Tabcorp calls time on A$4bn fight for wagering division with demerger proposal
Australian giant rejects multi-billion-dollar bids from Apollo and Entain in favour of lottery and keno separation
The sale of Tabcorp’s highly coveted wagering and media business is off.
The Australian operator has instead announced its intention to pursue a strategy of splitting up its core operating divisions.
In a statement, the Tabcorp board revealed it would demerge its lottery and keno segment from the wagering and media division to create two separate ASX-listed businesses.
Confirmation of the demerger strategy will strike a bitter blow to FTSE 100 operator Entain and US investment fund Apollo Global Management, both of which submitted multi-billion-dollar bids for the wagering and media division.
Entain launched a A$3bn bid in March which Tabcorp dismissed as inadequate, prompting a second improved bid, while Apollo lodged a $4bn bid in May.
Rejecting the offers, Tabcorp said it had reviewed “information, management presentations and engagement” proposals from both businesses, as well as how they would deal with any regulatory and commercial issues arising from the sale.
“The board has carefully considered the proposals for the sale of the wagering and media business and concluded that a demerger of lotteries and keno is the optimal, and most certain, path to maximise the value of both businesses for Tabcorp shareholders,” Tabcorp said.
“There are various complex legislative, regulatory, completion, racing industry and other third-party approvals required to effect any potential sale of the wagering and media business.
“The process for, and likelihood of, obtaining these approvals is uncertain and expected to take an extended period of time,” Tabcorp added.
To facilitate any potential sale of the business, legislative changes to the NSW Totalisator Act would have been required, as well as merger clearance from Australia’s competition authorities.
In addition, the potential bidder would have been subject to change of control procedures relating to Tabcorp’s existing agreements with the Australian horseracing industry.
This was a contributing factor in Tabcorp’s decision to conclude the strategic review with a demerger proposal, rather than accepting an external bid.
However, Tabcorp has said it remains open to future engagement with proposals that can deliver “sufficient value and certainty” for shareholders.
A A$4bn bid from ASX-listed BetMakers was also dismissed by Tabcorp, although the operator said it would continue discussions with the technology provider in relation to international expansion opportunities.
In a statement acknowledging the end of Tabcorp’s strategic review, BetMakers CEO Todd Buckingham cited the potential for both businesses to expand internationally.
“Having received clarity from Tabcorp regarding the planned direction for its wagering and media business, BetMakers will continue discussions with Tabcorp regarding international opportunities, and we believe these opportunities have the potential to be significant,” Buckingham said.
Entain, which owns Ladbrokes and Neds in Australia’s sports betting market, also commented on the knock-back by issuing an RNS update to investors.
It said: “Entain is disappointed by the decision of the Tabcorp board as we believe our all-cash offer would have delivered superior outcomes for shareholders, customers, employees and the wider industry.
“Price discipline is essential in building on the significant shareholder value that our global growth strategy will deliver for all our stakeholders and we have a healthy pipeline of opportunities.”
Tabcorp has said the two separate businesses will now benefit from focused management, optimised capital structures, increased scale and the ability to participate in future M&A, as well as access to new investors.
Tabcorp chairman Steven Gregg and the board will oversee the implementation of the demerger proposal if approved, with Tabcorp MD and CEO David Attenborough set to remain in charge until the process has been completed.
The demerger process is expected to complete by the end of June 2022.
Tabcorp expects to incur one-off demerger process costs of between A$225m and A$275m and ongoing pre-migration incremental costs of A$40m to A$45m per annum.
Gregg said: “The two businesses are expected to be leaders in their respective markets creating great experiences for millions of customers.
“They will build on their heritage of sharing the benefits of their commercial success with governments, the racing industry, licensed venues, newsagents and other retail and business partners,” he added.