OPINIONTabcorp has its own horse in the bidding race, andit’s...

OPINION

Tabcorp has its own horse in the bidding race, andit’s out in front

ElizabethKnight

We’re off to the races in the contestto see who will win ownership of Tabcorp’s wagering and media business.UK-based gaming giant Entain has just sprinted past a few others in the pack thanks to raising its offer price by half a billion dollars to $3.5 billion.

While there is a long way left torun, at this point Entain isn’t in the lead.

The board of Tabcorp is proving atough nut to crack and is considered unlikely to even offer Entain theopportunity to take a look at the wagering and media division’s books.

Tabcorp is whipping those racing forownership of its gaming division.CREDIT:AP

While Entain has the highest offer onthe table, Tabcorp continues to pursue its own corporate break up - separatingthe wagering and media division from the lotteries and keno business.

This is tantamount to Tabcorp havingits own horse in the race - and one that at this stage is out in front.

Tabcorp’s own strategy is to demerge its strongly performing lotteries and Keno business, leaving the underperforming wagering business as a standalone operation that would have a separate management and its own listing.

The Tabcorp board is betting that asa separate entity it will be worth more than the $3.5 billion Entain isoffering.

The trouble for Entain and othersthat have publicly or privately run the ruler over Tabcorp’s wagering businessis that they are competing against a demerger - which is effectively a silentbidder.

The board isn’t telling anyone what it thinks thewagering business could be worth once demerged.

But given the lukewarm response toEntain’s upgraded offer, Tabcorp chairman Steven Gregg thinks (or wants othersto think) the demerger values it at more than $3.5 billion.

In doing so Gregg is playing a longgame. He understands there is less risk associated with a demerger because itwould avoid a plethora of approvals from state racing clubs and stateregulators, the competition watchdog and the Foreign Investment Review Board.

Sure there are costs associated witha demerger but Tabcorp is touting the view that it remains a simpler process.

Having said that a large enough offerfrom Entain (or anyone else) would offset the risks.

At this point, only Entain andprivate equity outfit Apollo are the two outside groups to have shown theirhands.

But Gregg will have a decent handleon who is out there sniffing around. Australia’s high-profile corporate bookie,Matthew Tripp, has been unofficially outed as keen to get a piece of theTabcorp wagering action - potentially through engineering a merger withBetmakers in which he has a stake of about 5 per cent.

Lachlan Murdoch is also speculated to be involved or looking for a seat with a consortium eyeing an offer.

Tabcorp’s board is clearly thinkingthere are enough bidders in the room to kickstart a proper auction.

Gregg’s tactics appear to have wonthe support of a group of shareholders that have been strongly voicing theirviews to the board for at least a year. Indeed they are responsible for Greggreplacing the former chairman Paula Dwyer who was the architect of the mergerof Tabcorp with Tatts Group in 2017 - a deal that has not yet delivered theperformance improvements promised.

Ironically it is the poor performanceof the wagering business since the merger that has provided the impetus for themove to decouple it from the lotteries business which has gone from strength tostrength.

But as poorly performing as Tabcorp’swagering business has been, its strategic appeal remains given its 37 per centshare of the Australian wagering market across digital and retail platforms.

The opportunity to improve itsearnings lends to this appeal.

The media business that holdsbroadcast rights to horse racing in Australia is a smaller component of thedivision but is a valuable asset to other online betting outfits.

But Gregg’s decision to keep biddershanging means they will need to further sharpen their pencils to get the insiderunning at the negotiating table.