that<br />
these claims will be considered over the next two to three years.<br />
Guoco <strong>Group</strong>’s Offer <strong>substantially</strong> undervalues <strong>Rank</strong> and its prospects<br />
Within th<strong>is</strong> context, the Offer that Guoco <strong>Group</strong> <strong>is</strong> making to you values your <strong>share</strong>s in <strong>Rank</strong> at <strong>150p</strong> <strong>per</strong> <strong>share</strong>. We believe<br />
that an offer at th<strong>is</strong> level <strong>substantially</strong> undervalues your <strong>share</strong>s in <strong>Rank</strong> for the following reasons:<br />
• Guoco <strong>Group</strong>’s Offer implies a valuation for <strong>Rank</strong> of 5.7x one year forward EV/EBITDA that <strong>is</strong> equivalent to a low<br />
point of <strong>Rank</strong>’s valuation rating over the last three years and a significant d<strong>is</strong>count to <strong>Rank</strong>’s h<strong>is</strong>torical valuation<br />
metrics;<br />
• Analysts believe that there <strong>is</strong> significant further upside in the <strong>Rank</strong> <strong>share</strong> price with all target prices materially above<br />
the level of Guoco <strong>Group</strong>’s Offer;<br />
• Substantial progress has been made across <strong>Rank</strong>’s businesses in recent years and the Offer from Guoco <strong>Group</strong> does<br />
not recogn<strong>is</strong>e the value and level of profitability that has been achieved or <strong>Rank</strong>’s growth prospects; and<br />
• Importantly, Guoco <strong>Group</strong>’s Offer fails to offer <strong>share</strong>holders any real premium for control.<br />
<strong>Rank</strong> <strong>is</strong> at an important point in its strategic development with a clear strategy, a broad range of growth opportunities and<br />
the financial flexibility to invest in its businesses and deliver attractive returns to <strong>share</strong>holders. As a result, we believe that<br />
Guoco <strong>Group</strong>’s Offer does not recogn<strong>is</strong>e appropriate value in <strong>Rank</strong> and its exciting prospects.<br />
TAKE NO ACTION<br />
Your Independent Directors, who have been so adv<strong>is</strong>ed by Goldman Sachs International, believe that Guoco<br />
<strong>Group</strong>’s Offer <strong>substantially</strong> undervalues <strong>Rank</strong>. In providing its financial advice to the Independent Directors,<br />
Goldman Sachs International has taken into account the Board’s commercial assessments.<br />
Accordingly, the Independent Directors unanimously recommend that you should take no action in relation to the<br />
Offer and that you should not sign any document which Guoco <strong>Group</strong> or its adv<strong>is</strong>ers send to you. Your Independent<br />
Directors will not be accepting Guoco <strong>Group</strong>’s Offer in respect of their own beneficial <strong>share</strong>holdings.<br />
In the event that the <strong>per</strong>iod for which Guoco <strong>Group</strong>’s Offer <strong>is</strong> open <strong>is</strong> extended, we will write to you again during<br />
the course of the Offer to keep you informed of any further developments.<br />
Yours sincerely<br />
Peter Johnson<br />
Chairman<br />
26 May 2011<br />
5
Leading Gaming Business<br />
Portfolio of Establ<strong>is</strong>hed and Trusted Brands<br />
Building Britain’s Favourite Gaming-Entertainment Brands<br />
Fundamentally Attractive Market<br />
• One of the largest gaming markets in Europe<br />
• Favourable trends and character<strong>is</strong>tics<br />
— High cultural acceptance<br />
— Growing participation<br />
• Stable but evolving regulatory environment<br />
— Barriers to entry<br />
• Increasing convergence between online, mobile<br />
and land-based channels<br />
<strong>Rank</strong>’s Strong Market Position<br />
• Strong, trusted brands<br />
• Integrated brand d<strong>is</strong>tribution<br />
1<br />
• c.150 licensed gaming venues<br />
• 2.5 million customers and 22.4 million<br />
customer v<strong>is</strong>its 1<br />
— Opportunities to cross-sell<br />
• Proven management team and customer<br />
focused culture<br />
Leading Gaming-Based Le<strong>is</strong>ure and Entertainment Company<br />
• <strong>Rank</strong> compr<strong>is</strong>es a unique and excellent portfolio of brands<br />
Grosvenor<br />
• Entertainment based around casino table games and high<br />
Casinos<br />
prize gaming machines<br />
• No. 1 o<strong>per</strong>ator in the UK<br />
• 35 casinos in the UK and a further two casinos in Belgium<br />
serving 1,131,000 customers<br />
• Innovative G Casino format with proven roll-out capability<br />
42%<br />
of Revenue 2<br />
Mecca Bingo<br />
<strong>Rank</strong> Interactive<br />
Top <strong>Rank</strong> España<br />
• Social, community-focused gaming-based entertainment<br />
• No. 2 o<strong>per</strong>ator in the UK<br />
• 100 bingo clubs serving 911,000 customers<br />
• Ongoing innovation in core bingo product (e.g. After Dark<br />
Binglo) and format (e.g. Full House)<br />
• D<strong>is</strong>tributes and markets <strong>Rank</strong>’s brands and products via<br />
remote media (online and mobile)<br />
• Broad range of products and games across Bingo, Casino,<br />
Poker and Sports Betting<br />
• 261,000 customers<br />
• Key strategic focus on growing mobile gaming<br />
• Social, community-focused gaming-based entertainment<br />
• 11 bingo clubs across four regions in Spain<br />
• 331,000 customers<br />
41%<br />
of Revenue 2<br />
10%<br />
of Revenue 2<br />
7%<br />
of Revenue 2<br />
Excellent Portfolio of Businesses<br />
6<br />
1<br />
Includes o<strong>per</strong>ations in Spain and Belgium.<br />
2<br />
For the year ending 31 December 2010.
Good Positions in Attractive Markets<br />
UK <strong>is</strong> a Fundamentally Attractive Gaming Market<br />
• <strong>Rank</strong> <strong>is</strong> focused on the UK gaming market, which accounted for 90% of <strong>Rank</strong>’s revenue in 2010. Th<strong>is</strong><br />
market has a number of character<strong>is</strong>tics which make it attractive for <strong>Rank</strong> to o<strong>per</strong>ate and invest in.<br />
Gross Gaming Yield in UK (£bn)<br />
Adult Participation in Gambling in UK<br />
2.5<br />
6.4% 4.7<br />
00 01 02 03 04 05 06 07 08 09 10<br />
% of Adult Population<br />
60<br />
50<br />
40<br />
30<br />
20<br />
10<br />
0<br />
National<br />
Lottery<br />
Scratchcards<br />
Sports Slot Bingo<br />
Betting Machines<br />
Areas in which <strong>Rank</strong><br />
o<strong>per</strong>ates<br />
Online<br />
Gaming<br />
• Combining scale and demand growth with high barriers to entry makes the UK gaming market an<br />
attractive market for continued investment in <strong>Rank</strong>’s brands and the right foundation for its long term<br />
growth strategy.<br />
Strategically Strong Positions in Market Segments<br />
• <strong>Rank</strong> <strong>is</strong> focused on the casino and bingo-led segments with integrated online, mobile and landbased<br />
d<strong>is</strong>tribution. Diversification across these segments provides <strong>Rank</strong> with exposure to different<br />
character<strong>is</strong>tics that in combination provide growth, stability and strong cash generation.<br />
Casinos<br />
Casino<br />
Key Industry Character<strong>is</strong>tics <strong>Rank</strong>’s Position <strong>Rank</strong>’s Performance<br />
• High growth and high margin<br />
• Dynamic segment with innovation<br />
• High barriers to entry with fixed supply<br />
No. 1<br />
35 Casinos + 7.6% 1<br />
Football<br />
Pools<br />
Bingo<br />
• Highly cash generative<br />
• “Female-friendly” gaming<br />
• Loyal customer base<br />
No. 2<br />
100 Clubs + 1.5% 1<br />
Online<br />
• Highest growth segment<br />
• Favourable trends with growing<br />
penetration<br />
• Scalable providing o<strong>per</strong>ational leverage<br />
• International options<br />
Remote<br />
D<strong>is</strong>tribution of<br />
Bingo and<br />
Casino Brands<br />
+ 4.7% 1<br />
Focused on the Right Markets and Sectors<br />
1<br />
Revenue CAGR 2008 – 2010.<br />
7
Excellent Track Record<br />
Momentum Across <strong>Rank</strong>’s Businesses …<br />
• Despite the challenging economic and consumer environment of recent years, <strong>Rank</strong> has delivered<br />
growth across its businesses, highlighting the benefits of o<strong>per</strong>ational improvements, innovation and<br />
investment.<br />
Revenue (£m)<br />
238.6<br />
220.0<br />
206.2<br />
O<strong>per</strong>ating Profit (£m)<br />
36.0<br />
30.9<br />
25.9<br />
775<br />
2008 2009 2010 2008 2009 2010 2008<br />
CAGR: +7.6% 2 CAGR: +17.9% 2<br />
Customers (’000s)<br />
985<br />
1,131<br />
2009 2010<br />
CAGR: +20.8% 2<br />
Key Achievements<br />
99Strong increase in customers –<br />
exceeded 1 million for first time<br />
99Sustained o<strong>per</strong>ating profit margin<br />
expansion<br />
99Significant growth in revenue and<br />
profit<br />
99Continued rollout of highly<br />
successful “G Casino” format<br />
99Estate modern<strong>is</strong>ation through<br />
significant capital investment<br />
Revenue (£m) O<strong>per</strong>ating Profit 1 (£m) Customers (’000s)<br />
233.0 234.5<br />
227.6<br />
898<br />
37.9<br />
881<br />
911<br />
CAGR: +1.5% 2 CAGR: (11.5)% 2 CAGR: +0.7% 2<br />
32.3<br />
29.7<br />
2008 2009 2010 2008 2009 2010 2008 2009 2010<br />
Key Achievements<br />
99Market out<strong>per</strong>formance in difficult<br />
market conditions<br />
99Customer base returned to growth<br />
99Strong improvement in customer<br />
sat<strong>is</strong>faction score<br />
99Innovation on products and formats<br />
99Further improvements to food and<br />
drink<br />
Revenue (£m)<br />
57.7<br />
52.6<br />
50.8<br />
O<strong>per</strong>ating Profit (£m)<br />
7.9<br />
Customers (’000s)<br />
220 212<br />
7.6 7.5<br />
2008 2009 2010 2008 2009 2010 2008 2009<br />
CAGR: +4.7% 2 CAGR: +2.0% 2<br />
261<br />
2010<br />
CAGR: +9.0% 2<br />
Key Achievements<br />
99Sustained revenue growth from<br />
meccabingo.com<br />
99Focused marketing investment to<br />
drive scale<br />
99191% increase in online referrals<br />
from Mecca Bingo clubs<br />
99Launch of Mecca Bingo and Blue<br />
Square iPhone apps<br />
99Focus on offline-online cross-sell and<br />
mobile opportunities<br />
8<br />
¹O<strong>per</strong>ating profit for Mecca Bingo includes impact of tax changes in HM Government’s 2009 Budget related changes in Bingo duty and<br />
VAT which led to incremental taxes of £6.0m in 2009 and £1.7m in 2010.<br />
2<br />
CAGRs relate to 2008-2010.
