The Tabcorp Holdings Ltd (ASX: TAH) share price closed 8.78% higher on Tuesday after confirming media speculation regarding its wagering and media business.
What was announced?
Tabcorp announced it had “received a number of unsolicited approaches and proposals in relation to a potential transaction involving Tabcorp’s Wagering and Media business”.
Within the announcement, Tabcorp mentioned there is no certainty that any transaction will occur. However, Tabcorp did not rule it out either, expressing that the “Board is assessing the proposals and Tabcorp will update the market in due course”.
In any case, market participants are clearly excited by the prospect of Tabcorp offloading its wagering and media business.
My view on the announcement
In FY20, Tabcorp’s wagering and media division contributed 40% of Tabcorp’s total revenue and 37% of the company’s total EBITDA.
Further, the wagering and media division struggled in FY20, with revenue falling 10.1% to $2.1 billion and EBITDA falling 19.5% to $371 million.
The division was heavily impacted by COVID-19, with many sports events suspended, reduced or cancelled. Tabcorp also admitted within its FY20 full-year presentation that it was negatively affected by rising digital competition.
On the other hand, competitors such as Pointsbet Holdings Ltd (ASX: PBH) have been shooting the lights out. Click here to read my recent article on PointsBet’s 2021 outlook.
On balance, I think Tabcorp would be wise to offload a struggling division operating within a highly competitive market.
Summary
Overall, I think the market is right to be excited about the possibility of Tabcorp pursuing a transaction involving its beleaguered wagering and media business.
If I were a Tabcorp shareholder, I might view Tuesday’s higher share price as an opportunity to sell shares. In comparison to Tabcorp, I would prefer to hold shares in the rapidly growing Pointsbet.
