Tabcorp’s spin-off to benefit lotteries and Keno businesses

JP Morgan has reported that Tabcorp’s lotteries and Keno businesses may have increased in value by between AU$9.4bn and AU$12.4bn while the value of the wagering and media division may have shrunk.

Australia.- Lottery services provider Tabcorp‘s decision to demerge its businesses into two separate companies could benefit the lotteries and keno division, JP Morgan says.

According to analysts, the lotteries and Keno division may now be worth between AU$9.4bn and AU$12.4bn, while the wagering division has a value of between AU$3.5bn and AU$3.7bn.

JP Morgan estimated EBITDA for the lotteries division at AU$606.4m in 2022. It estimates EBITDA of AU$337m for the wagering division.

The financial services company said: “Tabcorp is levered to declining segments of the wagering industry, such as retail and tote.

“Its exposure to growth segments, such as fixed-odds, online and sport, is shrinking, as corporate bookmakers have garnered the most market share.”

According to Tabcorp, the demerger process is expected to incur between AU$225m to AU$275m in one-off separation costs and nearly around AU$40m to AU$45m in ongoing incremental costs.

The company noted that it will continue working with BetMakers to discuss potential commercial opportunities in international markets.

In May, BetMakers made an AU$4bn (US$3.09bn) offer through which Tabcorp would receive AU$1bn in cash and AU$3bn in BetMakers shares.

Apollo Global Management put two offers on the table for Tabcorp, one equalling an offer made by Entain and another offering US$3.10bn including Tabcorp’s gaming services business.

Entain, meanwhile, upped its original offer for Tabcorp from AU$3bn to AU$3.5bn. The company expressed its disappointment with Tabcorp’s decision to separate in two and argued its offer would have delivered better outcomes for shareholders.

The company board said in a statement: “Entain is disappointed by the decision of the Tabcorp Board, as we believe our all-cash offer would have delivered superior outcomes for shareholders, customers, employees and the wider industry. 

“Price discipline is essential in building on the significant shareholder value that our global growth strategy will deliver for all our stakeholders and we have a healthy pipeline of opportunities.”