So, expect Tabcorp Holdings to come under speculative pressure from punters tipping some corporate action after yesterday’s big announcement of a demerger, capital raising and the departure of the CEO.
The announcement was dramatic, but the shares didn’t move as the company had them suspended to allow for a $430 million capital raising to take place. The shares finished at $7.10 on Friday.
The bare bones of the statement were, the company will undergo a radical revamp, including a demerger of its casinos operations from its wagering, gaming and keno businesses, the capital raising will help pay for the near billion dollar revamp of the Sydney and Gold Coast casinos and CEO, Elmo Funke Kupper will depart in 2011.
The news has been a market story now for the past several months, but only at rumour stage. Being of such significance, it’s interesting it didn’t leak out to market favourites in the media ahead of the release before trading yesterday.
It was a step shareholders had called for at least two years ago, given the continued erosion of value in the group’s various businesses, market share and earnings.
While the demerger has a deadline of July 1 next year, analysts expect it to flush out interested buyers well before then.
The one-for-nine equity issue at $6.25 represents a 12% discount to the last closing price of $7.10 a share.
The most widely tipped buyer for the company’s four casinos is Crown, which was in the headlines last week when its major shareholder, James Packer’s Consolidated Press Holdings lifted its stake in Crown by almost 3% to 43%. Tatts and British gambling group Ladbrokes would look at Tabcorp’s wagering operations.
The ACCC might have a say in the move and purchase, as well as the NSW Government which licences both the Sydney casino and TAB wagering business in the state.
But the rise in online gaming and wagering might allow a significant concentration of both the casino and wagering businesses.
Tabcorp said the demerger would create two entities listed on the Australian Securities Exchange, each able to pursue individual investment programs and growth opportunities.
The wagering, gaming and keno businesses will retain the Tabcorp name. Keno is being expanded in NSW.
Tabcorp chief executive Elmer Funke Kupper will remain to lead the group through the demerger period then hand Tabcorp over to David Attenborough and casinos to Larry Mullin.
It is expected that Mr Funke Kupper will join the board of Tabcorp as a non-executive director six months after ceasing his executive role.
(The split is similar to what Boral did in splitting itself in the late 1990s into Boral Ltd and Origin Ltd.)
Chairman John Story said the priorities for the two businesses had begun to diverge, and there now was a compelling case to give investors shares in the separate businesses.
"The demerger will create two large ASX-listed entities able to pursue their separate strategies, with casinos to benefit from material capital investments, and the wagering, gaming and keno businesses well positioned within a rapidly evolving retail and online environment,’’ Mr Story said in yesterday’s statement.
Mr Funke Kupper said each business now was showing strong positive growth.
"Our wagering business has proven to be a strong performer over the past 12 months and continues to adapt well to an evolving regulatory environment and an increasingly competitive marketplace,’’ Mr Funke Kupper said.
"Our casinos business is undertaking very significant capital investments in NSW and Queensland, and the competitive strategies for the wagering, gaming and keno businesses are showing significant promise.’’
Tabcorp also issued an update, saying that trading in the July to September quarter was positive, with normalised group revenues up 4.1% on the first quarter of 2009-10.
Revenues from casinos were up 7.1%, wagering 4.1% and gaming 0.9%.
Tabcorp said the $175 million upgrade of its Jupiters Casino on the Gold Coast would create an international entertainment and resort destination.
Construction is expected to start in the middle of calendar year 2011 and be completed in 2014.
Tabcorp also said it was in talks with the Queensland government on further expansion of its Gold Coast, Brisbane and Townsville casinos, including the construction of one or two new hotels.
Tabcorp already is engaged in a $960 million expansion of its Star City casino in Sydney, which includes a $100 million licence fee to the NSW government.
Tabcorp’s current Victorian licence to operate electronic gaming machines is set to expire in August 2012. Tabcorp’s Victorian wagering licence also expires in August 2012.
Tabcorp has been in talks with the NSW government and Racing NSW to expand its customer offer in NSW and create new growth in the NSW market.
Tabcorp last week agreed in principle to make a payment of $150 million to support the merger between two metropolitan race clubs and the redevelopment of the Randwick race track.
The Australian Jockey Club is supporting the deal, but members of the rival Sydney Turf Club knocked back the offer.
