From one business to two

After completing a strategic review into its operations, Australian gambling giant Tabcorp has decided on a demerger. The company has announced that it will spin off its lotteries and keno segment from its struggling wagering and media arm, listing both as new businesses on the ASX.

The two businesses are expected to be leaders in their respective markets”

In a Monday statement, Tabcorp chairman Steven Gregg explained that a demerger was the best way to maximize value for shareholders. He said: “The foundations have been laid for Lotteries & KenoCo and Wagering & GamingCo to deliver long-term growth,” adding: “The two businesses are expected to be leaders in their respective markets, creating great experiences for millions of customers.”

The decision comes after multiple companies put forward bids to purchase Tabcorp’s wagering and media arm. This included multibillion-dollar offers from Entain, Apollo Global Management, and BetMakers Technology Group. For now, Tabcorp has rejected those offers, arguing that a sale would have required several regulatory approvals that were “uncertain”.

The company expects to complete the demerger by the end of June next year. It will result in an approximate separation cost of AU$225m (US$169.1m) to AU$275m (US$206.6m).

A sale still in the cards?

Although Tabcorp has rejected all offers for its wagering and media arm for now, the company has left the door open to future agreements. In Monday’s statement, the company announced that it would consider future bids if they “deliver sufficient value and certainty for Tabcorp shareholders.”

the company has left the door open to future agreements

Over the past 12 months, Tabcorp investors have increased pressure on the company to break away from the wagering and media side of the business. As a result, the business confirmed in February that it had received multiple offers for the struggling segment, each at around AU$3bn (US$2.3bn). The company rejected all of these offers the following month in favor of launching a strategic review.

Since then, Entain, Apollo Global Management, and BetMakers have all made additional offers for the Tabcorp segment. Ladbrokes owner Entain upped its bid to AU$3.5bn (US$2.73bn) in April, while Apollo offered AU$4bn (US$3.1bn) for a deal including Tabcorp’s gaming services business in May. Most recently, BetMakers submitted an AU$4bn (US$3.08bn) non-binding bid for the wagering and media arm.

Continued impact of COVID-19

The COVID-19 pandemic has detrimentally impacted Tabcorp’s earnings, mainly due to retail closures and restrictions, especially in Victoria.

For the first half of its most recent financial year, the operator’s revenue fell by 2% year-on-year to a total of AU$2.8bn (US$2.2n). Wagering and media revenue actually increased by 1% in that time, but mainly because a 34% rise in digital revenue mitigated land-based losses.

In bad news for Australian sportsbook operators such as Tabcorp, the COVID-19 situation has worsened once more across the country. Over the past few weeks, multiple casinos and betting shops have had to shut up shop again as local governments attempt to control outbreaks of the virus’s highly-infectious Delta strain. The Sydney, Central Coast, and Blue Mountains regions are all in complete lockdown until July 9 at least.

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