Driving Value Creation<br />
… Has Delivered Another Year of Growth …<br />
• The significant progress across <strong>Rank</strong>’s businesses in 2010 resulted in an impressive financial<br />
<strong>per</strong>formance reflecting the benefits of o<strong>per</strong>ational improvement and debt reduction.<br />
2010 Growth<br />
Revenue £567.8m +5.1%<br />
EBITDA £92.3m +10.0%<br />
O<strong>per</strong>ating Profit £62.0m +6.9%<br />
EPS 10.2p +14.6%<br />
DPS 2.4p +77.8%<br />
… And Substantial Value Creation<br />
• <strong>Rank</strong>’s financial <strong>per</strong>formance has been reflected in the increase in its <strong>share</strong> price which has materially<br />
out<strong>per</strong>formed <strong>Rank</strong>’s key peers and the broader market.<br />
Share Price Indexed to 100<br />
180<br />
100<br />
Share Price: +65%<br />
Total Shareholder<br />
Return: +69%<br />
20<br />
2008 2009<br />
2010 2011<br />
<strong>Rank</strong> UK Gaming Index FTSE 350<br />
Equity Value: +£231m<br />
• If £1 had been invested in <strong>Rank</strong> on 1 January 2008, it would be <strong>worth</strong> <strong>substantially</strong> <strong>more</strong> today <strong>than</strong> an<br />
investment in the broader market (FTSE 350) or a UK gaming index.<br />
Value in 2008 Value Today Change<br />
<strong>Rank</strong> £1 £1.65 +65%<br />
UK Gaming Index £1 £0.88 -12%<br />
FTSE 350 £1 £0.93 -7%<br />
9
Well Positioned for Future Growth<br />
1<br />
Clear Strategy to Deliver Growth and Value<br />
• <strong>Rank</strong> has a clear objective to generate value for <strong>share</strong>holders through sustainable growth in earnings and<br />
dividends. Delivering th<strong>is</strong> objective <strong>is</strong> based upon a strategy of building Britain’s favourite gaming-based<br />
entertainment brands.<br />
•<br />
To achieve these objectives <strong>Rank</strong> has a strategic framework compr<strong>is</strong>ing a group strategy for long term dec<strong>is</strong>ions<br />
and a brand strategy for o<strong>per</strong>ational dec<strong>is</strong>ions within the brand portfolio.<br />
<strong>Group</strong> Strategy<br />
• Develop gaming-based ex<strong>per</strong>iences in attractive<br />
markets<br />
—— Portfolio of trusted brands<br />
—— Broad range of customers and occasions<br />
—— Multiple d<strong>is</strong>tribution channels<br />
• Develop three core capabilities<br />
—— Customer focus: use of insight to drive<br />
service and product innovation<br />
—— Responsible o<strong>per</strong>ation: sustainable<br />
relationships with customers and regulators<br />
—— Political engagement: shape the regulatory<br />
environment<br />
Long Term V<strong>is</strong>ion<br />
Brand Strategy<br />
• Systematic use of data and customer feedback to<br />
inspire service and product improvements<br />
——<br />
——<br />
•<br />
——<br />
•<br />
Gaming and entertainment<br />
Food and drink<br />
Capital investment to extend reach and broaden<br />
the appeal of land-based venues<br />
Development of new formats<br />
Wider d<strong>is</strong>tribution of <strong>Rank</strong>’s brands via online<br />
and mobile media<br />
——<br />
Extension to mobile channels<br />
Near Term Priorities<br />
2<br />
Customer Insight to Inspire Service and Product Improvements<br />
• One of the drivers of <strong>Rank</strong>’s track record <strong>is</strong> the focus on its customers.<br />
•<br />
Using customer insight has driven improvements in key o<strong>per</strong>ational and financial results.<br />
Customer Focus Insight into Action Future Drivers<br />
• Customer engagement<br />
—— Launch of loyalty<br />
programmes<br />
—— Extensive customer<br />
feedback<br />
• Analys<strong>is</strong> and interpretation<br />
—— Guidance on product<br />
development,<br />
communication and<br />
capital investment<br />
—— Single customer database<br />
across all our brands<br />
10<br />
1<br />
2008-2010 CAGR.<br />
• Gaming and entertainment<br />
—— Greater electronic gaming<br />
—— More innovation and<br />
differentiation (e.g. ‘Britain’s<br />
Got Talent’)<br />
Gaming revenue: +3.3%¹<br />
• Food and drink<br />
—— Menu developments, service<br />
improvements and better pricing<br />
—— Extension of table service<br />
Food and drink revenue: +7.8%¹<br />
• Growth in customer<br />
sat<strong>is</strong>faction<br />
—— Net promoter score<br />
• Growth in customers<br />
—— Customer numbers<br />
and v<strong>is</strong>its<br />
• Growth in customer value<br />
—— Average revenue <strong>per</strong><br />
customer<br />
—— Lifetime customer<br />
value
3<br />
Capital Investment to Extend Reach and Broaden Appeal<br />
Ability to Real<strong>is</strong>e the Full Potential of G Casino Expansion<br />
• Modern<strong>is</strong>ation and expansion of <strong>Rank</strong>’s casino estate through the roll out of the G Casino format forms a key<br />
element of <strong>Rank</strong>’s growth strategy.<br />
•<br />
Since its launch in 2006, the G Casino format has broadened the customer base and delivered significantly higher<br />
levels of customer v<strong>is</strong>its, revenue and profit <strong>than</strong> traditional casinos.<br />
Proven Track Record ...<br />
• Launched in 2006<br />
——<br />
•<br />
•<br />
FY06<br />
——<br />
Broaden casino as a le<strong>is</strong>ure venue<br />
Hospitality focused<br />
£43m capital invested across 15 sites<br />
Exceeding target pre-tax ROIC of 15%<br />
by year 3<br />
Substantial Opportunity<br />
33 32 32<br />
1<br />
4<br />
FY07<br />
6<br />
FY08 FY09 FY10 FY11 FY12 FY15<br />
Number of G Casinos<br />
34 35 35<br />
10<br />
13<br />
17<br />
38<br />
20<br />
Total number of UK Grosvenor Casinos<br />
45<br />
30<br />
... With Attractive Returns<br />
G Casino<br />
Format<br />
Traditional<br />
Grosvenor Variance 1<br />
Customer v<strong>is</strong>its / wk 3,637 2,307 58%<br />
Revenue (£k) / wk 112.1 73.7 52%<br />
EBITDA (£k) / wk 29.2 16.8 74%<br />
EBITDA Margin (%) 26.0 22.8 14%<br />
• Scope to increase to 30 G Casinos through new<br />
developments, conversions, relocations and<br />
acqu<strong>is</strong>itions<br />
• Acqu<strong>is</strong>itions based on an opportun<strong>is</strong>tic but returnsdriven<br />
approach with synergies available<br />
• Acqu<strong>is</strong>ition of the Isle of Capri casino in Coventry<br />
represents a successful example with a significant<br />
profit turnaround and payback on investment within<br />
two years<br />
Innovation Opportunities also Ex<strong>is</strong>t for Mecca Bingo Through Full House<br />
•<br />
Using a similar approach to the development of the successful G Casino format, <strong>Rank</strong> has developed and <strong>is</strong> refining<br />
the Full House format to create a bas<strong>is</strong> for investment and growth across the Mecca estate.<br />
Objectives Our Progress Next Steps<br />
• Modern<strong>is</strong>e female-friendly • First Full House club in • Re-engineer capital cost<br />
social gaming<br />
Beeston in o<strong>per</strong>ation for two • Continue to broaden appeal<br />
—— Vibrant venues<br />
years<br />
—— Greater proportion of<br />
—— Zoning to create different • Further five conversions<br />
electronic games<br />
environments<br />
• Strongly improving customer<br />
—— Improve non-gaming<br />
—— Broad range of gaming and sat<strong>is</strong>faction scores<br />
products<br />
non-gaming<br />
• Capital investment of £12m<br />
• Attractive financial returns<br />
to date<br />
Innovation Testing the Concept Improve Returns<br />
¹Variance compares <strong>per</strong>formance in a traditional provincial Grosvenor casino and a G Casino format provincial casino.<br />
11
Well Positioned for Future Growth<br />
4<br />
Wider D<strong>is</strong>tribution of <strong>Rank</strong>’s Brands via Online and Mobile Media<br />
• Future growth across <strong>Rank</strong>’s brands can also be driven by providing customers with the d<strong>is</strong>tribution channel to<br />
suit their preference.<br />
• <strong>Rank</strong>’s brands are currently available across multiple channels but driving closer o<strong>per</strong>ational integration and the ability<br />
to cross-sell between channels represents an important source of future growth.<br />
Community / Bingo Casino Sports-led Community / Bingo<br />
Venues ✓ ✓ – ✓<br />
Online ✓ ✓ ✓ 2011<br />
Mobile ✓ ✓ ✓ –<br />
• Continue to drive • Increase cross-over • Launch of Blue • Launch of online<br />
Initiatives/<br />
Opportunities<br />
scheme to reward<br />
clubs for promotion<br />
of MeccaBingo.com<br />
Launch of Mecca<br />
•<br />
Bingo ‘app’<br />
12<br />
1<br />
Estimated incremental o<strong>per</strong>ating profit.<br />
between land-based<br />
and online casinos<br />
Square ‘app’<br />
gaming in Spain<br />
Online-Offline Crossover Rates<br />
Market 6% 12% 10% –<br />
<strong>Rank</strong> 5% 1% – –<br />
• Typically, customers who play with <strong>Rank</strong> in venues and online generate significantly greater revenue <strong>than</strong><br />
customers who just play on a single channel. Driving greater participation across channels to leverage brands<br />
and customer relationships represents a significant opportunity for <strong>Rank</strong>.<br />
5<br />
Option over International Expansion<br />
• <strong>Rank</strong>’s businesses in Spain and Belgium together contributed approximately 10% of revenue in 2010. In 2011<br />
they face challenging trading conditions due to the economic environment and the implementation of full<br />
smoking bans.<br />
• With <strong>per</strong>formance in these markets expected to improve over the medium term, <strong>Rank</strong>’s overseas businesses<br />
represent an opportunity for growth. Developing these “footholds” in a measured way at the same time as<br />
pursuing positive regulatory change represents a further valuable growth option:<br />
—— Spain: online gaming to be launched in H2 2011; and<br />
—— Belgium: online leg<strong>is</strong>lation in place with casino licences restricted to the four land-based o<strong>per</strong>ators.<br />
6<br />
Evolving Nature of the Regulatory Environment<br />
• In line with its policy of constructive political engagement, <strong>Rank</strong> believes that regulatory change will be a<br />
net benefit to the industry over the near and long term. Recent successes have included positive changes to<br />
amusement machine regulation and taxation in both Spain and the UK.<br />
• Conservative Party commitment to reduce bingo duty to 15%<br />
Near Term • DCMS proposal to allow <strong>more</strong> B3 machines in bingo clubs<br />
•<br />
Long Term<br />
+c.£7m <strong>per</strong> annum 1<br />
+c.£1m <strong>per</strong> annum 1<br />
Engage with governments and regulators to continue to shape their approach to regulatory<br />
change in the interests of customers and <strong>share</strong>holders
7<br />
Significant Upside from Confirmation of VAT Proceeds and Further Claims<br />
• Since November 2008, <strong>Rank</strong> has received significant proceeds as a result of successful claims for overpaid VAT.<br />
Retention of these proceeds remains subject to the final resolution of an appeals process which <strong>is</strong> expected to<br />
complete late in 2011.<br />
• Analysts believe that the full value of the proceeds received to date has not yet been reflected in the <strong>Rank</strong> <strong>share</strong><br />
price.<br />
• As a result, clarity regarding these VAT proceeds <strong>is</strong> an important catalyst for <strong>Rank</strong> in the near term.<br />
Known Facts<br />
• Number of successful hearings<br />
(including VAT Tribunal and High Court):<br />
5<br />
• Total proceeds received:<br />
£275m<br />
• Date for final ECJ hearing:<br />
June 2011<br />
• Anticipated final ECJ dec<strong>is</strong>ion:<br />
Late 2011<br />
Potential Value Impact<br />
“Material VAT win would add 22p/<strong>share</strong> to our<br />
fair value” (Credit Su<strong>is</strong>se, 22 March 2011)<br />
“We still await a European Court of Justice hearing on<br />
HMRC’s appeal relating to all VAT repayments, but we<br />
believe the chance of a successful appeal by HMRC to be<br />
less <strong>than</strong> 10%”<br />
(Panmure Gordon, 23 March 2011)<br />
“If all <strong>Rank</strong>’s reclaims are confirmed, our DCF-based TP<br />
[target price] would increase to 218p on simple interest”<br />
(Investec, 23 March 2011)<br />
• In addition, <strong>Rank</strong> has a number of outstanding further claims with HMRC which, if successful, would have a<br />
material incremental financial benefit to <strong>Rank</strong>.<br />
Total Further Claims<br />
At least an equivalent value<br />
to proceeds received to date<br />
Timing for Resolution<br />
Potentially next 2-3 years<br />
Near Term and Long Term Value Upside<br />
13
Financial Strength to Create Value …<br />
Materially Improved Financial Position<br />
• Since 2007, <strong>Rank</strong>’s financial position has strengthened materially. Th<strong>is</strong> improvement has been driven<br />
by substantial cash flow generation within <strong>Rank</strong>’s businesses and the receipt of proceeds from VAT<br />
claims.<br />
• As a result, <strong>Rank</strong> now has a positive cash position.<br />
Net Debt (£m)<br />
Change in Net Debt (£m)<br />
316.9<br />
316.9<br />
226.5<br />
186.8<br />
123.4<br />
114.1<br />
(236.6)<br />
FY 07<br />
FY 08<br />
FY 09<br />
FY 10<br />
(39.4)<br />
PF FY 10 1<br />
FY 07<br />
O<strong>per</strong>ating<br />
Cash<br />
flows<br />
Capital<br />
Expenditure<br />
(233.8) (39.4)<br />
Legacy<br />
inc. VAT<br />
Refunds<br />
PF FY 10 1<br />
Strength to Invest and to Grow<br />
• The improvement in <strong>Rank</strong>’s financial position has allowed significant capital investment to extend the<br />
reach and broaden the appeal of <strong>Rank</strong>’s brands and, as a result, create future growth options.<br />
• <strong>Rank</strong>’s current position provides continued flexibility to invest for future growth.<br />
28.2<br />
Capital Investment (£m)<br />
34.3<br />
51.6 50-55<br />
• £114m of capital investment<br />
over last three years<br />
—— Focus on extending the reach and<br />
broadening the appeal of Mecca<br />
and Grosvenor<br />
• Future investment to take advantage<br />
of attractive opportunities<br />
——<br />
——<br />
G Casino roll-out<br />
Mobile / online<br />
FY08A<br />
FY09A FY10A FY11E<br />
Mecca Grosvenor <strong>Rank</strong> Interactive TRE Other<br />
Strong Cash Flow Generation and Financial Flexibility<br />
14<br />
1<br />
<strong>Rank</strong>’s net debt as at 31 December 2010 <strong>is</strong> stated proforma for receipt of £162.8m of VAT proceeds.
