Why Tabcorp Holdings Limited (ASX:TAH) may walk away from UK partnership

Tabcorp Holdings Limited (ASX: TAH) may soon walk away from Sun Bets, the underperforming UK business run in partnership with News UK.

Last October, the company announced that Sun Bets – an online wagering and gaming service operated by Tabcorp under the popular Sun newspaper branding – was subject to a strategic review due to its poor performance. Attempts to turn around the business with new product and customer initiatives proved unsuccessful, and for the first half of FY18 the division generated a $22 million EBITDA loss, one-off extra costs of $49 million and an impairment of assets of $4 million.

On Friday, Tabcorp addressed media coverage of the issue and confirmed that the strategic review has concluded, resulting in the intention to make an early exit from the venture.

The company is now in talks to reach an agreement with News UK. According to The Guardian, Tabcorp may have to pay a break fee of up to £30 million (about $53 million). In fact, the two companies had agreed the possibility of a termination in case of underperformance, but only with effect from 31 December 2019.

Investors seem relieved by Tabcorp’s decision of abandoning the unprofitable operation. On Friday, the stock was up 2% to $4.58.

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Motley Fool contributor Tommaso Autorino has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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