Tabcorp receives green light from independent expert for lotteries demerger

An independent expert has backed Tabcorp’s demerger plan, moving the ASX listing of its lotteries arm one step closer. But buyers could soon be circling the business.

Tabcorp’s TAB brand will be part of its wagering and media business on the ASX after it demerges its lotteries division. Picture: Stuart McCormick

Tabcorp’s $10bn demerger of its lotteries arm has moved a step closer with the proposed deal receiving the green light from an independent expert.

Grant Samuel, appointed by Tabcorp to review the mooted demerger, has concluded “that the demerger is in the best interest of Tabcorp shareholders”, Tabcorp announced on Wednesday.

The deal is set to be one of the biggest transactions on the ASX this year, though potential bidders for both the lotteries business and the remaining wagering and media arm could circle quickly after it is completed by June.

Tabcorp will release a demerger booklet detailing reasons for why the demerger should take place, including a copy of the independent expert’s report, by the end of next week.

A general meeting and scheme meeting for shareholders to vote on the deal has been scheduled for May 12.

Tabcorp is demerging its strongly performing lotteries division, which posted a record financial result for the six months to December 31, from its wagering arm in a $10bn transaction now set for completion within three months.

Tabcorp lottery CEO Sue van der Merwe. Picture: Dan Peled

Shareholders have long backed the move, which was announced last year after The Australian revealed private equity firms had expressed interest in buy all or part of Tabcorp, which was then followed by bids of up to $4bn for the wagering business from London-listed Entain and another proposal involving ASX-listed BetMakers Technology.

Tabcorp chairman Steven Gregg decided to reject the bids and focus on a demerger strategy, which is set to unlock a lottery business that analysts have estimated could have market capitalisation of more than $10bn given its strong financial position.

But Mr Gregg and his board could have missed out on a bigger payday for the wagering division given it has been estimated that it could have a valuation of about $2.5bn when it emerges as its own entity on the ASX.

Tabcorp’s wagering division, including the TAB betting brand and the Sky Racing media business, has been struggling to maintain its market share given the heavy competition from foreign-owned corporate bookmakers such as Sportsbet, Bet365, Ladbrokes and Neds.

Sportsbet, owned by the London-listed Flutter Entertainment, is now estimated to hold about a 50 per cent share of the wagering market in Australia, while Entain’s market share has also been growing quickly.

Entain owns the Ladbrokes and Neds brands in Australia and could be back for another tilt at Tabcorp’s wagering business later in the year, at a lower price than it had offered in its takeover bid last year.

Meanwhile, The Australian’s Data Room column this week reported investors such as Stonepeak, Brookfield and GIP are expected to circle Tabcorp’s lotteries unit when it is demerged on the ASX as The Lottery Corporation.