… And Drive Shareholder Returns<br />
Returns to Shareholders Through a Progressive Dividend Policy<br />
• <strong>Rank</strong> reinstated its dividend in 2009, paying 1.35p <strong>per</strong> <strong>share</strong>.<br />
• In 2010, <strong>Rank</strong> increased its dividend to 2.40p <strong>per</strong> <strong>share</strong>, representing an increase of 78% on 2009.<br />
Total Dividends Declared (£m)<br />
Dividend <strong>per</strong> Share (p)<br />
Dividend Cover 1 (x)<br />
+78%<br />
9.4<br />
+78% 2.40p<br />
6.6x<br />
5.3<br />
1.35p<br />
4.3x<br />
FY 08<br />
FY 09<br />
FY 10<br />
FY 08<br />
FY 09<br />
FY 10<br />
FY 08<br />
FY 09<br />
FY 10<br />
• In future, <strong>Rank</strong> intends to grow its dividend in order to align it <strong>more</strong> closely to underlying group<br />
<strong>per</strong>formance and target a dividend cover level of 3.0x over the near term.<br />
Delivering the Capital Structure Policy Over Short to Medium Term<br />
• In 2010, <strong>Rank</strong> announced a capital structure policy with a target net debt/EBITDA of around 2.5x.<br />
• Since the announcement of th<strong>is</strong> policy, <strong>Rank</strong>’s leverage levels have been below th<strong>is</strong> target reflecting a<br />
prudent approach until final resolution of its current VAT cases.<br />
• Once further clarity has been received on the VAT proceeds in late 2011, <strong>Rank</strong> will seek to move<br />
towards its capital structure policy over the short to medium term through considering:<br />
——<br />
——<br />
——<br />
Continued capital investment in <strong>Rank</strong>’s businesses;<br />
Growing returns to <strong>share</strong>holders; and<br />
Potential acqu<strong>is</strong>itions where strategically and financially attractive.<br />
<strong>Rank</strong> <strong>is</strong> committed to:<br />
• Maintaining a strong financial position<br />
• Investing in its brands to drive growth<br />
• Providing <strong>share</strong>holders with growing returns<br />
• Delivering its capital structure policy target with leverage of around 2.5x net debt/EBITDA<br />
Commitment to Growing Shareholder Returns<br />
1<br />
Dividend cover based on adjusted EPS.<br />
15
Guoco <strong>Group</strong>’s Offer Substantially<br />
Undervalues <strong>Rank</strong> and its Prospects…<br />
<strong>Rank</strong> <strong>is</strong> Currently Trading at a Low Valuation…<br />
10.0x<br />
8.0x<br />
6.0x<br />
4.0x<br />
2.0x<br />
1 Yr Forward EV/EBITDA: Since Jan-2008<br />
Guoco <strong>Group</strong>’s Offer: 5.7x<br />
Forward EV/EBITDA<br />
2008 2009 2010 2011<br />
• Guoco <strong>Group</strong>’s Offer of<br />
<strong>150p</strong> <strong>per</strong> <strong>Rank</strong> <strong>share</strong> values<br />
<strong>Rank</strong> at 5.7x forward EV/<br />
EBITDA which represents a<br />
low point of its valuation over<br />
the last three years<br />
• Th<strong>is</strong> valuation also represents a<br />
significant d<strong>is</strong>count compared<br />
to <strong>Rank</strong>’s h<strong>is</strong>torical average<br />
one year forward EV/EBITDA<br />
valuation of 6.7x<br />
• Do not accept an Offer which<br />
values your <strong>Rank</strong> <strong>share</strong>s at a<br />
low point<br />
…And Analysts Believe in Significant Further Upside<br />
Analyst Target Prices (p)<br />
204<br />
• Analysts value <strong>Rank</strong> at well<br />
above <strong>150p</strong>, even before any<br />
premium for control<br />
Mean: 179p<br />
161<br />
167<br />
170<br />
179<br />
185 185<br />
12%<br />
26%<br />
• Guoco <strong>Group</strong>’s Offer represents<br />
— 26% d<strong>is</strong>count to the<br />
highest analyst target price<br />
Guoco <strong>Group</strong>’s Offer: <strong>150p</strong><br />
— 12% d<strong>is</strong>count to the<br />
median analyst target price<br />
Credit<br />
Su<strong>is</strong>se<br />
Investec<br />
Goldman<br />
Sachs<br />
Peel<br />
Hunt<br />
Matrix Evolution Panmure<br />
Gordon<br />
“In our opinion it’s [Guoco <strong>Group</strong>’s Offer]<br />
priced to fail, it will fail and it should fail. And<br />
everyone should be happy with that.’’<br />
(Evolution, 14 May 2011)<br />
“In our opinion, th<strong>is</strong> [Guoco <strong>Group</strong>’s Offer]<br />
dramatically undervalues the business – it does not even<br />
represent fair value for the casino div<strong>is</strong>ion alone – and<br />
<strong>share</strong>holders should not accept the offer.’’<br />
(Panmure Gordon, 9 May 2011)<br />
Guoco <strong>Group</strong>’s Offer Does Not Reflect <strong>Rank</strong>’s Fundamental Value<br />
16
…And <strong>is</strong> Inadequate Compared to<br />
Relevant Benchmarks<br />
The Offer Fails to Recogn<strong>is</strong>e the Appropriate Valuation Multiple…<br />
• H<strong>is</strong>torical transaction multiples can provide a guide to the value of similar assets<br />
• Looking at multiples across the gaming and le<strong>is</strong>ure sectors suggests Guoco <strong>Group</strong>’s Offer fails to recogn<strong>is</strong>e an<br />
appropriate valuation<br />
• Applying multiples paid for other gaming and le<strong>is</strong>ure companies would imply a value <strong>substantially</strong> in excess of<br />
Guoco <strong>Group</strong>’s Offer<br />
13.0x<br />
17.9x<br />
Multiple of H<strong>is</strong>torical EBITDA (x)<br />
16.4x<br />
13.9x<br />
10.4x<br />
Guoco<br />
<strong>Group</strong>’s<br />
Offer: 6.0x<br />
LTM EV/<br />
EBITDA<br />
Permira/Gala<br />
Aug-2005<br />
Harrahs/<br />
London Clubs<br />
Aug-2006<br />
Genting/<br />
Stanley Le<strong>is</strong>ure<br />
Oct-2006<br />
Genting Malaysia/<br />
Genting Singapore<br />
Jul-2010<br />
Median of<br />
UK Le<strong>is</strong>ure Deals<br />
…And There <strong>is</strong> No Real Premium for Control<br />
• A typical premium for control <strong>is</strong> approximately 40% in the UK<br />
• Guoco <strong>Group</strong> <strong>is</strong> not offering <strong>Rank</strong>’s <strong>share</strong>holders a real premium<br />
39%<br />
40%<br />
“We adv<strong>is</strong>e investors to reject the<br />
offer as it fails to include a sufficient<br />
premium for control.’’<br />
(Credit Su<strong>is</strong>se, 9 May 2011)<br />
1%<br />
“Our take-out value for <strong>Rank</strong> <strong>is</strong><br />
248p <strong>per</strong> <strong>share</strong>’’<br />
(Panmure Gordon, 9 May 2011)<br />
All Offers<br />
All Cash Offers<br />
Guoco <strong>Group</strong>’s<br />
Offer 1<br />
No Control Premium<br />
1<br />
Premium to <strong>share</strong> price as at Friday, 6 May 2011, the day of the announcement of the Offer by Guoco <strong>Group</strong>.<br />
17
RANK IS WORTH SUBSTANTIALLY<br />
MORE THAN <strong>150p</strong> PER SHARE<br />
• Leading gaming brands<br />
• Excellent portfolio<br />
You own a unique and<br />
valuable business<br />
• Excellent track record<br />
•<br />
Proven management team<br />
• Well positioned for<br />
future growth<br />
• Financial strength to<br />
drive returns<br />
• Guoco <strong>Group</strong>’s Offer<br />
undervalues <strong>Rank</strong> and its<br />
prospects<br />
You have invested in a<br />
dynamic business and the<br />
team <strong>is</strong> ready to take <strong>Rank</strong><br />
forward for your benefit<br />
Do not give up your<br />
opportunity to participate<br />
in <strong>Rank</strong>’s future<br />
We are committed to<br />
delivering significant<br />
further value for<br />
<strong>share</strong>holders<br />
Guoco <strong>Group</strong>’s Offer does<br />
not reflect the fundamental<br />
value of your <strong>share</strong>s<br />
DO NOT ACCEPT THE OFFER<br />
18
Entertaining People<br />
Entertaining for Future Value<br />
KEEP YOUR<br />
SHARES IN<br />
RANK<br />
For further ass<strong>is</strong>tance call the<br />
FREE SHAREHOLDER HELPLINE on:<br />
0800 169 7775 in the UK<br />
+44 121 415 0195 outside the UK<br />
You should be aware that the Shareholder Helpline cannot provide any financial, legal or taxation advice in connection<br />
with the Offer nor any advice on the merits of the Offer.<br />
19
Sources of Information and Bases of Calculation<br />
The relevant sources of information and bases of calculation are provided below in the order in which such information appears<br />
in th<strong>is</strong> document. Where such information <strong>is</strong> repeated in th<strong>is</strong> document, the underlying sources and bases are not repeated.<br />
a) Unless otherw<strong>is</strong>e stated in th<strong>is</strong> document:<br />
20<br />
(i)<br />
(ii)<br />
all financial information relating to <strong>Rank</strong> has been extracted or derived (without any adjustments) from <strong>Rank</strong>’s annual<br />
report and financial statements for the year ended 31 December 2010, other publ<strong>is</strong>hed annual reports and financial<br />
statements of <strong>Rank</strong> for the relevant <strong>per</strong>iods and other information made publicly available by <strong>Rank</strong>;<br />
all information regarding the Offer <strong>is</strong> sourced from the Offer Document;<br />
(iii) values stated throughout th<strong>is</strong> document have been rounded; and<br />
(iv) information contained in th<strong>is</strong> document regarding <strong>Rank</strong>’s market position and market <strong>share</strong> in Casino and Bingo <strong>is</strong><br />
sourced from management information, the Gambling Comm<strong>is</strong>sion and the Bingo Association. References to the UK<br />
gaming market (compr<strong>is</strong>ing Casino, Gaming Machines, Bingo and Internet) are sourced from the H2 Gaming Capital<br />
report dated 20 April 2011.<br />
b) The reference to the <strong>150p</strong> <strong>per</strong> <strong>share</strong> offer price and the <strong>per</strong>centage ownership of Guoco <strong>Group</strong> in <strong>Rank</strong> <strong>share</strong>s are sourced<br />
from the Offer Document.<br />
c) The reference to <strong>Rank</strong>’s closing <strong>share</strong> price of 148.8p on 6 May 2011 and of 146.9p on 5 May 2011 <strong>is</strong> sourced from<br />
Datastream.<br />
d) The references to <strong>Rank</strong>’s leading position in the UK gaming market, including the references to 2.5 million customers and<br />
22.4 million customer v<strong>is</strong>its in 2010 are sourced from <strong>Rank</strong>’s annual report and financial statements for the year ended<br />
31 December 2010.<br />
e) The references to the set of strategic priorities for <strong>Rank</strong>’s brands are sourced from <strong>Rank</strong>’s annual report and financial<br />
statements for the year ended 31 December 2010.<br />
f) The reference to the creation of £231m of equity value <strong>is</strong> calculated as the change in value of <strong>Rank</strong>’s market capital<strong>is</strong>ation<br />
from 1 January 2008 to 23 May 2011 (being the Latest Practicable Date) and <strong>is</strong> sourced from Datastream.<br />
g) The references to <strong>share</strong> price and total <strong>share</strong>holder return <strong>per</strong>formance from 1 January 2008 to 23 May 2011 for <strong>Rank</strong>, a<br />
UK Gaming Index and the FTSE 350 are sourced from Datastream as at 23 May 2011 (being the Latest Practicable Date).<br />
The UK Gaming Index <strong>is</strong> based on the development of an equally-weighted index compr<strong>is</strong>ed of Ladbrokes plc, William<br />
Hill PLC and Paddy Power plc. The change in a £1 investment in each of <strong>Rank</strong>, a UK Gaming Index and the FTSE 350 <strong>is</strong><br />
calculated by multiplying £1 by the <strong>per</strong>centage <strong>per</strong>formance of <strong>Rank</strong>, a UK Gaming Index and the FTSE 350 for the <strong>per</strong>iod<br />
1 January 2008 to 23 May 2011 (being the Latest Practicable Date). Total <strong>share</strong>holder return data sourced from Datastream<br />
assumes gross dividends are re-invested to purchase additional units of equity at the closing price applicable on the<br />
ex-dividend date.<br />
