Entain’s $2.3 billion offer to buy Tabcorp ops likely misses the mark

By | February 17, 2021

Entain announced recently that it was possibly interested in buying TAB, the racing and sports gambling unit operated by Australia’s Tabcorp. At the time, it was still crunching the numbers to determine how much it was willing to put up, and the results are in. However, even though it has put a $2.3-billion cash offer on the table, it might find Tabcorp unimpressed with the amount. 

Rejected business proposal

Entain is responding to rumors that Tabcorp might consider dividing its house as TAB has not been performing to expectations. It was the first to submit a proposal and asserts that the figure is in line with the market valuation provided by analysts with the Australian Securities Exchange. However, history has shown that companies will rarely sell assets at market value unless they’re desperate for cash. Based on Tabcorp’s just-announced earnings report, it isn’t.

The company just released its latest financial report today and showed a group-wide decline of just 1.5% for the first half of fiscal year 2021. The bottom line was $2.22 billion for the period, with a 6.2% decrease in EBITDA (earnings before interest, taxes, depreciation and amortization). Much of that centered on Tabcorp’s Gaming Services division, which saw a 51% drop in revenue to $57 million. However, other areas, such as Lotteries/Keno and Wagering/Media, increased. 

CEO and Managing Director David Attenborough acknowledged that it had received a number of proposals, but didn’t provide details on the players or the amounts. He only offered, “There has been considerable commentary in the market about our wagering and media business. We have confirmed we have received a number of proposals and unsolicited approaches in relation to a potential transaction involving this business. They are also highly conditional and subject to numerous requirements such as due diligence, financing and various regulatory and racing industry approvals. The board will take the appropriate time to carefully consider all of the relevant issues and strategic options that arise in respect to these matters.”

Should Entain purchase TAB, it wants to combine the operations with its other brands in Australia, including Bookmaker, Ladbrokes and Neds. The goal would be to bump Flutter Plc and its Sportsbet brand out of the top spot in the market, but will need to sweeten the pot if it wants to impress Tabcorp. According to the Australian Financial Review, Tabcorp is going to hold out for at least $2.71 billion. Industry analysts, including Goldman Sachs, believe TAB is on the verge of a breakout, and, as a result, Tabcorp doesn’t have to jump on the first offer that it receives.

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