British wagering giant Entain has failed to deliver a knock-out bid with a revised $3.5 billion offer for Tabcorp’s unloved bookmaking and media business, with the ASX-listed gambling group holding out for higher bids and exploring a demerger.
Tabcorp on Tuesday morning confirmed the revised bid from Entain – owner of its online rivals Ladbrokes and Neds – which is a half-billion dollar increase to the $3 billion offer it lobbed in early February.
Tabcorp rejected that initial bid as too low and launched a strategic review of the wagering business to consider whether it should look to sell the unit, or split it off from its booming lotteries business as two separate listed companies.
The $11 billion group said it had not formed a view on the merits of Entain’s new offer and would assess it “in the context of the previously announced strategic review”.
Investors have grown frustrated with Tabcorp over the performance of the wagering arm, which has been losing ground to online rivals such as Sportsbet and Ladbrokes for over a decade, since its $11 billion merger with Tatts in 2017.
That disquiet contributed to chairman Paula Dwyer’s resignation last year, who has been replaced by long-standing director Steven Gregg, and chief executive David Attenborough announcing he would step down at some point this year.
Private equity group Apollo and media heir Lachlan Murdoch have also expressed an interest in Tabcorp’s TAB wagering division, while Australia’s online wagering pioneer Matthew Tripp has also positioned himself to be involved in a deal, including in a demerger scenario and possibly by teaming up with Mr Murdoch’s Fox Corporation.
Anton Tagliaferro, investment director at Investors Mutual which owns about 3 per cent of Tabcorp, said the revised bid showed there was interest in the wagering division but did not expect Tabcorp would rush to accept the offer.
“I think they’ll wait a little bit and see if there are any other interested parties,” Mr Tagliaferro said.
“Tabcorp is not going to remain in its current form as we go forward, that’s pretty clear. It’s a matter of how do you maximise value for shareholders – whether they demerger the business and float it, or demerge it and sell it.”
Entain said on Tuesday its revised all-cash bid represented “compelling value and certainty” for Tabcorp shareholders and was superior to “other alternatives” on the table.
With the support of state racing bodies, which have licensing agreements with TAB, critical to any sale, Entain claimed it was a “strong strategic fit” to take over the TAB and would be “well placed to strengthen the funding outcomes for Australia’s racing industry”.
Tabcorp has about a 37 per cent share of the Australian wagering market, across both its retail and digital footprint, while Entain’s Ladbrokes and Neds has an 11 per cent stake. Combining the groups will put them well ahead of the other major player Sportsbet (37 per cent), which is owned by Irish wagering giant Flutter, and any deal will need the Australian Competition and Consumer Commission is a Competition’s approval.
Evans and Partners gaming analyst Sacha Krien said the new bid should be enough to get Entain through the door for due diligence, and that Tabcorp shareholders would support the offer. “The fact Tabcorp has released details of the bid this time suggests it will be seriously considered,” he said.
However, JPMorgan analyst Don Carducci said the offer was still too low for the business, which he values at $3.68 billion, and that Tabcorp splitting wagering and lotteries into two listed companies was the most likely outcome.
“This new bid for the sale of the wagering and media business will likely result in significant regulatory hurdles,” he said in a note to clients. “Barring any material premium, the board is likely to ignore repeat approaches.”
Tabcorp’s shares closed 20¢ higher, or up 4 per cent, at $5.
Source: Sydney Morning Herald by Patrick Hatch Business reporter at The Age and Sydney Morning Herald