h) The references to VAT proceeds are sourced from <strong>Rank</strong>’s annual report and financial statements for the year ended<br />
31 December 2010 and <strong>Rank</strong>’s announcement dated 22 March 2011. The statement that further VAT claims have yet to be<br />
settled <strong>is</strong> sourced from <strong>Rank</strong> management.<br />
i) The reference to a progressive dividend policy and a target level of dividend cover of 3.0x are both sourced from <strong>Rank</strong>’s<br />
annual report and financial statements for the year ended 31 December 2010 and related investor materials.<br />
j) The reference to <strong>Rank</strong>’s February 2010 announcement of a net debt/EBITDA target level of around 2.5x <strong>is</strong> sourced from<br />
<strong>Rank</strong>’s annual report and financial statements for the year ended 31 December 2010.<br />
k) The reference to a low point of <strong>Rank</strong>’s EV/EBITDA valuation rating from 1 January 2008 to 23 May 2011 <strong>is</strong> d<strong>is</strong>played on<br />
page 16 and the data <strong>is</strong> sourced from Datastream as at 23 May 2011 (being the Latest Practicable Date). <strong>Rank</strong>’s enterpr<strong>is</strong>e<br />
value from 22 March 2011 to 23 May 2011 <strong>is</strong> proforma for the receipt of £74.8m in overpaid VAT claims and £79.5m<br />
interest relating to th<strong>is</strong> claim received at the end of March 2011 as stated in <strong>Rank</strong>’s announcement on 22 March 2011 and<br />
an additional £7.1m and £1.4m from post-balance sheet adjustments sourced from <strong>Rank</strong>’s annual report and financial<br />
statements for the year ended 31 December 2010.<br />
l) The reference to <strong>Rank</strong>’s 5.7x one year forward EV/EBITDA <strong>is</strong> based on the value of Guoco <strong>Group</strong>’s Offer for the entire<br />
<strong>is</strong>sued and to be <strong>is</strong>sued <strong>share</strong> capital of <strong>Rank</strong> as of 23 May 2011 (being the Latest Practicable Date), less <strong>Rank</strong>’s adjusted<br />
proforma net cash as of 31 December 2010, all divided by the average analyst estimate for <strong>Rank</strong>’s 2011 EBITDA, the<br />
sources for which are set out as below:
(i)<br />
(ii)<br />
The value of £592.7m for <strong>Rank</strong>’s <strong>is</strong>sued and to be <strong>is</strong>sued <strong>share</strong> capital <strong>is</strong> based on the following:<br />
— the Offer price of <strong>150p</strong> <strong>per</strong> <strong>Rank</strong> <strong>share</strong>; and<br />
— <strong>Rank</strong>’s <strong>is</strong>sued and to be <strong>is</strong>sued <strong>share</strong> capital <strong>is</strong> based on 390,600,444 <strong>Rank</strong> <strong>share</strong>s in <strong>is</strong>sue as at 23 May 2011 as<br />
d<strong>is</strong>closed by <strong>Rank</strong> in its Regulatory Information Service announcement made in accordance with Rule 2.10 of<br />
the Takeover Code dated 23 May 2011 plus a further 5,514,125 <strong>Rank</strong> <strong>share</strong>s that could be <strong>is</strong>sued to sat<strong>is</strong>fy the<br />
exerc<strong>is</strong>e and vesting of options and awards under the <strong>Rank</strong> <strong>share</strong> schemes as at the close of business on 23 May<br />
2011 (being the Latest Practicable Date) less 1,000,287 of <strong>share</strong>s held in the Employee Benefit Trust.<br />
Adjusted proforma net cash of £40.5m:<br />
— <strong>Rank</strong>’s unadjusted net debt of £123.4m <strong>is</strong> sourced from <strong>Rank</strong>’s annual report and financial statements for the<br />
year ended 31 December 2010;<br />
— less £1.1m of cash proceeds relating to the assumed exerc<strong>is</strong>e of options under the <strong>Rank</strong> <strong>share</strong> schemes pursuant<br />
to the adjustment to the number of <strong>share</strong>s as stated in (l)(i) above;<br />
— less the receipt of £7.1m in overpaid VAT received on 16 February 2011 (and associated interest of £1.4m) as<br />
d<strong>is</strong>closed in <strong>Rank</strong>’s annual report and financial statements for the year ended 31 December 2010; and<br />
— less the receipt of £74.8m in overpaid VAT and £79.5m in interest as stated in <strong>Rank</strong>’s announcement on<br />
22 March 2011.<br />
(iii) 2011 estimated EBITDA of £97.6m based on the average of the following analyst estimates:<br />
— Credit Su<strong>is</strong>se AG estimate of £98.6m as of 9 May 2011;<br />
— Investec Bank (UK) Plc estimate of £96.9m as of 23 March 2011. Investec also provides corporate broking<br />
services to <strong>Rank</strong>;<br />
— Matrix Corporate Capital LLP estimate of £96.8m as of 19 April 2011;<br />
— Panmure Gordon (UK) Limited estimate of £99.9m as of 9 May 2011; and<br />
— Peel Hunt LLP estimate of £95.6m as of 18 April 2011.<br />
m) The reference to the analyst target prices being materially above the level of Guoco <strong>Group</strong>’s Offer are based on the<br />
following analyst research reports:<br />
(i)<br />
(ii)<br />
Credit Su<strong>is</strong>se AG target price of 161p <strong>is</strong> sourced from the 9 May 2011 Credit Su<strong>is</strong>se Small and Mid Cap Research<br />
note by Matthew Gerard, Tim Ramskill, Sanjeet Aujla and Julia Pennington;<br />
Investec Bank (UK) Plc target price of 167p <strong>is</strong> sourced from the 23 March 2011 Investec Securities Flash Note by<br />
Paul Leyland. Investec also provides corporate broking services to <strong>Rank</strong>;<br />
(iii) The Goldman Sachs <strong>Group</strong>, Inc. target price of 170p <strong>is</strong> sourced from the 30 March 2011 Goldman Sachs Equity<br />
Research report by Nick Edelman and Oliver Neal;<br />
(iv) Peel Hunt LLP target price of 179p <strong>is</strong> sourced from the 18 April 2011 Peel Hunt Consumer Weekly report by Nick<br />
Batram, Charles Hall, Paul Hickman and John Stevenson;<br />
(v)<br />
Matrix Corporate Capital LLP target price of 185p <strong>is</strong> sourced from the 19 April 2011 Matrix Le<strong>is</strong>ure report by John<br />
Beaumont;<br />
(vi) Evolution Securities Ltd target price of 185p <strong>is</strong> sourced from the 9 May 2011 Evolution note by James Hollins; and<br />
(vii) Panmure Gordon (UK) Limited target price of 204p <strong>is</strong> sourced from the 9 May 2011 Panmure Gordon & Co Equity<br />
Research note by Simon French and Lindsey Kerrigan.<br />
n) The reference to <strong>Rank</strong>’s c.150 licensed gaming venues <strong>is</strong> sourced from <strong>Rank</strong>’s annual report and financial statements for<br />
the year ended 31 December 2010.<br />
o) The references to <strong>Rank</strong>’s number 1 position in Casino and number 2 position in Bingo in the UK are calculated on an<br />
EBITDA bas<strong>is</strong> and are sourced from <strong>Rank</strong> management.<br />
p) The reference to <strong>Rank</strong>’s Casino business (35 casinos in the UK and a further 2 in Belgium, 1,131,300 customers and 42%<br />
of 2010 revenue) <strong>is</strong> sourced from <strong>Rank</strong>’s annual report and financial statements for the year ended 31 December 2010.<br />
q) The references to <strong>Rank</strong>’s bingo business (100 clubs, 911,000 customers and 41% of 2010 revenue) are sourced from <strong>Rank</strong>’s<br />
annual report and financial statements for the year ended 31 December 2010.<br />
21
) The references to <strong>Rank</strong> Interactive (261,000 customers and 10% of 2010 revenue) are sourced from <strong>Rank</strong>’s annual report<br />
and financial statements for the year ended 31 December 2010.<br />
s) The references to TRE (11 bingo clubs across four regions in Spain, 331,000 customers and 7% of 2010 revenue) are<br />
sourced from <strong>Rank</strong>’s annual report and financial statements for the year ended 31 December 2010.<br />
t) The reference to the contribution to 2010 revenue of the UK <strong>is</strong> sourced from <strong>Rank</strong>’s annual report and financial statements<br />
for the year ended 31 December 2010.<br />
u) The information regarding the value of the UK Gross Gaming Yield for the years 2000 – 2010 <strong>is</strong> sourced from the H2<br />
Gambling Capital report dated 20 April 2011.<br />
v) The information regarding adult gambling participation <strong>is</strong> sourced from the Brit<strong>is</strong>h Gambling Prevalence Survey 2010.<br />
w) The references to <strong>Rank</strong>’s <strong>per</strong>formance in Casino, Bingo and Online relate to the compound annual growth rate of <strong>Rank</strong>’s<br />
revenues from 2008 to 2010 and are all sourced from <strong>Rank</strong>’s annual reports and financial statements for the relevant years.<br />
The CAGRs are calculated as follows:<br />
2010 number<br />
(2008 number) ^<br />
1<br />
(2) -1<br />
x) The references to revenue, o<strong>per</strong>ating profit and number of customers, and the associated CAGRs (see note (w) above) for<br />
Grosvenor Casinos, Mecca Bingo and <strong>Rank</strong> Interactive are sourced from <strong>Rank</strong>’s annual reports and financial statements<br />
for the relevant years. The reference to incremental taxes relating to Mecca Bingo o<strong>per</strong>ating profit <strong>is</strong> sourced from <strong>Rank</strong><br />
management.<br />
y) The reference to <strong>Rank</strong>’s significant capital investment in Grosvenor Casinos <strong>is</strong> sourced from <strong>Rank</strong>’s investor presentation<br />
relating to its results for the year ended 31 December 2010.<br />
z) The reference to the 191% increase in online referrals from Mecca Bingo clubs <strong>is</strong> sourced from <strong>Rank</strong>’s annual report and<br />
financial statements for the year ended 31 December 2010.<br />
aa)<br />
The references to <strong>Rank</strong>’s 2010 <strong>per</strong>formance in revenue, EBITDA, o<strong>per</strong>ating profit, EPS and DPS and associated growth<br />
rates are all sourced from <strong>Rank</strong>’s annual report and financial statements for the year ended 31 December 2010. The<br />
associated growth rates are as compared with <strong>Rank</strong>’s 2009 <strong>per</strong>formance in the relevant metric.<br />
bb) The data used in the chart of indexed <strong>share</strong> price <strong>per</strong>formance from 1 January 2008 to 23 May 2011 for <strong>Rank</strong>, a UK<br />
Gaming Index and the FTSE 350 <strong>is</strong> sourced from Datastream as at 23 May 2011 (being the Latest Practicable Date). See<br />
note (g) above.<br />
cc)<br />
The references to the 3.3% and 7.8% CAGRs (see note (w) above) for gaming revenue and food and drink revenue<br />
respectively are sourced from <strong>Rank</strong>’s annual report and financial statements for the year ended 31 December 2010.<br />
dd) The details on the G Casino expansion are sourced from <strong>Rank</strong>’s annual report and financial statements for the year ended<br />
31 December 2010 and from <strong>Rank</strong>’s investor presentation relating to its results for the year ended 31 December 2010. The<br />
data presented in the chart on the number of G Casinos and the total number of UK Grosvenor Casinos from 2006 to 2010<br />
<strong>is</strong> sourced from <strong>Rank</strong>’s annual report and investor relations materials for the relevant years. The data for 2011 to 2015 <strong>is</strong><br />
based on <strong>Rank</strong> management estimates.<br />
ee)<br />
ff)<br />
The reference to £43m of capital investment <strong>is</strong> sourced from <strong>Rank</strong>’s investor presentation relating to its results for the year<br />
ended 31 December 2010 and the reference to 15 G Casino sites <strong>is</strong> sourced from <strong>Rank</strong> management.<br />
The reference to exceeding a target pre tax ROIC of 15% by year three <strong>is</strong> sourced from <strong>Rank</strong> management.<br />
gg) The table comparing the G Casino format to Traditional Grosvenor <strong>is</strong> sourced from <strong>Rank</strong>’s investor presentation relating to<br />
