Tabcorp rejects takeover bids to spin off lottery arm itself

by Ethan Anderson Last Updated
Tabcorp demerger valued higher than takeover offers received

Australia’s biggest gambling operator has rejected multiple takeover bids in favour of spinning off its booming lottery arm.

The Sydney Morning Herald reports 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.

Entain irked by lack of consultation about Tabcorp’s decision

However, Tabcorp’s failure to provide due diligence to London-listed betting giant Entain, despite it previously raising its offer from $3 billion to $3.5 billion, has raised questions among competitors about Tabcorp’s commitment to maximising shareholder value.

Entertain, which owns Ladbrokes, on Monday said it saw “no reasons to put forward a higher proposal”.

“Based on the structural and technical challenges facing Tabcorp’s wagering business and the future risks to its earnings, Entertain’s $3.5 billion all-cash proposal offered compelling value for shareholders,” an Entain spokesman said.

“The announcement comes without meaningful engagement with Entain or any offer of due diligence.”

Some of Tabcorp’s investors have been pressing the company for years to unwind its 2017 merger with Tatts Group, in the belief that the strong lotteries and Keno businesses would be valued higher if cut free from its bookmaking arm, which has been losing market share to online rivals such as Sportsbet and Ladbrokes.

“For us, this is a long time in the making,” Sandon Capital managing director Gabriel Radzyminski said.

“We believe it’s a great outcome – it gives shareholders the visibility to a demerged lottery business and in time clarity about what a demerged wagering and media business looks like.”

Super funds keep an eye on Tabcorp changes

Mr Radzyminski said Tabcorp’s lottery arm was widely viewed as a stable, reliable, cash-generating business that even withstood the economic shock of the COVID-19 pandemic.

Wagering, on the other hand, was “capital-hungry”, faced fierce competition from online rivals and required significant ongoing investment.

“With the demerger, the shackles are off both businesses and each will have to make its way,” he said.

“The good thing about the demerger is it puts a line in the sand…what the board has now effectively said is that any proposal for wagering and media has to be compared against what the board believes it might be worth in a demerged situation.”

Airlie Funds Management fund manager Matt Williams said demerging the lotteries business created the potential to elevate the appeal to long-term superannuation investors due to its “infrastructure-like qualities” including low capital intensity and record of strong sustainable cash flows.

“It will be very interesting to see if the bids for both Sydney Airport and the Telstra towers show appetite from big pension funds for assets like these,” Mr Wiliams said.

Tabcorp said it expected the demerger and spinning of its lottery arm is set to be completed by the end of June 2022, with separation costs of as much as $275 million.

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