Individual Domains Or One Domain With Subdurectories Options

[Visimar]

I currently have a client with over 400 franchise websites. at least 75% of them are ranked on the front page og google for their target market plus 3 or 4 of their services offered. They are currently on one domain name with a subdirectory structure like below:

domain.com/city/KeywordRichPageName.htm

The strategy is working very well so far obviously.

Another company has pitched them a strategy where they put each franchise on their own domain name and link all of them together. With over 300 franchise websites this is expensive to say the least. Not to mention they will lose their current rankings most likely.

The new strategy is proposing to use a 301 redirect to all the old ranking pages and point them to the new domain and site being setup on the new domain name. e.g. keywordcity.com

The questions I have is when they do the 301 redirect to over 4000 pages to the new individual domains, will the relevance follow them to each new domain? Will they keep their rankings once they are redirected?

Currently with all of them under a subdirectory structure, they have benefited from all the valuable incoming links we have created. If they are fragmented to new domains will all those links to the old urls go with them to help them in the rankings?

I know this is a long post but I wanted to be as clear as possible.