Betmakers Technology Group Ltd (ASX: BET) shares finished the day 15.63% lower after its announcement that it had submitted a proposal to acquire the wagering arm of Tabcorp Holdings Limited (ASX: TAH).
Still, even after today’s dip, Betmaker’s shares have had an incredible run and have returned just under 300% over the past 12 months.
BET share price
Deal proposal recap
Betmaker’s has made an offer for Tabcorp’s bookmaking and media arm to the tune of $4 billion. This is a $500 million premium compared to Ladbroke’s owner, Entain’s offer, which was rejected by Tabcorp earlier this year.
As part of the proposal, $1 billion would be paid by Betmakers in cash to Tabcorp, with the remainder being from $3 billion of its own shares. The result would be a combined entity where Tabcorp will have a 65% stake of the shares in Betmakers.
While Tabcorp has acknowledged the proposal, it has yet to form a view and is currently running a review of its current operations, which could be completed by next month.
Why has the Betmaker’s share price sunk?
There was certainly a lot of information to digest from today’s proposal. To be honest, probably a little too much to gauge the long-term implications if the deal was to go ahead. It seems as if uncertainty got the better of some investors, which might’ve caused some to sell out.
The deal is ambitious, to say the least in my view.
Betmakers is a fairly early-stage company trading on over 60x sales with a $1.4 billion market cap, that has just offered over $4 billion for a company significantly larger.
Perhaps Betmakers management knows this could be an opportunistic time to offer $3 billion worth of stock at a time when its shares are trading on such a high multiple. If that were to be the case, the deal might be a lot cheaper than one would seem.
From a shareholder standpoint, I’m not sure how much of a dilutive effect this will have on existing shareholders considering $3 billion worth of shares will be issued.
Time to buy Betmaker’s shares?
In my view, the valuation of the target company will be one of the most important factors that will determine the success of the deal. No matter how attractive the growth thesis is, no assets are worth an infinite amount.
As an average investor, I find it hard to gauge the size of the growth opportunity and compare this to a $4 billion transaction. Betmakers is in the too-hard basket for me.
For more share ideas, click here to read: 3 ASX tech shares on my watchlist.
