Tabcorp to spin off Lotteries and retain Wagering division

Launched in March, the review looked at a number of structural and ownership options for Tabcorp to create more value for shareholders, including potentially selling off its Wagering and Media business.

At the time it said a number of unsolicited proposals had been made for the division, but argued none of these represented the true value of the division. 

The spin-off will create two businesses; Lotteries and KenoCo, covering all of Tabcorp’s lottery operations across Australia, while Wagering and GamingCo, which will host the operator’s wagering, media and gaming services.

Tabcorp said the demerger would allow shareholders to value each of the businesses on a standalone basis, as well as enable to Wagering and GamingCo to pursue international expansion opportunities.

The operator said both businesses would have strong balance sheets and also benefit from focused management and optimised capital structures, increased scale and diversification, a more focused operating profile, access to new investors and the ability to take part in future M&A activity.

Tabcorp chairman Steven Gregg and the operator’s current board of directors will oversee the demerger, while David Attenborough will remain as its managing director and chief executive until the process is complete. 

Attenborough had been due to stand down from his roles at Tabcorp in the first half of this year, but with the demerger not expected to complete until June 2022, subject to relevant regulatory approvals, he will remain with the business for the time being.

Preliminary estimates suggest the demerger process will incur between AUD$225m (£122.3m/€142.7m/US$169.3m) and $275m in one-off separation costs, as well as around $40m to $45m in ongoing incremental costs.

“The foundations have been laid for Lotteries and KenoCo and Wagering and GamingCo to deliver long-term growth,” Gregg said. “The Tabcorp and Tatts integrations 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 and sharing the benefits of their commercial success with governments, the racing industry, licensed venues, newsagents and other retail and business partners.”

The decision to proceed with a demerger means Tabcorp will keep hold of the Wagering and Media business it had considered selling as part of the strategic review process. This had initially attracted several bids from a number of parties, including Entain, Apollo Global Management and BetMakers Technology Group. 

Entain lodged an offer worth $3.50bn to purchase the Wagering and Media division, while Apollo offered $4.00bn to acquire the business, as well as the gaming services segment. BetMakers also submitted a proposal worth $4.00bn for the Wagering and Media arm.

Tabcorp said it engaged with all interested parties in relation to the offers but concluded the demerger was the “optimal and most certain” path to maximise the value of both business for its shareholders. 

However, it did note that it would remain open to future engagement with bidders on any proposals that would deliver “sufficient value and certainty” to shareholders.

In the case of BetMakers, Tabcorp said it would continue discussions with the supplier in relation to potential commercial opportunities in international markets – a statement that was welcomed by BetMakers chief executive Todd Buckingham.

“Having received clarity from Tabcorp regarding the planned director of 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,” Buckingham said.

“BetMakers remains firmly of the view that the company’s opportunities in regulated wagering jurisdictions, and in particular Australia and the US, are a clear priority and we will continue to explore all opportunities that can accelerate or capitalise on this foundation.”

BetMakers last month completed its acquisition of the racing, tote and digital business from Sportech. The deal covers Sportech’s racing, tote and digital assets in the US, UK and Europe, including the Americas Tote business, which provides betting solutions, hardware and operational services to more than 200 racetracks, casinos and betting venues.

Tabcorp in February said that despite reporting a year-on-year fall in revenue and statutory net profit in the first half of its financial year, it experienced strong recovery from the impact of the novel coronavirus (Covid-19) pandemic.

Total revenue for the six months to 31 December 2020 amounted to AUS$2.87bn, down 1.5% from $2.91bn in the same period in 2019.

Earnings before interest, tax, depreciation and amortisation (EBITDA) before significant items fell 6.2% to $560.0m, while after accounting for depreciation and amortisation, earnings before interest, tax and significant items declined 7.9% to $372.0m.

Tabcorp ended H1 with $185.0m in statutory net profit after tax and significant items, down 7.0% from $199.0m in the first half of 2019-20.