Tabcorp strategic review sets up path to sale or demerger
Tabcorp has put its troubled wagering and media business in play, launching a strategic review of the business’ asset, after rejecting a $3 billion takeover bid from the British owners of rival sportsbook Ladbrokes.
The Australian Financial Review reports Tabcorp chairman Steven Gregg said he felt it was important for the business to “put a mark down in the market” by announcing a strategic review after months of speculation about a sale of the wagering business or demerger of the lotteries business.
“I just felt it was important to clear the air and set a line down,” he said.
Mr Gregg denied he felt pressured to do so by a vocal group of Tabcorp investors, who have pushed the company to consider a demerger for the best part of two years.
“We are very conscious of our shareholder base and what they want,” Mr Gregg said.
“Most of the shareholders are very considered and they understand often there’s a lot of complexity to work through.”
Mr Gregg said the bids Tabcorp had received for the wagering business so far “were a bit light” and that during his substantive engagement with the bidders, he made it clear it would take a compelling offer to win the business.
“None of them have come back with a compelling bid and they seem happy enough to be part of the process and part of the pack,” he said.
Entain not the only party interested in Tabcorp takeover
UK-listed Entain, which owns bookmaker Ladbrokes, Sportingbet and a host of other gambling brands, lobbed a $3 billion bid at Tabcorp’s wagering and media division in early February 2021.
Apollo Global Management is also in hot pursuit, while bookie Matthew Tripp may make a tilt at the business after hiring Goldman Sachs for advice.
Mr Tripp has some big backers, including the Murdochs, who are looking for an entry into Australia’s $4.7 billion-a-year betting market, a number of fund managers and the goodwill of the racing industry.
All offers were unsolicited and highly conditional.
Mr Gregg said he remained open to a knockout bid for the wagering business.
“Of course I would, but there’s a big gap between where we are and where that would need to be,” he said.
“The ball is really in their court.”
An Entain spokesman said: “Entain welcomes the announcement of Tabcorp’s strategic review and the opportunity it presents for investors to weigh up the certainty of its proposal to acquire the Tabcorp wagering and media business, against a demerger, which is simply the status quo option.
‘Entain is confident an acquisition of the business represents the most attractive pathway to value realisation for investors and that its business is a clear and obvious choice as a strong, long-term partner for Australian racing.”
Mr Gregg said he expects the strategic review to take between 12 and 13 weeks.
He said the issues involved in the review were “a bit more complicated than people think” and Tabcorp would carefully need to work through the best structure for the businesses, the possible valuation metrics under a demerger, a sale or other options and the degree of difficulty involved in executing a deal.
“You’ve got to weigh performance, valuation and execution risk,” Mr Gregg said.
“You just need to make shareholders get the best result.”
He expressed particular concerns about what he called “leakage” under the various scenarios, which could include the payment of tax depending on which option Tabcorp eventually chooses.
Citi analysts back a trade sale over a demerger due to the possibility of costs and delays sparking “risks that complicate the exit process.”
Demergers typically take six to 12 months, which is far too long if Tabcorp wants to arrest the decline of the troubled wagering and media arm, the analyst said.
“Time is not on Tabcorp’s side, given a history of earnings disappointment and a competitive wagering market.”
“We expect the strategic review to reignite the sale process, ahead of any potential demerger.”