its results for the year ended 31 December 2010.<br />
hh) The references to the Isle of Capri profit turnaround and payback within two years are sourced from <strong>Rank</strong> management.<br />
ii)<br />
jj)<br />
The reference to Mecca Bingo’s innovation opportunities, the progress achieved so far, and the next steps are all sourced<br />
from <strong>Rank</strong>’s annual report and financial statements for the year ended 31 December 2010.<br />
The references to strongly improving customer sat<strong>is</strong>faction scores and a capital investment of £12m to date are sourced<br />
from <strong>Rank</strong> management.<br />
kk) The references to the d<strong>is</strong>tribution platforms for <strong>Rank</strong>’s brands are sourced from <strong>Rank</strong>’s annual report and financial<br />
statements for the year ended 31 December 2010.<br />
ll)<br />
The references to online-offline crossover rates for <strong>Rank</strong> and the statement that customers who play with <strong>Rank</strong> in both<br />
venues and online generate significantly greater revenue <strong>than</strong> those who play on a single channel are sourced from <strong>Rank</strong><br />
22
management. The references to online – offline crossover rates for the market are sourced from the Brit<strong>is</strong>h Gambling<br />
Prevalance Survey 2010.<br />
mm) The reference to the contribution to 2010 revenue of Spain and Belgium <strong>is</strong> sourced from <strong>Rank</strong>’s annual report and financial<br />
statements for the year ended 31 December 2010.<br />
nn) The reference to the restriction on online casino licences to four land based casino o<strong>per</strong>ators in Belgium <strong>is</strong> sourced from<br />
<strong>Rank</strong>’s annual report and financial statements for the year ended 31 December 2010.<br />
oo) The references to the near and long term changes anticipated in the regulatory environment are sourced from <strong>Rank</strong>’s annual<br />
report and financial statements for the year ended 31 December 2010. The estimated annual benefit from regulatory changes<br />
<strong>is</strong> based on <strong>Rank</strong> management estimates.<br />
pp) The references to the number of successful hearings and the dates associated with the final ECJ hearing and the final ECJ<br />
dec<strong>is</strong>ion are sourced from <strong>Rank</strong> management. The reference to total proceeds received <strong>is</strong> from <strong>Rank</strong>’s annual report and<br />
financial statements for the year ended 31 December 2010 and <strong>Rank</strong>’s announcement dated 22 March 2011.<br />
qq) The quotes presented on page 13 are sourced from analyst research reports referred to in note (m) above.<br />
rr)<br />
ss)<br />
tt)<br />
Data presented in the net debt and change in net debt charts <strong>is</strong> sourced from <strong>Rank</strong>’s investor presentation relating to its<br />
results for the year ended 31 December 2010. Data relating to PF FY10 <strong>is</strong> proforma for the receipt of £74.8m in overpaid<br />
VAT claims and £79.5m interest relating to th<strong>is</strong> claim received at the end of March 2011 as stated in <strong>Rank</strong>’s announcement<br />
on 22 March 2011 and an additional £7.1m and £1.4m from post-balance sheet adjustments sourced from <strong>Rank</strong>’s annual<br />
report and financial statements for the year ended 31 December 2010.<br />
Data presented in the capital investment chart from 2008 to 2011 <strong>is</strong> sourced from <strong>Rank</strong>’s investor presentations related to<br />
its results for the year ended 31 December 2010 and the year ended 31 December 2009.<br />
The references to <strong>Rank</strong>’s dividend <strong>per</strong> <strong>share</strong> and the data presented in the dividend <strong>per</strong> <strong>share</strong> and total dividends declared<br />
charts are sourced from the relevant annual reports and financial statements for <strong>Rank</strong>. Data presented on the dividend cover<br />
chart <strong>is</strong> calculated as the <strong>per</strong>centage of dividends <strong>per</strong> <strong>share</strong> over adjusted earnings <strong>per</strong> <strong>share</strong>, as represented in the relevant<br />
annual reports and financial statements for <strong>Rank</strong>.<br />
uu) The data presented in the one year forward EV/EBITDA since 1 January 2008 chart <strong>is</strong> sourced from Datastream as at<br />
23 May 2011 (being the Latest Practicable Date) and the net debt calculation <strong>is</strong> proforma for the receipt of VAT claims (see<br />
note (l)(ii) above).<br />
vv) The mean target price of 179p <strong>is</strong> calculated as the average of all seven target prices referred to in note (m) above.<br />
ww) The quotes presented on page 16 are sourced from analyst research reports referred to in note (m) above. The quote from<br />
Evolution Securities Ltd (14 May 2011) <strong>is</strong> taken from a Financial Times article dated 14 May 2011 entitled “Guoco bid for<br />
<strong>Rank</strong> <strong>is</strong> priced to fail”.<br />
xx) The references to EV/EBITDA multiples paid for other gaming and le<strong>is</strong>ure companies are calculated based on the same<br />
methodology detailed above in note (l) used to calculate the 5.7x <strong>Rank</strong>’s one year forward EBITDA multiple and are taken<br />
from the following sources:<br />
(i)<br />
Guoco <strong>Group</strong>’s Offer of 6.0x <strong>Rank</strong> LTM EBITDA for the twelve months ended 31 December 2010: the Offer value <strong>is</strong><br />
calculated as <strong>per</strong> note (l) above. The underlying EBITDA for the twelve months ended 31 December 2010 <strong>is</strong> sourced<br />
from <strong>Rank</strong>’s annual report and financial statements for the year ended 31 December 2010;<br />
(ii) Permira / Gala (August 2005): the multiple of 13.0x EBITDA for the twelve month <strong>per</strong>iod ended 30 September 2004<br />
<strong>is</strong> based on an offer value of £1,890.0m and an underlying EBITDA of £145.8m for the twelve month <strong>per</strong>iod ended<br />
30 September 2004 as quoted in the Cinven, Candover and Permira press release dated 19 August 2005;<br />
(iii) Harrahs / London Clubs International plc (“London Clubs”) (August 2006) multiple of 17.9x EBITDA for the twelve<br />
month <strong>per</strong>iod ended 31 March 2006 <strong>is</strong> based on a transaction value of £291.6m, an offer price of 125p as quoted in<br />
Harrah’s announcement dated 31 August 2006, London Club’s <strong>is</strong>sued and to be <strong>is</strong>sued <strong>share</strong> capital of 225,948,435<br />
(including 2,523,888 of outstanding options) sourced from Harrah’s announcement dated 31 August 2006 and<br />
London Clubs’ annual report for the year ended 31 March 2006 and London Club’s net debt of £9.1m sourced from<br />
London Clubs’ annual report for the year ended 31 March 2006 and proforma for the receipt of options proceeds<br />
relating to the outstanding options sourced from Harrah’s announcement dated 31 August 2006 and the weighted<br />
average exerc<strong>is</strong>e prices sourced from London Club’s annual report for the year ended 31 March 2006. The underlying<br />
EBITDA of £16.3m for the twelve months ended 31 March 2006 <strong>is</strong> sourced from London Clubs’ annual report for the<br />
year ended 31 March 2006;<br />
23
zz)<br />
(iv) Genting / Stanley Le<strong>is</strong>ure (October 2006): the multiple of 16.4x EBITDA for the twelve months ended 30 April<br />
2006 <strong>is</strong> based on a transaction value of £690.6m, an offer price of 860p sourced from Genting International Plc’s<br />
announcement dated 11 September 2006, Stanley Le<strong>is</strong>ure’s <strong>is</strong>sued and to be <strong>is</strong>sued <strong>share</strong> capital of 74,313,150<br />
(including 3,766,993 of options) sourced from Genting International Plc’s announcement dated 11 September 2006<br />
and Stanley Le<strong>is</strong>ure’s annual report for the year ended 30 April 2006 and Stanley Le<strong>is</strong>ure’s net debt of £51.5m<br />
proforma for the receipt of options proceeds relating to the outstanding options sourced from Genting’s announcement<br />
dated 11 September 2006 and the weighted average exerc<strong>is</strong>e price sourced from Stanley Le<strong>is</strong>ure’s annual report for<br />
the year ended 30 April 2006. The underlying EBITDA for the year ended 30 April 2006 <strong>is</strong> sourced from Stanley<br />
Le<strong>is</strong>ure’s annual report for the year ended 30 April 2006;<br />
(v)<br />
Genting Malaysia / Genting Singapore (July 2010) multiple of 13.9x EBITDA for the twelve months ended<br />
31 December 2009 <strong>is</strong> based on a transaction value of £340.0m and a net debt of £85.9m sourced from Genting<br />
Malaysia’s announcement dated 1 July 2010. The underlying EBITDA <strong>is</strong> sourced from the Companies House reports<br />
relating to the o<strong>per</strong>ating entities acquired (Coastbright Limited, Genting International Investment Pro<strong>per</strong>ties (UK)<br />
Limited and Genting UK PLC (formerly Genting Stanley PLC)) as quoted in Genting Malaysia’s announcement dated<br />
1 July 2010 for the year ended 31 December 2009; and<br />
(vi) The median of UK Le<strong>is</strong>ure deals relates to all acqu<strong>is</strong>itions in the gaming and le<strong>is</strong>ure sector involving a UK target and<br />
where the transaction value <strong>is</strong> in excess of $250m and <strong>is</strong> sourced from SDC.<br />
The reference to the typical premium paid for control in the UK relates to the average premia to the und<strong>is</strong>turbed <strong>share</strong><br />
price in all deals involving a UK public target (including deals where the acquirer increases its stake to above 50% without<br />
acquiring all outstanding <strong>share</strong>s) for the five years ending 23 May 2011 and where the transaction value <strong>is</strong> in excess of<br />
$500m and are sourced from the announcements related to the relevant transactions.<br />
aaa) The quotes presented on page 17 are sourced from analyst research reports referred to in note (m) above.<br />
24
Additional Information<br />
1. Responsibility for Information<br />
The Independent Directors, accept responsibility for the information contained in th<strong>is</strong> document, except that the only<br />
responsibility accepted by them in respect of the information contained in th<strong>is</strong> document relating to Guoco <strong>Group</strong>, its subsidiary<br />
undertakings and the directors of Guoco <strong>Group</strong> and/or any such subsidiary undertakings, which has been compiled from<br />
publ<strong>is</strong>hed sources, <strong>is</strong> to ensure that such information has been correctly and fairly reproduced and presented. Subject to the<br />
aforesaid, to the best of the knowledge and belief of the Independent Directors (who have taken all reasonable care to ensure that<br />
such <strong>is</strong> the case), the information contained in th<strong>is</strong> document for which they accept responsibility <strong>is</strong> in accordance with the facts<br />
and does not omit anything likely to affect the import of that information.<br />
The “Independent Directors” are the Directors of <strong>Rank</strong>, whose names are set out in paragraph 4 below, except for Tim Scoble.<br />
Tim Scoble <strong>is</strong> a non-executive director of <strong>Rank</strong> and acts, and has done so since h<strong>is</strong> appointment, as a representative of Guoco<br />
<strong>Group</strong> on <strong>Rank</strong>’s Board. To manage th<strong>is</strong> conflict of interest, Tim Scoble has not participated, and will not participate, in the<br />
Board’s d<strong>is</strong>cussions or receive any information in relation to the Offer. Tim Scoble does not, therefore, accept responsibility for<br />
the views and opinions of the Independent Directors of <strong>Rank</strong> in relation to the Offer as set out in th<strong>is</strong> document.<br />
