Lottery Corp (ASX:TLC) leaps into ASX 200 24 May

Following 93% approval by shareholders on May 12 for the $11bn demerger, Tabcorp Holdings' (ASX: TAH) de-coupled entity The Lottery Corporation (ASX: TLC) is expected to commence trading on the ASX on Tuesday, May 24.

Tabcorp will spin-off 1 share of Lottery Corporation Limited for every 1 Tabcorp Holdings Limited share held.

It’s understood the Lottery Corporation will then be added to the S&P/ASX 200 Index effective prior to the open of trading on May 24, 2022 at a zero price.

The demerger would then be implemented on June 1.

Maximise shareholder value

With six operating businesses spread across three divisions, Tabcorp concluded that a demerger was “the most certain and timely path to maximise value for Tabcorp shareholders, with lower regulatory impediments’’.

Tabcorp will re-emerge as a media/wagering entity, including gaming services businesses trading under the banners of TAB, Sky Racing and MAX.

Meantime, Lottery Corporation becomes the unit that operates the Tatts Lotto and Keno business across Australia’s six states. Lottery Corporation also operates a group of well-known lottery games such as Powerball and Oz Lotto.

Management regards the split as an important milestone in repositioning the group’s portfolio, especially given investor disappointment over Tabcorp’s failure to deliver on any growth following failed merger talks.

More M&A around the corner

Based on independent valuations, New Tabcorp’s wagering, and media arm alone is expected to have a value of between $2.1bn to $2.7bn. This is well under bids of between $3bn and $4bn from multiple suitors rejected by Tabcorp last year.

However, the demerged entity is expected to attract some those same suitors (plus others) back to the bidding take table going forward, while M&A interest in the soon-to-list Lottery Corporation is also expected within short order.

Debt structure

While New Tabcorp is expected to have under $100m of net debt – following a shift of debt to Lottery Corporation – it also comes with a $950m revolving loan facility.

Given the deregulation of the US wagering industry, management may start eyeballing this market for likely acquisitions.

By comparison, Lottery Corporation is expected to have an opening net debt balance of around $2.1bn, with the company targeting a debt-to-equity ratio of 3.5-4.0.

Tabcorp's share price over six months.