Tabcorp gets higher $3.5bn offer from Entain for wagering division

Entain’s offer is up from a previous $3bn bid, and should spark a renewed auction for Tabcorp.

Tabcorp says it has not yet formed a view on Entain’s offer. Picture: Getty Images)

Tabcorp will likely deny potential suitor Entain any access to due diligence even after receiving an increased $3.5bn bid for its wagering and media arm, in the belief that a demerger of the division will provide better value to shareholders.

The belief among Tabcorp directors that a demerger of the wagering unit is a far easier and potentially more lucrative transaction to undertake is likely to hold until a strategic review is finalised towards the end of June, unless Entain or other bidders return with a higher offer.

London-listed Entain, the owner of the Ladbrokes and Neds brands in Australia, said on Tuesday that its revised $3.5bn bid for Tabcorp’s wagering division “represents compelling value and certainty”, but Tabcorp remained unmoved.

In a statement, Tabcorp said its board “had not yet formed a view on the merits of the revised proposal” and would assess it in the context of a previously announced strategic review.

Tabcorp said the new bid “continues to be subject to numerous conditions” including due diligence, arranging financing, regulatory approvals including the corporate regulator and the Foreign Investment Review Board and other third-party approvals.

Shares in Tabcorp on Tuesday closed up 4.2 per cent at $5.00.

Sources indicated that the $3.5bn offer was still not high enough to satisfy the Tabcorp board, and that Tabcorp’s directors were concerned that an offer from an outside bidder would be subject to a long probity process without a guarantee of being successful.

A more simple demerger, where Tabcorp investors received shares in newly-formed entity, would have a higher chance of success, though a bid of $4bn may sway the Tabcorp board.

London-listed Entain insisted though that its $3.5bn offer should be taken seriously by the Tabcorp board.

“As an established wagering operator in Australia with a proven record of supporting the Australian racing industry, we believe Entain is a strong strategic fit for Tabcorp’s wagering and media business,” an Entain spokesman said.

“The combination of Entain’s existing Australian operations and Tabcorp’s wagering and media business would create a leading, integrated, multichannel and multibrand wagering company that would be well placed to strengthen the funding outcomes for Australia’s racing industry.”

“Entain looks forward to engaging with the Tabcorp Board on its proposal that provides superior and more certain value to Tabcorp shareholders than other alternatives,” the spokesman said.

Evans and Partners Sacha Krien said that he believed the Entain offer “should be enough to get Entain in the door for due diligence” and that he valued the wagering business at $3.4bn.

“The fact Tabcorp has released details of the bid this time suggests it will be seriously considered. We also believe major shareholders will support a wagering sale at these levels,” Mr Krien said in a note to clients.

Rohan Sundram from MST Marquee said he “would be surprised if Tabcorp were sellers at these levels” though said Entain should be granted due diligence.

“[But] we continue to believe that a demerger is becoming a more realistic outcome …[and] … each of the third party bids face challenges in some form or another,” he wrote.

JP Morgan’s Don Carducci said he still viewed the “chance of a sale as low” and a demerger the more likely scenario given his $3.68bn valuation of the wagering arm.

Larry Gandler of Credit Suisse said the demerger route was more likely, but for Tabcorp’s lotteries division. “Therefore … retaining the wagering operations in existing Tabcorp corporate entities such that no change of control approvals are required.”

Tabcorp shareholders are keen to split the company’s strongly-performing lotteries business away from its wagering arm, which has lost market share in recent years to more digital savvy competitors.

Digital betting pioneer Matthew Tripp has plans to merge the Tabcorp wagering division with the ASX-listed Betmakers data and technology business in a deal that could unlock $5bn in value for shareholders, The Australian recently revealed.

Mr Tripp, the former Sportsbet and BetEasy boss, has been stalking Tabcorp for several months with potential private equity involvement and recently struck a strategic advisory and shareholding deal with Betmakers as part of a $75m raising.

But in a plan that the Tabcorp board is aware of, Mr Tripp would head a combined Tabcorp wagering and Betmakers entity that would rejuvenate its digital division in Australia and seek a bigger presence in the lucrative and fast growing US online wagering market.

Fox Corporation, headed by billionaire Lachlan Murdoch, and its FOX Bet brand is also understood to be interested in being part of Mr Tripp’s plans, which will be pitched against Entain.

Private equity group Apollo Global Management is also said to have expressed interest in Tabcorp.

Originally published as Tabcorp gets higher $3.5bn offer from Entain for wagering division