2. Company Details<br />
<strong>Rank</strong> <strong>is</strong> a public limited company which <strong>is</strong> l<strong>is</strong>ted on the premium segment of the Official L<strong>is</strong>t maintained by the Financial<br />
Services Authority and traded on the main market for l<strong>is</strong>ted securities of the London Stock Exchange. <strong>Rank</strong> <strong>is</strong> incorporated and<br />
domiciled in England and Wales under reg<strong>is</strong>tration number 03140769. The address of its reg<strong>is</strong>tered office <strong>is</strong> Statesman House,<br />
Stafferton Way, Maidenhead, Berkshire, SL6 1AY.<br />
3. Background to the Offer<br />
Th<strong>is</strong> document relates to the unsolicited offer by AGIL, a controlled undertaking of Guoco <strong>Group</strong>, as d<strong>is</strong>closed in the Offer<br />
Document.<br />
The purpose of the Offer, as stated by AGIL in the Offer Document, <strong>is</strong> to acquire control of the entire voting <strong>share</strong> capital of<br />
<strong>Rank</strong>. For a full description of the terms and conditions of the Offer, please refer to the Offer Document.<br />
4. Directors<br />
Director<br />
Peter Johnson<br />
Ian Burke<br />
Paddy Gallagher<br />
Richard Greenhalgh<br />
Owen O’Donnell<br />
Tim Scoble<br />
Bill Shannon<br />
John Warren<br />
Role<br />
Chairman<br />
Chief Executive<br />
Finance Director<br />
Senior Independent Director<br />
Independent Non-Executive Director<br />
Non-Executive Director<br />
Independent Non-Executive Director<br />
Independent Non-Executive Director<br />
By a letter dated 12 May 2011, <strong>Rank</strong> imposed certain restrictions on Tim Scoble’s directorship for the duration of the Offer<br />
Period in order to manage Tim Scoble’s conflict of interest, as a representative of Guoco <strong>Group</strong> on <strong>Rank</strong>’s Board. The restrictions<br />
prevent Tim Scoble from (i) attending any Board meetings held during the Offer Period the purpose of which relates to the<br />
Offer, (ii) receiving any materials provided to the Board which relate to the Offer, and (iii) sharing any of <strong>Rank</strong>’s confidential<br />
information with Guoco <strong>Group</strong>, regardless of whether such information relates to the Offer.<br />
25
5. D<strong>is</strong>closure of Interests and Dealings in Relevant Securities<br />
(a)<br />
Definitions<br />
For the purposes of th<strong>is</strong> paragraph 5:<br />
(i)<br />
(ii)<br />
“acting in concert” with a party means any <strong>per</strong>son acting or deemed to be acting in concert with that party for the<br />
purposes of the City Code and the Offer. Note, the following <strong>per</strong>sons are presumed to be acting in concert with one<br />
another under the City Code:<br />
(A) a company, its parent, subsidiaries and fellow subsidiaries, and their associated companies, and companies of<br />
which such companies are associated companies, all with each other (for th<strong>is</strong> purpose ownership or control of<br />
20% or <strong>more</strong> of the equity <strong>share</strong> capital of a company <strong>is</strong> regarded as the test of associated company status);<br />
(B) a company with any of its directors (together with close relatives and related trusts);<br />
(C) a company with any of its pension funds and the pension funds of any company covered in (A) above;<br />
(D) a fund manager (including exempt fund managers) with any investment company, unit trust or other <strong>per</strong>son<br />
whose investments such fund manager manages on a d<strong>is</strong>cretionary bas<strong>is</strong>, in respect of the relevant investment<br />
accounts;<br />
(E) a connected adv<strong>is</strong>er with its client and, if its client <strong>is</strong> acting in concert with Guoco <strong>Group</strong> or with <strong>Rank</strong>, with<br />
Guoco <strong>Group</strong> and <strong>Rank</strong> respectively, in each case in respect of the interests in <strong>share</strong>s of that adv<strong>is</strong>er and <strong>per</strong>sons<br />
controlling, controlled by or under the same control as that adv<strong>is</strong>er (except in the capacity of an exempt fund<br />
manager or an exempt principal trader); and<br />
(F)<br />
directors of a company which <strong>is</strong> subject to an offer or where the directors have reason to believe a bona fide<br />
offer for their company may be imminent;<br />
“connected adv<strong>is</strong>er” means:<br />
(A) in relation to <strong>Rank</strong>, an organ<strong>is</strong>ation which <strong>is</strong> adv<strong>is</strong>ing <strong>Rank</strong> in relation to the Offer and <strong>Rank</strong>’s corporate broker;<br />
and<br />
(B) in relation to any <strong>per</strong>son acting in concert with <strong>Rank</strong>, an organ<strong>is</strong>ation which <strong>is</strong> adv<strong>is</strong>ing any such <strong>per</strong>son in<br />
relation to the Offer or in relation to the matter which <strong>is</strong> the reason for that <strong>per</strong>son being a concert party of <strong>Rank</strong>;<br />
(iii) “control” means an interest, or interests, in <strong>share</strong>s carrying in aggregate 30 <strong>per</strong> cent. or <strong>more</strong> of the voting rights<br />
attributable to the capital of a company which are currently exerc<strong>is</strong>able at a general meeting, irrespective of whether<br />
such interest or interests give de facto control (and “controlling” and “controlled by” shall be construed accordingly);<br />
(iv) “dealing” or “dealt” means:<br />
(v)<br />
(A) acquiring or d<strong>is</strong>posing of securities or the right (whether conditional or absolute) to exerc<strong>is</strong>e or direct the<br />
exerc<strong>is</strong>e of the voting rights attaching to securities or of general control of securities;<br />
(B) taking, granting, acquiring, d<strong>is</strong>posing of, entering into, closing out, terminating, exerc<strong>is</strong>ing or varying an option<br />
(including a traded option contract) in respect of any securities;<br />
(C) subscribing or agreeing to subscribe for securities;<br />
(D) exerc<strong>is</strong>ing or converting, whether in respect of new or ex<strong>is</strong>ting securities, any securities carrying conversion or<br />
subscription rights;<br />
(E) acquiring, d<strong>is</strong>posing of, entering into, closing out, exerc<strong>is</strong>ing any rights under, or varying, a derivative<br />
referenced, directly or indirectly, to securities;<br />
(F)<br />
entering into, terminating or varying the terms of any agreement to purchase or sell securities; and<br />
(G) any other action resulting, or which may result, in an increase or decrease in the number of securities in which a<br />
<strong>per</strong>son <strong>is</strong> interested or in respect of which he has a short position;<br />
“derivative” means any financial product whose value, in whole or in part, <strong>is</strong> determined directly or indirectly by<br />
reference to the price of an underlying security;<br />
(vi) “d<strong>is</strong>closure <strong>per</strong>iod” means the <strong>per</strong>iod commencing on 6 May 2011 (being the start of the Offer Period) and ending on<br />
23 May 2011 (being the Latest Practicable Date);<br />
26
(vii) “Guoco <strong>Group</strong> relevant securities” means any <strong>share</strong>s in the equity <strong>share</strong> capital of, or carrying voting rights in, Guoco<br />
<strong>Group</strong> and any securities convertible into or carrying rights to subscribe for any such <strong>share</strong>s;<br />
(viii) a <strong>per</strong>son having an “interest”, or being “interested”, in any securities includes where a <strong>per</strong>son:<br />
(A) owns securities;<br />
(B) has the right (whether conditional or absolute) to exerc<strong>is</strong>e or direct the exerc<strong>is</strong>e of the voting rights attaching to<br />
securities or has general control of them;<br />
(C) by virtue of any agreement to purchase, option or derivative, has the right or option to acquire securities or call<br />
for their delivery or <strong>is</strong> under an obligation to take delivery of them, whether the right, option or obligation <strong>is</strong><br />
conditional or absolute and whether it <strong>is</strong> in the money or otherw<strong>is</strong>e; or<br />
(D) <strong>is</strong> party to any derivative whose value <strong>is</strong> determined by reference to the price of securities and which results, or<br />
may result, in h<strong>is</strong> having a long position in them;<br />
(ix) “Note 11 arrangement” means any indemnity or option arrangement, and any agreement or understanding, formal or<br />
informal, of whatever nature, relating to <strong>Rank</strong> relevant securities which may be an inducement to deal or refrain from<br />
dealing therein;<br />
(b)<br />
(x)<br />
references to a “pension fund” of <strong>Rank</strong> do not include any such pension funds which are managed under an agreement<br />
or arrangement with an independent third party which gives such third party absolute d<strong>is</strong>cretion regarding dealing,<br />
voting and offer acceptance dec<strong>is</strong>ions relating to the fund;<br />
(xi) “<strong>Rank</strong> relevant securities” means <strong>Rank</strong> <strong>share</strong>s and any securities convertible into or carrying rights to subscribe for<br />
<strong>Rank</strong> <strong>share</strong>s;<br />
(xii) “relevant securities” means <strong>Rank</strong> relevant securities and Guoco <strong>Group</strong> relevant securities;<br />
(xiii) “related parties”, in relation to a director, means those <strong>per</strong>sons whose interests in <strong>share</strong>s the director would be<br />
required to d<strong>is</strong>close pursuant to Part 22 of the Companies Act 2006 and related regulations; and<br />
(xiv) “short position” means any short position (whether conditional or absolute and whether in the money or otherw<strong>is</strong>e),<br />
including any short position under a derivative, any agreement to sell or any delivery obligation or right to require<br />
another <strong>per</strong>son to purchase or take delivery.<br />
Interests in relevant securities<br />
As at the close of business on 23 May 2011 (being the Latest Practicable Date):<br />
(i)<br />
the Directors of <strong>Rank</strong> and their respective close relatives and related trusts owned or controlled the following <strong>Rank</strong><br />
<strong>share</strong>s:<br />
Name<br />
Ordinary 13 8 ⁄9p <strong>share</strong>s as at<br />
23 May 2011<br />
Chairman Peter Johnson 57,260<br />
Executive Directors* Ian Burke 587,406<br />
Paddy Gallagher 346,666<br />
Independent Non-Executive Directors Richard Greenhalgh 39,238<br />
Owen O’Donnell 18,397<br />
Bill Shannon 36,511<br />
John Warren 47,919<br />
Non-independent Non-Executive Director** Tim Scoble –<br />
* The <strong>Rank</strong> <strong>Group</strong> Employee Benefit Trust (“the Trust”) holds <strong>share</strong>s to sat<strong>is</strong>fy the vesting of long-term incentive plan awards.<br />
Executive Directors are deemed to have an interest in the ordinary <strong>share</strong>s of the Company held by the Trust. As at 23 May 2011<br />
(being the Latest Practicable Date), the Trust held 1,000,287 ordinary 13 8 ⁄9p <strong>share</strong>s.<br />
** The non-independent Non-Executive Director <strong>is</strong> an appointee of Guoco <strong>Group</strong>, a parent company of <strong>Rank</strong>’s largest <strong>share</strong>holder,<br />
which owns 159,486,902 ordinary <strong>share</strong>s in the Company, representing 40.8% of voting rights.<br />
27
(ii)<br />
the Directors of <strong>Rank</strong> held the following options in respect of <strong>Rank</strong> <strong>share</strong>s under the <strong>Rank</strong> <strong>share</strong> schemes:<br />
Name<br />
Plan<br />
No. of <strong>share</strong>s<br />
compr<strong>is</strong>ed in<br />
