‘Brave move’ for Apollo to take on Tabcorp

Leon Black, chairman and chief executive of Apollo Global Management, speaking in Los Angeles in 2016. PHOTO: PRENSA INTERNACIONAL/ZUMA PRESS

Apollo Global Management may be the latest name being touted as a suitor for Tabcorp’s $3 billion-odd wagering division, but there are market experts that are highly doubtful it would want the exposure that comes with owning a company in the betting industry.

Some sources say that it would be a brave move for Apollo to embark on such a deal from a probity perspective at a time that it has weathered a storm kicked up by Chief Executive Leon Black’s ties to disgraced financier Jeffrey Epstein.

A high level of scrutiny from a regulatory perspective goes with owning a wagering business.

Another reason for doubts about the serious level of interest it has in Tabcorp is the fact that the US-based group has not embarked on a major transaction in Australia for about five years, despite suggestions it has looked at a number of targets.

Some believe the more likely suitor in the private equity world for the business are private equity firms that are established and active in the Australian market such as Kohlberg Kravis Roberts, BGH Capital, TPG Capital and Pacific Equity Partners.

But many shy away from such companies for reasons around probity and Apollo is seen as no exception.

It is Ladbrokes, owned by Entain, that has the most synergies.

Entain, which DataRoom understands is working with Morgan Stanley as well as Macquarie Capital, is believed to have offered a deal where it pays the company in Chess Depositary Interests for the wagering arm held in an Australian structure with some cash - the assumption being that cash would be the alternative.

But sources say it would be no surprise for Tabcorp to reject such an offer at a time that it needs cash to pay down its loans and reinvest in the remaining part of the business.

Apollo is trying to shake off the publicity it has received from the association Mr Black has had with Mr Epstein that has created a major headache.

Mr Epstein was indicted in 2019 on federal sex-trafficking charges involving underage girls and later died by suicide in jail.

A recently concluded review by Dechert LLP backed up Mr. Black’s assertion that fees he paid Epstein, which the law firm said totalled $US158 million, were for legitimate tax- and estate-planning advice.

It found no evidence he was involved in Epstein’s criminal activities.

This week, Apollo reported higher fourth-quarter earnings, posting net income of $US434.1 million, up from earnings of $US166 million a year earlier, as fee-related earnings rose.

The question for Apollo’s shareholders has been whether Mr. Black’s decision to cede the CEO role to co-founder Marc Rowan, announced with the findings of the review last week, would be enough to put to rest concerns of public pension funds and other institutions that commit money to the firm’s funds.

Some had said they would hold off on new investments with the firm until they learned the findings of the review.

Mr. Black, who plans to retain the role of chairman, also detailed in a January 25 letter to investors other governance changes he is recommending to the board.

These include the appointment of more independent directors and the elimination of Apollo’s dual-class share structure.

Any investor defections could threaten Apollo’s goal, set in 2019, of reaching $US600 billion in assets in five years.

with The Wall Street Journal