Tabcorp Holdings Ltd (ASX: TAH) shares are sinking this morning following the announcement of a demerger. At the time of writing, the Tabcorp share price is trading hands at $4.99, down 4%.
Today's announcement follows months of speculation regarding the potential for the gaming giant to split up its wagering and lottery divisions.
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Big news for the Tabcorp share price
This morning Tabcorp announced the conclusion of its strategic review, with the decision to demerge the lotteries and keno business.
As a result, two separate ASX-listed companies will emerge. Those being a standalone lotteries and keno business (Lotteries & KenoCo), in addition to the existing listed Tabcorp. The Tabcorp that we know today will retain the wagering, media, and gaming services businesses (Wagering & GamingCo).
At this stage, the company is targeting demerger completion by the end of June 2022. Current chief executive officer David Attenborough will stay on until the demerger is completed.
Following that, Lotteries & Keno managing director Sue van der Merwe will become CEO of the lottery company. Meanwhile, Wagering & Media managing director Adam Rytenskild will become CEO of the existing Tabcorp business.
Tabcorp determined the demerger to be the best option to unlock value for shareholders. The company had engaged with all bidders for its Wagering & Media business, with both parties confirming their respective previously indicated bids.
Additionally, the company noted it would continue discussions in relation to potential commercial opportunities in international markets with Betmakers Technology Group Ltd (ASX: BET).
Demerged details
The company foresees the demerger giving the benefit of focused management and optimised capital structures, increased scale, the ability to participate in future merger and acquisition activity, and access to new investors with different investment preferences and ESG criteria.
Furthermore, Tabcorp expects the separation to allow investors to value each business independently. Which might increase the likelihood of a Tabcorp share price re-rating.
Tabcorp chair Steven Grigg said:
The two businesses are expected to be leaders in their respective markets, creating great experiences for millions of customers. They will both build on their heritage of sharing the benefits of their commercial success with governments, the racing industry, licensed venues, newsagents and other retail and business partners.
What it means for shareholders
If the demerger goes ahead, current Tabcorp shareholders can expect to receive shares in the Lotteries & KenoCo business proportional to their existing shareholding. This will be in addition to retain their existing holding Tabcorp.
The next step in the process for the company is engaging with the necessary regulatory bodies.
Lastly, Tabcorp estimates the demerger process will incur between $225 million to $275 million in one-off separation costs. On top of this, the company estimates $40 million to $45 million per year of ongoing incremental costs, pre-mitigation.
The Tabcorp share price is up 55% over the past year.
