What to make of Betmakers (ASX: BET) bid for Tabcorp’s (ASX: TAH) wagering arm
This morning Betmakers (ASX: BET) bid for Tabcorp’s (ASX: TAH) wagering arm. It is part cash and part shares. It values the wagering business at $4bn. There is $1bn in cash and $3bn in BET shares. The number of shares that BET proposes to issue would be fixed at the time that any potential transaction is agreed between TAH and BET and would be priced at a 15% premium to the BetMakers share price at that time.
Back on February 18th, following the move from Matt Trip to buy into the company, we highlighted the stock as a buy around 100c.
We added it to the Growth Portfolio a few days later. At the close last night, some big trades went through the market, whether it was index rebalancing or something else remains to be seen (looks like something else now), but things are happening. The prize is the TAH Wagering division which has been the subject of a number of approaches. TAH has not maximised this business and it needs the ‘Tripp Touch’ perhaps to get it back on track. In the media today, was a report that Andrew Wenz had quietly left Sportsbet. He was the Chief Commercial Officer and could be part of any merger of equals that BET can pull off with the TAH wagering division. Menz and Tripp previously worked together at BetEasy before CWN bought into the business.
Tripp has many reasons to get a deal done 192m of them if he can do this deal. That is his potential with the options that will be granted, if he does the deal for BET. Nice work. Now BET is capitalised at $1.3bn. The TAH wagering division has a valuation of more than twice that, so a merger of equals will be difficult to pull off. But hasn’t stopped them trying.
The deal is subject to the usual DD and many conditions and the TAH board has not yet formed a view on whether it will sell the business.
The deal if consummated, would mean TAH shareholders would end up with 66% of the combined business.
The $1bn will be financed through debt and the deal will give TAH shareholders upside to the growth of the wagering business.
Funny old world, isn’t it? At the moment TAH shareholders have 100% exposure to the upside in the wagering business. The only thing missing is some good people to run it. Would seem like a better deal if TAH just bid for BET and retained all that 100%, but that does not seem to be how this thing works.
The wagering business of TAH has been underperforming and not making the most of its opportunities. BET has been pushing hard into the US which gives it a growth platform. BET is the back end for bookies, plus it brings the Tripp Touch.
If BET can put this away it’s a great deal. However, TAH is an institution and may be harder to incorporate and blend with the new go-getter formula that the team at BET have adopted. It is never easy to merge and certainly harder when you are the junior partner.
This is not over by a long shot and if I was a betting man, I would imagine that this will stir up the pot and Apollo and others may throw their hat into the ring. Even Ladbrokes. Would they be happy to see a strong competitor emerge? Probably not.
Long way to go in this one.
For the time being, we will continue to hold in the Growth Portfolio. No reason not to. It’s been a good investment and we are now seeing things happen.
I interviewed the COO On the Couch a few weeks ago and maybe worth revisiting that podcast for some background.
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