The review had begun four months earlier and 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. These included a AU$3.5bn bid from Entain as well as $4bn bids Betmakers and Apollo Global, but the business argued none of these represented the true value of the division.
However, after the review it opted to keep the wagering arm, but instead spin off the lotteries business. This would result in two separate companies.
Tabcorp outlined that the first of these businesses would be renamed The Lottery Corporation, and would comprise most of the former Tatts business, but without gaming services.
The second business was named New Tabcorp, and would include the wagering and media arm alongside gaming services.
Earlier this week, a New South Wales court approved the meeting in which shareholders may vote on the demerger. Following this, the business published its scheme booklet, which explains the rationale for the proposed demerger and the Tabcorp board’s reasons to recommend the break-up.
Discussing The Lottery Corporation, Tabcorp chairman Steven Gregg said the business should continue to generate strong returns thanks to impressive cash-flow generation.
“The Board anticipates that The Lottery Corporation will be well positioned to continue to generate attractive returns for shareholders, driven by its strong cash-flow generation, demonstrated ability to drive growth through product innovation and active game portfolio management as well as future potential upside from further enhancing the customer experience and increasing digital penetration,” he said.
The Lottery Corporation would pursue growth through five main strategies. These are to innovate its game portfolio, enhance its customer experience, increase digital penetration, evolve its retail footprint and pursue new licence and acquisition opportunities.
Looking at New Tabcorp, meanwhile, Tabcorp’s board said the focus would be on customer experience, sustainability, innovation and efficiency including “rigorous cost management”. Regarding sustainability, the board said it believed that New Tabcorp could be a major beneficiary of any reforms to Australian betting, such as simplification of licences or changes to funding structures.
“The Board anticipates that New Tabcorp will also be well positioned to deliver a compelling customer experience via its omni-channel model, simplify and streamline [gaming services division] MAX, as well as gain future potential upside from any future industry change in the
Australian wagering and gaming industry,” Gregg said.
In addition to the board’s own options, advisory firm Grant Samuel was called in to provide an independent report to shareholders.
The advisory business noted that – based on Tabcorp’s recent AU$5.00 share price and typical industry EBITDA multiples – The Lottery Corporation could be valued somewhere between AU$11.00bn and AU$11.61bn. For New Tabcorp, meanwhile, the valuation was expected to fall between AU$2.71bn and AU$2.10bn.
It noted that this would suggest daily low multiples for both businesses, particularly given the wagering and media division already attracted bids at a higher price. As a result, he deduced that “there is a reasonable argument that the combined value of The Lottery Corporation and New Tabcorp shares could exceed the current Tabcorp share price levels of around $5.00”.