Tabcorp has elected to demerge its lotteries and keno business from its wagering and media arm, a move which is set to delay any possibility of it selling off its wagering and media assets for at least 12 months.
The ongoing structure of Tabcorp as a business has been at the centre of speculation following bids from a trio of suitors to secure the wagering and media arm, a move which would have significant implications for the thoroughbred industry.
Tabcorp announced a strategic review into the entire business in March and on Monday confirmed that the review had recommended that the company be split, creating 'two standalone, market leading ASX-listed companies with distinct operating profiles, strategies and growth opportunities.'
"Following a thorough and rigorous assessment of all relevant structural and ownership options, the Tabcorp Board of Directors has concluded that a demerger of the Lotteries & Keno business is the optimal and most certain path to maximise value for Tabcorp shareholders," Tabcorp Chairman, Steven Gregg, said.
Steven Gregg | Image courtesy of Tabcorp
“The foundations have been laid for Lotteries & KenoCo and Wagering & GamingCo to deliver long-term growth. The Tabcorp and Tatts integration has set up both businesses to benefit from enhanced scale and diversification.
"The two businesses are expected to be leaders in their respective markets, creating great experiences for millions of customers. They will both 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."
Takeovers on hold
The immediate impact of the decision is that the takeover offers on the table for the wagering and media arm, which includes Tabcorp's parimutuel, fixed odds bookmaking and Sky Racing businesses, will be put to one side while the demerger takes place. That process is slated to take at least 12 months.
Entain, Apollo and Betmakers have all tabled separate bids in the past six months, valuing the wagering and media business at anywhere between $3 billion and $4 billion.
Tabcorp said it will continue to consider bids moving forward but that the demerger was now its primary focus.
"As part of this (strategic review) process, Tabcorp engaged with all bidders for its Wagering & Media business." - Tabcorp statement
"As part of this (strategic review) process, Tabcorp engaged with all bidders for its Wagering & Media business," the statement said.
"In the case of Entain and Apollo, this process included the provision of information, management presentations and engagement in relation to their proposed strategies for navigating the complex regulatory and other commercial approvals required. Both parties confirmed their respective previously indicated offer prices. In the case of BetMakers, Tabcorp will continue discussions in relation to potential commercial opportunities in international markets.
Tabcorp has elected to demerge its Lotteries and Keno business from its Wagering and Media arm | Image courtesy of Bronwen Healy
"The Board has carefully considered the proposals for the sale of the Wagering & Media business and concluded that a demerger of Lotteries & Keno is the optimal, and most certain, path to maximise the value of both businesses for Tabcorp shareholders.
"There are various complex legislative, regulatory, competition, racing industry and other third party approvals required to effect any potential sale of the Wagering & Media business. The process for, and likelihood of, obtaining these approvals is uncertain and expected to take an extended period of time.
"Notwithstanding the approvals required to effect any potential sale of the Wagering & Media business and the decision to pursue a demerger, Tabcorp remains open to future engagement with bidders on revised proposals that deliver sufficient value and certainty for Tabcorp shareholders."
Bidders rebuffed
The future strategic direction of Tabcorp has been of significant interest to the broader racing industry as it is the biggest player in the wagering and media space through its retail and online parimutuel and fixed odds wagering, and through Sky Racing, which is the major rightsholder and broadcaster for every state apart from Victoria and South Australia.
One of the bidders, Entain, already has a strong presence in Australia through the Ladbrokes and Neds brands, while the other major suitor, Apollo Global Management, is a New York-headquartered private equity firm.
Entain said the demerger confirmation had come as a surprise and it was disappointed with the decision.
"For the racing industry, a demerger is a vote for the status quo – it leaves its primary funding model exposed to the same declining business that faces considerable structural challenges and revenue headwinds which management has failed to demonstrate any credible pathway to addressing," an Entain spokesperson told Racing.com.
"It is hard to reconcile how this decision was made without meaningful engagement or due consideration to an all-cash offer that would deliver superior outcomes for shareholders, customers, employees and the wider industry."
"It is hard to reconcile how this decision was made without meaningful engagement or due consideration to an all-cash offer that would deliver superior outcomes for shareholders, customers, employees and the wider industry." - Entain spokesperson
Tabcorp's statement effectively ends the ambitious takeover bid of Betmakers, which had been spearheaded by former corporate bookmaker Matt Tripp and involved a $1 billion cash offer plus $3 billion in shares. Tabcorp did leave open the opportunity for an ongoing relationship between the two companies.
"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," BetMakers Chief Executive Officer, Todd Buckingham, said.
"BetMakers remains firmly of the view that the Company's opportunities in regulated wagering jurisdictions, and in particular Australia and the United States, are a clear priority and we will continue to explore all opportunities that can accelerate or capitalise on this foundation."
BetMakers will continue discussions with Tabcorp regarding international opportunities
Rytenskild to lead new business
Tabcorp has confirmed that the designated leaders of the Wagering & GamingCo business, which also includes MAX, the gaming services aspect of the Tabcorp operation, would be Bruce Akhurst as Chairman and Adam Rytenskild as CEO.
The Lotteries and KenoCo business will be led by current Chairman Steven Gregg and CEO designate Sue van der Merwe.
While Tabcorp remains optimistic that the splitting of the two arms of its operation will realise better returns for both, it conceded that the demerger process would include between $225 million and $275 million in one-off separation costs, and up to $45 million per annum in ongoing incremental costs.
The announcement comes less than five years after Tabcorp announced its intended $11 billion merger with Tatts, which was not implemented until late 2017 after having to gain authorisation from the Australian Competition Tribunal.
That merger gave Tabcorp a retail wagering monopoly in all states except Western Australia.
