Ann: BET: BetMakers submits proposal to acquire Tabcorp assets, page-26

Y'all might find this interesting....or not:

What makes BetMakers’ proposed merger with Tabcorp’s Wagering division interesting – or, shall we say, ‘cute' – is that it's akin to a Chihuahua picking on a Doberman.

In the eight years since BetMakers was founded, the racing data provider has earned around $40m in total revenue. Tabcorp Wagering probably made that much last week. Even against BetMakers’ lofty $1.2bn market cap, Tabcorp Wagering is worth at least four times more.

We think the proposal has almost zero chance of working out, so if you’re short on time today, you can stop reading here.

For those interested in the details: BetMakers Technology (ASX: BET) has offered $4bn for Tabcorp’s Wagering and Media division, comprising $1bn in cash (“which BetMakers anticipates funding through debt”) and $3bn in BetMakers shares, which would be issued upon completion, providing Tabcorp shareholders with a 65% interest in the combined business.

Given that Tabcorp’s assets would account for almost all of the value in the new stock, the proposal essentially amounts to a spin-off, with BetMakers shareholders getting to cash in on their stock’s rapidly rising share price. Tabcorp has little to gain; BetMakers has a lot.

Were this an all-cash offer, it might compete with the other offers to buy Wagering already on the table – one by Apollo ($4bn) and one by Entain ($3.5bn).

However, as we explained in Tabcorp: carve outs and hidden growth, we think the Wagering division is worth at least $5.0bn; all three offers look undercooked.

That being the case, we favour a potential demerger of the division, which the board is also considering. This would let shareholders own each division separately, and it wouldn’t be muddied by Betmakers’ overvalued stock.

Tabcorp's board hasn't yet formed a view on any of the bids. The proposals could take some time to play out – and, who knows, one of the potential suitors may up its bid. We’ll keep you posted as things progress and we continue to recommend you HOLD.