Tabcorp demerger valued higher than takeover offers received

by Charlotte Lee Last Updated
Tabcorp demerger valued higher than takeover offers received

Australian wagering giant Tabcorp has spun off keno and lottery arms and it could be worth between $7-9 billion if a demerger was achieved, according to analysts.

Casino.org reports that J.P. Morgan analysts have valued the separated entity at between $6.97 million and $9.19 billion.

According to the estimate, even at the low end of that range, the businesses are worth considerably more than what multiple bidders offered Tabcorp in recent months.

The Australian company announced a strategic review of its business in early 2021, with market observers initially expecting that would result in the divestment of the struggling media and sports betting businesses.

Private equity firm Apollo Global Management, gaming giant Entain and local sportsbook operator BetMakers made offers.

None of those proposals exceeded $3.1 billion, confirming Tabcorp is extracting significantly more value from parting with the keno and lottery outfit.

In July 2021, Tabcorp announced it was moving forward with its once sought after media and sports betting unit, while parting with its keno and lottery operation.

The demerger process is scheduled to be finalised by June 2022 and Tabcorp has yet to announce an official valuation for the transaction.

Assuming the transaction comes to fruition, Tabcorp investors will receive shares in the newly public keno and lottery unit, while retaining exposure to media and sports wagering arms.

“Tabcorp is levered to declining segments of the wagering industry, such as retail and tote,” J.P. Morgan analysts said.

“It’s exposure to growth segments, such as fixed-odds, online and sport, is shrinking, as corporate bookmakers have garnered the most market share.”

In highlighting the benefits of the demerger, Tabcorp said it provides an opportunity for lotteries and keno and media and sports betting to be valued on a standalone basis.

That’s something shareholders complained wasn’t happening when pushing for the strategic review.

With the enterprises separated, Tabcorp previously said both outfits could enjoy the fruits of mergers and acquisitions activity down the road, though it’s not yet clear if or how that consolidation will take shape.

Whatever the valuation of Tabcorp’s keno and lottery business comes in at, it could provide a gauge for other companies considering listing lottery units in Australia.

Recently, Scientific Games said it will divest its lottery and sports betting businesses.

While those actions could come in a variety of forms, there is speculation that the Las Vegas-based company could list its lotto arm in Sydney.

Should the Tabcorp spinoff occur prior to Scientific Games commencing an Australian offering, which isn’t set in stone, the former could bring the latter a valuation template of sorts, though it’s expected Scientific Games’ business will be valued at a lower price tag than its Tabcorp counterpart.

Tabcorp rejects takeover offers

The $11 billion wagering group announced the result of a strategic review of its business, which decided to reject offers of about $3.5 billion of its TAB wagering unit from UK betting giant Entain, private equity giant Apollo and wagering technology group BetMakers.

“The offers, at the end of the day, weren’t compelling enough,” Tabcorp chairman Steven Gregg said.

“If they put more money on the table, that would help…and if they are willing to take on risk on getting stakeholder approvals, that would help, rather than just putting it into our court to solve for them to get across the line.”

Any potential sale of Tabcorp’s wagering business would require a long list of approvals from regulators, government and racing industry stakeholders, which Mr Gregg said risked blowing out the timeframe and leading to an “uncertain outcome”.

Demerging and creating two ASX-listed companies with distinct profiles, strategies and growth opportunities, he added, would give shareholders certainty.

“We know it will take 10 months,” he said.

“We can get on with it.”

Tabcorp also said it was discussing joint-venture partnerships in international markets with one of the wagering arm’s suitors, Australian online bookmaking pioneer Matt Tripp’s BetMakers.

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