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Emily D. Swoboda

Rank Acquires Blue Square

20 January 2003

Two of England's biggest names in gambling will become one when a £65 million acquisition is completed in mid February.

In a deal announced today, Rank group is purchasing Blue Square Interactive Development through a stock buyout.

Blue Square is one of the leading developers of betting platforms for the Internet, wireless applications and I-TV. For Rank, owner of Hard Rock Cafe and Mecca Bingo among other gambling brands, the purchase marks a further commitment to the interactive marketplace. The company already operates, a fixed-odds betting site, and The two sites launched in November 2001 and July 2002 respectively.

With Blue Square under its tent, Rank is looking to solidify its position in the sports betting market.

In addition to acquiring a betting platform for the Internet and other applications, Rank will gain access to Blue Square's 113,000 active users, who bet at as well as at sites operated by Blue Square's numerous licensees.

Rank officials said Monday that the company will become the first mainstream gaming entity with offerings in betting, bingo and casino games.

They also said the two companies' combined holdings will generate annual stakes of approximately £400 million, based on current levels of business.

In addition to strengthening Rank's presence in the bookmaking space, the buyout is looked upon as vital step for Rank in preparing for the deregulation of England's gambling industries. The deregulation process, expected to be carried out within the next two or three years, will likely lead to an influx of new casinos--all the more reason to diversify.

"The transaction fulfills a clear and stated strategic aim to add betting products and expertise to our existing gaming activities which already represent the largest part of the group," Rank CEO Mike Smith said.

Smith is confident the company's sports-betting business will grow just as quickly as its other I-gaming operations did.

"We have shown consistent growth in our bingo clubs and casinos as well as in our online businesses,where stakes are running at over £90 million per annum, despite being only one year old," he said. "This acquisition is both financially attractive and complementary to our existing operations."

Smith also hinted that once liberalized regulations are passed in the United Kingdom, operators will be able to market their online brands at their land-based casinos.

"The cross-selling opportunity to both Rank and Blue Square's established customers will further enhance our growth prospects both pre- and post-deregulation, when there will be greater flexibility to offer betting products within gaming premises," Smith explained.

Martin Belsham, managing director of Blue Square, also sees a bright future for the new Blue Square.

"We are delighted to join the Rank stable of gaming activities and are both excited and optimistic about the opportunities for our combined business in the run up to deregulation and beyond," he said.

Blue Square was established in its current form in 1999. In 2002, the company received total stakes of £202 million, generating gross win of £13.4 million. The introduction of telephone betting in October 2001 and fixed-odds games in November 2002 have led to particularly strong growth over the last year. The total amount staked in December 2002 was £24.5 million, an increase of over 150 percent compared with the same period the previous year.

Terms of the Deal

To facilitate the buyout, Rank will issue £65 million in nominal value of unsecured loan stock, convertible into Rank ordinary shares at a price of 282p for every £1 of loan stock held. This represents a premium of 11 percent to the closing mid-market price of Rank ordinary shares on Jan. 17, the latest practicable date prior to the announcement.

The loan stock, which will not be listed, will be convertible at any time on or after Oct. 1, 2003. It will carry a coupon of 5 percent per annum. Interest on the loan stock will become payable on Dec. 31 each year; if conversion has not already taken place prior to Dec. 31, 2004, the loan stock will be redeemed on that date at par.

Full conversion of the loan stock would result in the issue of 23 million new Rank ordinary shares. On conversion, the new Rank ordinary shares will be freely transferable, save that, for a limited period, any such transfer may only be made through Rank's appointed stockbrokers.

Rank officials said the stock issuance should be completed by the middle of February.

Rank Acquires Blue Square is republished from
Emily D. Swoboda
Emily D. Swoboda