Published: April 10, 2022

Australia: Tabcorp Lotteries Demerger Rolls On

Tabcorp has revealed more detail on its plans to demerge its lotteries and Keno businesses, with the new entity to debut on the ASX on May 24 if the split is approved by investors.

The new company will be called The Lottery Corporation.

Tabcorp is urging shareholders to approve the demerger at a shareholders’ meeting to be held on May 12.

But the scheme documentation reveals a potential legal challenger to the split from racing NSW which is concerned the Tabcorp split could weaken racing.

The demerger plans were first revealed in early July of last year after Tabcorp rejected plans to keep the lotteries business and sell off its wagering business for a potential $3.5 billion to possible suitors from Australia, the UK and US.

Now Tabcorp thinks the split will help each company focus better on growing the business and let shareholders benefit from “any future M&A activity”.

Tabcorp also outlined a list of potential disadvantages and risks of the demerger, including costs, potential delays, regulatory roadblocks, failure to receive court approval, and uncertainty regarding the two new companies’ market value.

But Racing NSW boss Peter V’landys has written to Tabcorp threatening legal action. He claims the move could spell “financial disaster” for the racing industry.

Tabcorp revealed in Thursday’s report on the split that it had received correspondence over the past two years from Racing NSW warning that the planned demerger would impact the racing industry and reduce its financial returns.

“Racing NSW has indicated that it may take action against Tabcorp in respect of the above matter, which it suggests may affect the implementation of the Demerger,” it said in the booklet.

Contacted for comment, Mr V’landys confirmed to Nine/Fairfax that he was considering legal action on behalf of his organisation.

“My job is to protect the 50,000 participants in the NSW racing industry and as it currently stands this de-merger would be a financial disaster for NSW Racing,” Mr V’landys told the Nine papers.

The chances of V’landys being successful are not good.

In 2017 Racing Victoria opposed the then merger proposal that saw Tabcorp eventually absorb Tatts (that merger is effectively being unwound by the Tabcorp split). The previous merger promised an extra $50 million a year to all racing. Tabcorp could quite easily negate V’landys’ noise-making by making a similar commitment.

In a letter to Tabcorp shareholders with the split document, chairman Steven Gregg said the demerger was a decision that came after considering bids for the wagering, media and gaming services businesses from UK betting giant Entain, private equity giant Apollo, and wagering technology group BetMakers.

“After assessing the proposals carefully in the context of the strategic review, the board determined that it preferred the merger on the basis that it presents the most certain and timely path, with lower regulatory impediments, to maximise value for Tabcorp shareholders.”

Current shareholders in Tabcorp will keep their existing shares as well as receive one The Lottery Corporation share for every Tabcorp share that is held on the record date, slated to be Wednesday 25 May.

Tabcorp shares ended the day up nearly 2.5% at $5.34, a performance that tells us investors do not view the threat from Racing NSW and Mr V’landys all that seriously.

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