option/restricted<br />
award<br />
Date of grant/<br />
award<br />
Exerc<strong>is</strong>e price/<br />
Market value<br />
at date<br />
of award (p)<br />
Performance<br />
<strong>per</strong>iod for<br />
restricted award<br />
Exerc<strong>is</strong>e <strong>per</strong>iod/<br />
earliest vesting date<br />
Ian Burke SAYE 6,906 3 October 2007 139.00 n/a 1 December 2010 to<br />
31 May 2011<br />
2005 LTIP 337,813 2 September 2009 77.75 1 January 2009 to<br />
31 December 2011<br />
2010 LTIP 334,160 22 April 2010 117.90 1 January 2010 to<br />
31 December 2012<br />
2010 LTIP 307,193 11 March 2011 128.25 1 January 2011 to<br />
31 December 2013<br />
Paddy Gallagher 2005 LTIP 192,926 2 September 2009 77.75 1 January 2009 to<br />
31 December 2011<br />
2010 LTIP 190,840 22 April 2010 117.90 1 January 2010 to<br />
31 December 2012<br />
2010 LTIP 175,439 11 March 2011 128.25 1 January 2011 to<br />
31 December 2013<br />
February 2012 – as soon<br />
as practicable following<br />
determination by<br />
remuneration committee<br />
as to whether award<br />
should vest<br />
22 April 2013<br />
11 March 2014<br />
February 2012 – as soon<br />
as practicable following<br />
determination by<br />
remuneration committee<br />
as to whether award<br />
should vest<br />
22 April 2013<br />
11 March 2014<br />
(iii) the following <strong>per</strong>sons acting in concert with <strong>Rank</strong> held the following interests in, rights to subscribe for, and short<br />
positions in respect of <strong>Rank</strong> <strong>share</strong>s:<br />
Name Type of interest Number of <strong>Rank</strong> <strong>share</strong>s<br />
Bank of America Merrill Lynch Own 402 (long)<br />
(c)<br />
(i)<br />
Dealings in relevant securities<br />
The following dealings in <strong>Rank</strong> <strong>share</strong>s by other <strong>per</strong>sons acting in concert with <strong>Rank</strong> have taken place during the Offer<br />
Period:<br />
Name Date of Dealing Transaction<br />
No. of<br />
<strong>Rank</strong><br />
<strong>share</strong>s<br />
Bank of America Merrill Lynch 10 May 2011 Sale 2,096 152<br />
Bank of America Merrill Lynch 10 May 2011 Sale 5,864 150<br />
Bank of America Merrill Lynch 9 May 2011 Purchase 2,476 153<br />
Bank of America Merrill Lynch 9 May 2011 Sale 2,238 152<br />
Bank of America Merrill Lynch 9 May 2011 Sale 3,972 152<br />
Price<br />
(p)<br />
Bank of America Merrill Lynch 9 May 2011 Sale 510 152<br />
28
(d)<br />
(e)<br />
General<br />
Save as d<strong>is</strong>closed in th<strong>is</strong> paragraph 5, on 23 May 2011 (being the Latest Practicable Date):<br />
(i)<br />
(ii)<br />
neither <strong>Rank</strong>, nor any Directors of <strong>Rank</strong>, nor any of such Directors’ related parties, nor any <strong>per</strong>sons acting in concert<br />
with <strong>Rank</strong> had any interest in any <strong>Rank</strong> relevant securities, or right to subscribe for any <strong>Rank</strong> relevant securities, or<br />
any short position in respect of <strong>Rank</strong> relevant securities, nor has any such <strong>per</strong>son dealt in any <strong>Rank</strong> relevant securities<br />
during the Offer Period;<br />
neither <strong>Rank</strong>, nor any Directors of <strong>Rank</strong>, nor any of such Directors’ related parties, nor any <strong>per</strong>son acting in concert<br />
with <strong>Rank</strong> had any interest in any Guoco <strong>Group</strong> relevant securities, or right to subscribe for any Guoco <strong>Group</strong><br />
relevant securities, or any short position in respect of Guoco <strong>Group</strong> relevant securities, nor has any such <strong>per</strong>son dealt<br />
in any Guoco <strong>Group</strong> relevant securities during the Offer Period; and<br />
(iii) neither <strong>Rank</strong> nor any <strong>per</strong>son acting in concert with <strong>Rank</strong> had borrowed or lent any <strong>Rank</strong> relevant securities, save for<br />
any borrowed <strong>share</strong>s which have been either on lent or sold.<br />
No dealing arrangements<br />
Save as d<strong>is</strong>closed in th<strong>is</strong> document, neither <strong>Rank</strong>, nor any Director of <strong>Rank</strong>, nor any of the Directors’ close relatives or<br />
related trusts, nor any <strong>per</strong>son acting in concert with <strong>Rank</strong>, has any Note 11 arrangement with any <strong>per</strong>son.<br />
6. Service Agreements and Appointment Letters for Directors of <strong>Rank</strong><br />
Each of the Executive Directors has a service agreement with the Company. The Chairman and each of the Non-Executive<br />
Directors have an appointment letter from the Company. Further details are set out below.<br />
Ian Burke<br />
Ian Burke <strong>is</strong> employed under a service agreement dated 6 March 2006, terminable by either party on 12 months’ notice.<br />
Under h<strong>is</strong> service agreement, Ian Burke <strong>is</strong> entitled to receive base salary (currently £525,300 <strong>per</strong> annum), a car allowance of<br />
£18,500 <strong>per</strong> annum and to participate in the Company’s private medical insurance, <strong>per</strong>manent health insurance and life assurance<br />
arrangements. In accordance with the terms of h<strong>is</strong> service agreement, Ian Burke has elected to receive a supplement of 35% of<br />
base salary in lieu of pension contributions (prior to 15 April 2011, the Company made a contribution of 35% of h<strong>is</strong> base salary<br />
to h<strong>is</strong> self-invested pension plan).<br />
At the Company’s d<strong>is</strong>cretion, Ian Burke <strong>is</strong> entitled to participate in bonus schemes that the Company o<strong>per</strong>ates on such terms as<br />
the Board determines. The bonus plan for 2011 provides for an on-target bonus of 50% of base salary and a maximum bonus of<br />
100% of base salary. The ‘on target’ <strong>per</strong>formance <strong>is</strong> split into two component parts, the first <strong>is</strong> linked to <strong>Group</strong> o<strong>per</strong>ating profit<br />
and the second <strong>is</strong> linked to a <strong>Group</strong> net promoter score.<br />
Ian Burke <strong>is</strong> also eligible to participate in the Company’s ‘umbrella’ long-term incentive plan which was approved by<br />
<strong>share</strong>holders at the Company’s 2010 annual general meeting.<br />
The Company may terminate Ian Burke’s employment immediately by paying an amount in lieu of notice equal to base salary,<br />
car allowance, pension supplement and the cost to the Company of providing the private health, <strong>per</strong>manent health insurance<br />
and life assurance benefits described above, for the 12 month notice <strong>per</strong>iod (or the balance of any unexpired notice <strong>per</strong>iod<br />
immediately prior to termination).<br />
Paddy Gallagher<br />
Paddy Gallagher <strong>is</strong> employed under a service agreement dated 2 June 2008, terminable by either party on 12 months’ notice.<br />
Under h<strong>is</strong> service agreement, Paddy Gallagher <strong>is</strong> entitled to receive base salary of £300,000 <strong>per</strong> annum, a car allowance<br />
(currently £12,750 <strong>per</strong> annum) or a company car, a supplement of 15% of base salary (less the lower earnings limit) in lieu of<br />
pension contributions, and to participate in the Company’s private medical insurance, <strong>per</strong>manent health insurance, accident cover<br />
and life assurance arrangements.<br />
At the Remuneration Committee’s d<strong>is</strong>cretion, Paddy Gallagher <strong>is</strong> entitled to participate in bonus schemes that the Company<br />
o<strong>per</strong>ates on such terms as the Remuneration Committee determines. The bonus plan for 2011 provides for an on-target bonus of<br />
40% of base salary and a maximum bonus of 80% of base salary. The ‘on target’ <strong>per</strong>formance <strong>is</strong> split into two component parts,<br />
the first <strong>is</strong> linked to <strong>Group</strong> o<strong>per</strong>ating profit and the second <strong>is</strong> linked to a <strong>Group</strong> net promoter score.<br />
The Company may terminate Paddy Gallagher’s employment immediately by paying an amount in lieu of notice equal to h<strong>is</strong><br />
basic salary for the 12 month notice <strong>per</strong>iod (or the balance of any unexpired notice <strong>per</strong>iod immediately prior to termination).<br />
29
Peter Johnson<br />
The Company announced on 14 April 2011 that Peter Johnson intended to retire as Chairman upon appointment of a successor.<br />
Peter Johnson has an appointment letter dated 27 November 2006 under which he was initially appointed as Deputy Chairman<br />
Director from 1 January 2007, with h<strong>is</strong> appointment as Chairman taking effect from 1 March 2007, for an initial <strong>per</strong>iod of three<br />
years.<br />
By a letter dated 22 October 2009, Peter Johnson’s term of appointment was extended for a further three years with effect from<br />
1 January 2010.<br />
Either party may terminate Peter Johnson’s appointment as Chairman by giving three months’ notice.<br />
Peter Johnson’s fee for h<strong>is</strong> services as Chairman under the initial letter of appointment was £150,000 <strong>per</strong> annum. Th<strong>is</strong> fee was<br />
increased to £157,500 with effect from 1 January 2011. Peter Johnson <strong>is</strong> also entitled to an annual contribution of £10,000<br />
towards the cost of a private car and driver.<br />
Richard Greenhalgh<br />
Richard Greenhalgh has an appointment letter dated 5 March 2004 under which he was initially appointed as a director for a<br />
<strong>per</strong>iod of 3 years from 1 July 2004.<br />
By a letter dated 28 July 2010, Richard Greenhalgh’s appointment was extended for a further three years with effect from 1 July<br />
2010.<br />
Richard Greenhalgh’s fee for h<strong>is</strong> services as a director was increased by the Company to £40,000 <strong>per</strong> annum with effect from<br />
1 January 2011 (immediately prior to th<strong>is</strong> h<strong>is</strong> fee was £38,000 <strong>per</strong> annum).<br />
Richard Greenhalgh receives additional annual fees of £7,500 for chairing the Remuneration Committee and £2,500 for acting as<br />
the Company’s Senior Independent Director.<br />
Save as mentioned above, there are no entitlements to comm<strong>is</strong>sions, profit-sharing arrangements or any other specific<br />
compensation payments upon termination under any of the directors’ service agreements or appointment letters.<br />
Owen O’Donnell<br />
Owen O’Donnell has an appointment letter dated 20 August 2008 under which he was appointed as a non-executive director for<br />
an initial <strong>per</strong>iod of three years with effect from 11 September 2008.<br />
Owen O’Donnell’s fee for h<strong>is</strong> services as a director under h<strong>is</strong> appointment letter was £38,000 <strong>per</strong> annum. Th<strong>is</strong> fee was increased<br />
to £40,000 <strong>per</strong> annum with effect from 1 January 2011.<br />
Tim Scoble<br />
Tim Scoble has an appointment letter dated 17 May 2010 under which he was appointed as a director for an initial <strong>per</strong>iod of three<br />
years with effect from 22 April 2010.<br />
Tim Scoble’s fee for h<strong>is</strong> services as a director under h<strong>is</strong> appointment letter was £38,000 <strong>per</strong> annum. Th<strong>is</strong> fee was increased to<br />
£40,000 <strong>per</strong> annum with effect from 1 January 2011.<br />
Bill Shannon<br />
Bill Shannon has an appointment letter dated 28 February 2006 under which he was initially appointed as a director for a <strong>per</strong>iod<br />
of three years with effect from 3 April 2006.<br />
By a letter dated 25 February 2009, Bill Shannon’s appointment was extended for a further three years with effect from 3 April<br />
2009.<br />
