Tabcorp Holdings will proceed with its intentions to demerge its Lotteries & Keno and Wagering & Gaming units with the objective of ‘creating two market leading companies’, following the completion of its ‘comprehensive strategic review’.
Approved by company Chairman Steven Gregg and the company’s new board of directors, Tabcorp believes that the unit divestments will deliver Tabcorp investors their long-awaited value in the ASX company’s assets.
In its update, Tabcorp governance outlined that shareholders will be offered the ability to value each business on a standalone basis and a potential upside from any future domestic regulatory reform and international expansion opportunities in Wagering and Media.
Gregg remarked: “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 and Keno business is the optimal and most certain path to maximise value for Tabcorp shareholders.
“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.”
Tabcorp aims to complete the demerger by the end of June 2022 – with David Attenborough remaining as CEO and Managing Director of Tabcorp until the new businesses are formed.
A ‘Wagering & GamingCo’ business will comprise Tabcorp’s Wagering and Media and Gaming Services and will be chaired by Bruce Akhurst, whilst Adam Rytenskild will take on the role of CEO.
Operations covered by the new company will include the omni-channel wagering operator TAB, multi-venue, multi-channel racing and sports broadcaster Sky, gaming services provider MAX as well as ‘well established, profitable and growing’ international businesses in the US and Europe.
The second firm, Lotteries & KenoCo, will act as ‘Australia’s leading lottery operator’, licensed across New South Wales, Victoria, Queensland, South Australia and the Australian Capital Territory, including a digital licence, and will be chaired by Gregg with Sue van der Merew serving as CEO.
Tabcor expects both companies to ‘have strong balance sheets to support their growth’, having secured preliminary agreements with holders of its US Private Placement (USPP) notes that would result in these notes being allocated to Lotteries & KenoCo from the demerger date.
Corporate objectives have also been established for both companies, with Wagering & GamingCo targeting credit metrics consistent with an investment grade credit profile, whilst Lotteries & KenoCo will eye up an investment grade credit rating with a strong BBB brand.
“Lotteries & KenoCo offers infrastructure-like qualities, with low capital intensity and upside from continuing digital growth,” Gregg continued. “It is underpinned by its scale, portfolio of exclusive and/or long-dated state licences and attractive financial profile.
“It has a track record of strong and resilient cash flow generation, driven by its well-balanced portfolio of games, growing digital sales penetration and extensive retail footprint. Wagering & GamingCo will have national scale and reach, organic growth options, and potential upside from any future domestic structural reform and further international expansion.
“Wagering & Media has undergone a significant transformation and now has an omni-channel offering geared to create the best customer experience across all channels.
“Following the operational review of Gaming Services, which is being implemented, the business will continue as the largest gaming services provider in Australia with a simplified business model and streamlined operating cost base.”
The demerger announcement follows Tabcorp governance review of strategic options, weighing up the potential sale of its TAB wagering unit, which had attracted interest from major operators including Entain and fellow Australian firm BetMakers.
Entain’s initial bid of AUS $3 billion (€2bn) was rejected by Tabcorp as ‘grossly undervaluing the TAB’ unit, prompting the FTSE 100 fim to increase its offer to AUS $.5 billion (€2.2bn), a proposal that was neither confirmed or rejected by the Australian company’s board.
Meanwhile, ASX-listed BetMakers has put forward an offer of AUS 4 billion (€2.5bn), stating that its acquisition would improve the funding of Australian racing and would also be the most beneficial for customers.
Tabcorp governance had reviewed all proposals for the sale of TAB, but concluded “that a demerger of Lotteries & Keno is the optimal, and most certain, path to maximise the value of both businesses for Tabcorp shareholders”.
Though rejecting TAB takeover offers, Tabcorp’s board reiterated that it would continue to engage with parties in relation to any proposals that would offer sufficient value to its investors.