Bets on for takeover talks as Tabcorp signals it’s willing to engage with suitors

Tabcorp’s board is said to be happy to strike a takeover deal, providing the price is right.

Tabcorp’s board under its new chairman Steven Gregg is open to striking a deal with any of its suitors, including London-listed ­Entain and private equity consortiums. Picture: AAP

Tabcorp’s board under its new chairman Steven Gregg is open to striking a deal with any of its suitors, including London-listed ­Entain and private equity consortiums, which are seeking to take over and break up the under-pressure $9.9bn gaming major.

Tabcorp has confirmed it has received several proposals, setting the stage for a bidding war for the 60-year-old company. US ­casino giants, overseas pension funds, private equity group Blackstone as well as Flutter, the owner of Sportsbet, are understood to be among possible buyers.

Private equity major Apollo Global Management is understood to have also approached Tabcorp over a break-up.

But the only suitor to reveal its hand is Entain, formerly known as GVC Holdings, which owns Ladbrokes.

Entain is also the only listed player so far to express interest in taking over Tabcorp.

Mr Gregg, who succeeded Paula Dwyer as chairman last month, is said to welcome a takeover, as long as the price is right. Analysts have valued the company’s wagering division, which has been losing market share to upstart digital rivals, at up to $3bn, while its more lucrative lotteries business could be worth $10bn — more than its entire market capitalisation.

The Australian understands Entain has been spruiking its proposal as a win for consumers by giving them access to superior technology and products. Moreover, it is hoping to win over Tabcorp’s shareholders by saying its offer provides them with certain value.

In a presentation seen by The Australian, Entain says it “will be bold, ambitious and disruptive”.

“Our vision is to be the world leader in sports betting and gaming entertainment. Entain can deliver on this ambition because of our greatest unique asset — our technology,” it argues.

Entain has also vowed to exit unregulated markets by 2023. About 4 per cent of Entain’s revenue — which totalled £1.6bn ($2.87bn) in the six months to June 30 — comes from unregulated gambling markets in Asia and North America. These markets have spearheaded much of the growth in online gaming.

The Tabcorp proposals centre on acquiring the wagering business and spinning off the lotteries division — a move shareholders have been calling for.

While Tabcorp’s wagering business has been struggling, particularly during the COVID-19 pandemic amid forced retail closures, it has found itself in the centre of a US-led land grab for online betting capability fuelled by the deregulation of the American online betting market.

US casino groups have been scrambling to protect their empires, with Caesars acquiring UK bookmaker William Hill last year for almost $US4bn. Meanwhile Entain itself has fended off an approach from casino group MGM.

Credit Suisse analysts expect US casino groups to express ­interest in Tabcorp, as well as major media, wagering and gaming companies and private equity firms, which could send the group’s share price soaring to $5.20 – a three-year high. Since Monday, its shares have surged from $3.95 to $4.57.

Citi analyst Bryan Raymond said it was an “opportune time” for Tabcorp’s board to consider a proposal that would split the company, given Mr Gregg’s recent appointment and its ongoing search for a new chief executive after David Attenborough announced his impending departure in July last year.

“Major leadership changes like this typically precede larger changes to the business given a lack of ownership of historical decisions and a fresh approach to the optimal business structure,” Mr Raymond said.

“Tabcorp’s wagering business needs to be rebased, in our view, with a comprehensive reinvestment in systems and the customer offer, as well as right-sizing the retail footprint. Wagering EBITDA has been in structural decline as more sophisticated global digital wagering businesses have taken share.”

Mr Raymond valued the lotteries business at $10bn, or 16 times 2022 fiscal year pre-tax earnings. He said this would unlock value that has failed to ­materialise since Tabcorp’s $11bn merger with Tatts in 2017.

“The prospect of an exit from wagering and gaming services looks appealing, given a stand-alone lotteries business would be considered among the highest-quality defensive businesses in Australia,” he said. “This has not been reflected in the share price, which has lagged defensives since the Tatts merger.”

Meanwhile, Mr Raymond said Tabcorp’s embattled wagering division would be appealing, particularly to one of the company’s rivals subject to approval from the Australian Competition & Consumer Commission and Foreign Investment Review Board.

“We see a potential transaction with a trade buyer or private equity group valuing the wagering business at up to $3bn including a control premium,” he said.

“Synergies could be meaningful for an existing Australian wagering business, subject to ACCC, FIRB and regulatory approval.

“The Victorian wagering licence is up for renewal in 2024 and is an important catalyst for resetting the retail wagering business in a digitally driven wagering industry. We would expect a bid to be above our wagering valuation of $2.3bn.”