Bill Shannon’s fee for h<strong>is</strong> services as a director under h<strong>is</strong> appointment letter was £38,000 <strong>per</strong> annum. Th<strong>is</strong> fee was increased to<br />
£40,000 <strong>per</strong> annum with effect from 1 January 2011.<br />
John Warren<br />
John Warren has an appointment letter dated 19 October 2005 under which he was initially appointed as a director for a <strong>per</strong>iod of<br />
three years with effect from 1 January 2006.<br />
By a letter dated 16 December 2008, John Warren’s appointment was extended for a further three years with effect from 1<br />
January 2009.<br />
John Warren’s fee for h<strong>is</strong> services as a director under h<strong>is</strong> initial appointment letter was £38,000 <strong>per</strong> annum. Th<strong>is</strong> fee was<br />
increased to £40,000 <strong>per</strong> annum with effect from 1 January 2011. John Warren <strong>is</strong> entitled to an additional fee of £8,500 <strong>per</strong><br />
annum for chairing the Audit Committee.<br />
30
7. Material Contracts<br />
<strong>Rank</strong> entered into an agreement dated 24 September 2010 with a third party to cap some of its contingent tax liabilities.<br />
The cap agreement relates to £59.1m of VAT refunded to <strong>Rank</strong> by HMRC in 2008 as a result of the <strong>Group</strong>’s successful claim<br />
that the tax had been wrongly applied to games of interval bingo. Although <strong>Rank</strong>’s claim was upheld by both the VAT Tribunal<br />
and the High Court, HMRC appealed these dec<strong>is</strong>ions and the case has been referred to the ECJ. A final dec<strong>is</strong>ion of the ECJ <strong>is</strong><br />
expected by late 2011.<br />
<strong>Rank</strong> made a cash payment of £4.5m in 2010 in order to fund the cap agreement, which was recorded as an exceptional item in<br />
<strong>Rank</strong>’s annual report and financial statements for the year ended 31 December 2010. In the event that the ECJ finds in favour of<br />
HMRC, the cap agreement means that <strong>Rank</strong>’s net liabilities in terms of having to repay the refunded VAT would total £25.6m<br />
plus interest (as opposed to £66.1m plus interest which <strong>is</strong> what the liabilities would amount to if the cap agreement was not in<br />
place).<br />
8. Goldman Sachs International Consent<br />
Goldman Sachs International has given and not withdrawn its consent to the <strong>is</strong>sue of th<strong>is</strong> document with the inclusion of its name<br />
in the form and context in which it appears.<br />
9. Financial and Other Information<br />
Save as d<strong>is</strong>closed on page 14 of th<strong>is</strong> document, there has been no material change in the financial or trading position of <strong>Rank</strong><br />
since 31 December 2010 (the date to which the latest publ<strong>is</strong>hed audited accounts of <strong>Rank</strong> were prepared).<br />
10. Documents on D<strong>is</strong>play<br />
Copies of the following documents are available for inspection during normal business hours on any weekday (Saturdays,<br />
Sundays and public holidays excepted) at the offices of Freshfields Bruckhaus Deringer LLP, 65 Fleet Street, London, EC4Y 1HS<br />
and at www.rank.com for so long as the Offer remains open for acceptance:<br />
1. a copy of th<strong>is</strong> document;<br />
2. the current Memorandum and Articles of Association of <strong>Rank</strong>;<br />
3. the publ<strong>is</strong>hed audited consolidated accounts of <strong>Rank</strong> for the two financial years ended 31 December 2009 and 31 December<br />
2010;<br />
4. the service contracts and other arrangements referred to in paragraph 6 above; and<br />
5. the written consent of Goldman Sachs International referred to in paragraph 8 above.<br />
31
Definitions<br />
“£” or “GBP” pounds sterling, the lawful currency of the UK;<br />
“Act” the Companies Act 2006;<br />
“AGIL”<br />
“Board” or “Directors”<br />
“CAGR”<br />
“City Code” or “Takeover Code”<br />
“closing price”<br />
“customers”<br />
“customer v<strong>is</strong>its”<br />
“dealings” or “dealt”<br />
“DCMS”<br />
“Director”<br />
“d<strong>is</strong>closure <strong>per</strong>iod”<br />
“th<strong>is</strong> document”<br />
“DPS”<br />
“EBITDA”<br />
“ECJ”<br />
“EPS”<br />
“Executive Directors”<br />
“free cash flow”<br />
“Gambling Comm<strong>is</strong>sion”<br />
“Goldman Sachs International”<br />
“<strong>Group</strong>”<br />
“Guoco <strong>Group</strong>”<br />
All Global Investments Limited, a wholly owned subsidiary of Guoco <strong>Group</strong>;<br />
the board of directors of the Company, whose names appear in paragraph 4 of<br />
Additional Information;<br />
compound annual growth rate;<br />
the City Code on Takeovers and Mergers publ<strong>is</strong>hed by the United Kingdom’s Panel on<br />
Takeovers and Mergers from time to time;<br />
the closing middle-market price of a <strong>Rank</strong> <strong>share</strong> on a particular day as derived from the<br />
Daily Official L<strong>is</strong>t;<br />
unique customers v<strong>is</strong>iting a bingo club or casino or o<strong>per</strong>ating an online or telephone<br />
betting account in the 12 month <strong>per</strong>iod;<br />
individual customer v<strong>is</strong>its to bingo clubs and casinos;<br />
for the purpose of paragraph 5 of Additional Information has the meaning given in that<br />
paragraph;<br />
Department for Culture, Media and Sport;<br />
a director of <strong>Rank</strong>;<br />
for the purpose of paragraph 5 of Additional Information has the meaning given in that<br />
paragraph;<br />
th<strong>is</strong> document, circulated on 26 May 2011 in accordance with the City Code;<br />
dividend <strong>per</strong> <strong>share</strong>;<br />
earnings before interest, tax, depreciation, amort<strong>is</strong>ation and exceptional items;<br />
European Court of Justice;<br />
earnings <strong>per</strong> <strong>share</strong>;<br />
Ian Burke and Paddy Gallagher;<br />
the amount of cash generated by the business after meeting its obligations for interest,<br />
tax and capital investment;<br />
the governing body for all sectors of gambling in Great Britain, with the exceptions of<br />
the National Lottery and spread betting;<br />
Goldman Sachs International Limited, a company incorporated in England and Wales<br />
with company number 02263951;<br />
collectively, <strong>Rank</strong> and its subsidiaries from time to time;<br />
Guoco <strong>Group</strong> Limited, a subsidiary of Hong Leong Company (Malaysia) Berhad;<br />
“H2 Gambling Capital” supplier of data and consultancy regarding the gambling industry;<br />
“HMRC”<br />
“interested in”<br />
“Latest Practicable Date”<br />
Her Majesty’s Revenue & Customs;<br />
for the purpose of paragraph 5 of Additional Information has the meaning given in that<br />
paragraph;<br />
close of business on 23 May 2011, being the latest practicable date prior to publication<br />
of th<strong>is</strong> document;<br />
“LTIP” The <strong>Rank</strong> <strong>Group</strong> 2005 Long-Term Incentive Plan and The <strong>Rank</strong> <strong>Group</strong> 2010<br />
Long-Term Incentive Plan;<br />
“main stage bingo”<br />
“market capital<strong>is</strong>ation”<br />
“net promoter score” or “NPS”<br />
“Non-Executive Directors”<br />
traditional game of bingo played in a licensed club;<br />
used to indicate the value of a company by multiplying the number of <strong>share</strong>s in <strong>is</strong>sue<br />
by the current <strong>share</strong> price;<br />
a measure of a customer’s propensity to recommend;<br />
all of the Directors who are not the Executive Directors;<br />
32
“Offer”<br />
“Offer Document”<br />
“Offer Period”<br />
“Offer price”<br />
“Online – offline crossover”<br />
“O<strong>per</strong>ating margin”<br />
“Panel”<br />
“<strong>Rank</strong>” or “the Company”<br />
“<strong>Rank</strong> <strong>share</strong> scheme”<br />
“<strong>Rank</strong> <strong>share</strong>s”<br />
“relevant securities”<br />
“remote betting and gaming”<br />
“ROIC”<br />
“Revenue”<br />
“<strong>share</strong>holder”<br />
“spend <strong>per</strong> v<strong>is</strong>it”<br />
“subsidiary”<br />
“profit margin”<br />
“TRE”<br />
“United Kingdom” or “UK”<br />
“VAT”<br />
the offer made by Guoco <strong>Group</strong> for all the <strong>is</strong>sued and to be <strong>is</strong>sued <strong>share</strong> capital of <strong>Rank</strong><br />
pursuant to the terms set out in the Offer Document;<br />
the document sent out by Guoco <strong>Group</strong> to <strong>share</strong>holders on 17 May 2011 containing the<br />
Offer;<br />
the <strong>per</strong>iod commencing on (and including) 6 May 2011 and ending on whichever of<br />
the following dates shall be the latest: (i) 1:00 p.m. (London time) on 7 June 2011; (ii)<br />
the date on which the Offer lapses; and (iii) the date on which the Offer becomes or <strong>is</strong><br />
declared wholly unconditional in accordance with its terms;<br />
<strong>150p</strong> <strong>per</strong> <strong>Rank</strong> <strong>share</strong> in cash, as <strong>per</strong> the Offer Document;<br />
<strong>per</strong>centage of adults participating in both remote and land-based gambling;<br />
o<strong>per</strong>ating profit expressed as a <strong>per</strong>centage of revenue;<br />
the Panel on Takeovers and Mergers;<br />
The <strong>Rank</strong> <strong>Group</strong> Plc, a company reg<strong>is</strong>tered in England and Wales under company<br />
number 03140769, the <strong>share</strong>s of which are l<strong>is</strong>ted on the London Stock Exchange<br />
(Code: RNK);<br />
the option and incentive schemes of <strong>Rank</strong> under which options or awards over <strong>Rank</strong><br />
<strong>share</strong>s are outstanding, including (to the extent applicable) the long-term incentive plan,<br />
the save-as-you-earn <strong>share</strong>s option scheme and the executive <strong>share</strong> option scheme;<br />
ordinary <strong>share</strong>s of 13 8 /9p each in the <strong>share</strong> capital of <strong>Rank</strong>;<br />
for the purpose of paragraph 5 of Additional Information has the meaning given in that<br />
paragraph;<br />
gambling services offered to customers via the internet and mobile phone;<br />
return on invested capital – a key <strong>per</strong>formance indicator;<br />
income retained by <strong>Group</strong> after deductions for VAT and players’ winnings;<br />
a holder of <strong>Rank</strong> <strong>share</strong>s;<br />
revenue divided by customer v<strong>is</strong>its;<br />
has the meaning given in section 1159 of the Act;<br />
the ratio of profit from o<strong>per</strong>ations to revenue;<br />
Top <strong>Rank</strong> España;<br />
the United Kingdom of Great Britain and Northern Ireland; and<br />
value added tax.<br />
33
34<br />
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Keep your<br />
<strong>share</strong>s in <strong>Rank</strong><br />
For further ass<strong>is</strong>tance call the<br />
FREE SHAREHOLDER HELPLINE on:<br />
0800 169 7775 in the UK<br />
+44 121 415 0195 outside the UK<br />
Entertaining<br />
people<br />
Entertaining<br />
for future<br />
value<br />
You should be aware that the Shareholder Helpline<br />
cannot provide any financial, legal or taxation advice<br />
in connection with the Offer nor any advice on the<br />
merits of the Offer.<br />
The <strong>Rank</strong> <strong>Group</strong> Plc: Entertaining for future value<br />
5
The <strong>Rank</strong> <strong>Group</strong> Plc<br />
Statesman House<br />
Stafferton Way<br />
Maidenhead<br />
SL6 1AY<br />
www.rank.com<br />
For further ass<strong>is</strong>tance call the FREE<br />
SHAREHOLDER HELPLINE on:<br />
0800 169 7775 in the UK<br />
+44 121 415 0195 outside the UK<br />
You should be aware that the Shareholder<br />
Helpline cannot provide any financial,<br />
legal or taxation advice in connection<br />
with the Offer nor any advice on the<br />
merits of the Offer.<br />
2<br />
The <strong>Rank</strong> <strong>Group</strong> Plc: Entertaining for future value
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