Australian gaming operator Tabcorp rebuffed multiple suitors for its media and sports wagering businesses, declaring Monday it will instead spin-off its keno and lottery units into a separate publicly traded entity, ending months of speculation about the fate of what were coveted assets.
Following a strategic review that commenced in March, Tabcorp will split into two companies — Lotteries & Keno (L&K) and Wagering & Media (W&M) — the second of which drew bids from Apollo Global Management (NYSE:APO), Entain Plc (OTC:GMVHY) and local firm BetMakers.
When Tabcorp embarked upon the strategic review, it noted a demerger, or spinoff, of some businesses was possible in an effort to unlock shareholder value. However, as recently as last week, rumors surfaced that the company was holding talks with private equity firm Apollo and British sportsbook operator Entain regarding the sale of the media and sports betting businesses.
In the case of Entain and Apollo, this process included the provision of information, management presentations and engagement in relation to their proposed strategies for navigating the complex regulatory and other commercial approvals required,” according to a statement issued by Tabcorp.
As it became clear Apollo and Entain were the most credible bidders for Tabcorp’s media and sports betting arms, analysts speculated the Ladbrokes owner was a better fit because as an already established operator in Australia, it could more easily pass regulatory hurdles.
Both suitors offered $2.7 billion in cash for those businesses, but Apollo floated a $3.1 billion bid that included Tabcorp’s gaming services business. That unit, which wasn’t part of the strategic review, is included in the new W&M outfit.
Tabcorp not Shutting M&A Door
In highlighting the benefits of the demerger, Tabcorp says it provides an opportunity for lotteries and keno and media and sports betting to be valued on a standalone — something shareholders complained wasn’t happening when pushing for the strategic review.
With the businesses separated, they can benefit from “the ability to participate in future M&A activity” though Tabcorp doesn’t go into greater detail. It remains to be seen if Apollo or Entain will go back to this well, but at least two things are clear. First, Australia is highly desirable sports betting market operators want exposure to. Second, Apollo, for its part, is comfortable with revisiting deals after initially being turned away.
As for the businesses will look upon separation, Tabcorp said both will have strong balance sheets “to support their growth” and lotteries and keno is aiming for an investment-grade credit rating with “a strong ‘BBB’ band.” The company adds the media and sports wagering entity is looking to sport credit metrics indicative of an investment-grade profile.
The demerger process is slated to be completed by June 2022.
BetMakers Still in Picture
In late May, upstart BetMakers, a firm advised by Australian bookmaker Matthew Tripp, inserted itself into the bidding fray for Tabcorp’s sports betting and media units, topping rivals with a $3.1 billion cash and equity offer.
Analysts immediately viewed prospects of success for that proposal as murky because BetMakers is smaller than Tabcorp and due to the inclusion of stock. However, BetMakers, which is looking to build business both at home and in the US, said it’s keen to continue working with Tabcorp.
“As a result of the engagement with Tabcorp to date,and instead of the Company progressing its previously announced (May 28, 2021) Indicative Proposal,BetMakers and Tabcorp will continue discussions in relation to commercial opportunities in international markets,” said BetMakers in a statement.
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