Assessing new options

Australia-based gambling operator Tabcorp has turned down multiple initial offers for its wagering and media arm. Instead, the company plans to undergo a strategic review to assess its “structural and ownership” options.

Recently, Tabcorp’s investors have increased pressure on the company to sell its less successful wagering and media segment. Tabcorp received multiple unsolicited bids for the business in February as a result, including a non-binding indicative offer from Entain.

offers, all of which stood at around AU$3bn (US$2.3bn), undervalued the asset

In an ASX announcement Monday morning, Tabcorp’s board said that those offers, all of which stood at around AU$3bn (US$2.3bn), undervalued the asset. Now, the company is launching a review to maximize value for shareholders.

The Tabcorp board outlined two strategic options it will consider as part of the review, including the sale of its wagering and media business at a higher price, or a demerger.

Renegotiations in the cards

Tabcorp confirmed speculation that it had received bids for its wagering and media arm in February this year. The company’s faltering segment generated interest from a number of sources, including Entain, Fox Corporation, and private equity group Apollo Global.

Despite now formally rejecting those offers, Tabcorp could still be open to renegotiations. Speaking with the Brisbane Times, Tabcorp chairman Steven Gregg said he would be “very happy” for bidders to return with higher offers. However, market sources suggest the company expects at least $3.5bn for the segment.

we need to get comfortable with completion risk.”

While encouraging new bids, Gregg believes the monetary value of such a deal must outweigh the regulatory hurdles necessary for its completion. He pointed to factors which could impede a sale, such as the required approval of state-based racing bodies. “It’s just as much about… deal certainty as it is value,” the chairman commented. “At the moment value is well under what it is worth, but also we need to get comfortable with completion risk.”

In response to its bid rejection, Ladbrokes owner Entain has expressed confidence that a sale will eventually go ahead. On Monday, an Entain spokesman described the company as “a clear and obvious choice” to take over the segment. The company believes Tabcorp’s strategic review will ultimately see shareholders favor the sale over a demerger – something the spokesman described as “simply the status quo option.”

A slight recovery for Tabcorp

Investor pressure for the sale of Tabcorp’s wagering and media business has increased over the past 12 months. This is partly due to the company’s struggles throughout the COVID-19 pandemic. The segment took the steepest hit due to the closure of retail operations across Australia.

For the financial year ending June 20, 2020, the struggling wagering and media arm saw revenue of AU$2.08bn (US$1.58bn) – a drop of 10% from 2019 levels. Meanwhile, revenue for the company’s lottery and keno business increased by 2% to AU$2.12bn (US$2.61bn).

However, Tabcorp’s financial results have improved as pandemic restrictions ease. For the first half of its 2021 financial year, wagering and media returned to growth, with revenue up 0.8% year-on-year. Overall, the company’s revenue fell 2% to AU$2.87bn (US$2.22bn) for the six months to 31 December 2020.

Although revenue declined overall, Tabcorp CEO David Attenborough described a “strong recovery” for the company following the challenges of the pandemic period.