The share price of Tabcorp Holdings Limited (ASX: TAH) is underperforming the market after the company became the second large cap in recent memory to beat a retreat from the UK market and take a big write-down.
The stock recovered some of its early losses to trade 0.2% lower at $4.65 at the time of writing, as the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index defied a negative overnight lead from the US to trade 0.3% higher.
While the exit from its UK online joint venture (JV) wagering business with the NEWS CORP/IDR UNRESTR (ASX: NWS) owned Sun Newspaper had been flagged, the near doubling of the costs associated with the struggling venture would not have pleased investors.
Tabcorp will pay News around $71 million to exit the Sun Bets JV and will take a $91 million post-tax hit to its bottom line in its FY18 accounts. This is up from the $52 million that it recorded in its 1HFY18 results.
This won't be the end of the matter either. Tabcorp expects to take another $10 million hit from its disastrous UK expansion in FY19.
Management decided to take the pain now on the underperforming JV formed in 2016 as it can't see any improvement in the business for at least 18 months.
This sorry affair triggers memories of Wesfarmers Ltd's (ASX: WES) embarrassing foray into the UK market with its home-improvement Bunnings chain.
The writedown for Tabcorp isn't quite as shocking as Wesfarmers, but it still accounts for around 44% of its FY17 adjusted net profit. Tabcorp posted a net loss in that financial year due to a big write-downs as well.
But Tabcorp is putting a positive spin on the ordeal. It seems the millions won't totally go to waste if you can believe its chief executive David Attenborough.
"While we didn't get it right, we have taken valuable learnings from the Sun Bets start-up process and operations which will inform our approach across our portfolio," said Attenborough.
What's more, Attenborough is no shrinking violet and Tabcorp appears to be prepared to give its overseas expansion another go.
Hopefully the expensive lesson its shareholders are paying for will yield a better result next time round, although I get nervous whenever I hear an ASX company with a domestic-focused business talk about overseas expansion.
This isn't to say we don't have a handful of success stories to point to. Look at A2 Milk Company Ltd (ASX: A2M) and Afterpay Touch Group Ltd (ASX: APT), just to name a few.
But I suspect investors will prefer management focus on bedding down its merger with Tatts Group before feeling adventurous again.
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