Shares in Betmakers Technology Group Ltd (ASX: BET) plummeted 24% since the company announced its interest in acquiring the Tabcorp Holdings Limited (ASX: TAH) Wagering and Media business on Friday.
The Betmakers share price has gained some lost ground this morning, and is now trading at $1.14, up 2.7% today.
What's the plan?
According to Betmakers' indicative proposal, Tabcorp would receive $1 billion in cash and $3 billion in BetMakers shares. The number of shares on offer has not been determined. Once the initial cash payment is made, the remainder would be determined when the deal was signed and priced at a 15% premium to the traded price.
As it now stands, the sudden decrease in the Betmakers share price would mean Betmakers would likely have to issue more shares to fund the deal.
We take a look at the market reaction.
'Proceed with caution', commentators say
Gabriel Radzyminski from investment firm Sandon Capital questioned the value Betmakers would bring to Tabcorp. In an interview on Friday with the Australian Financial Review (AFR), he urged Tabcorp shareholders to consider that the value of the Betmakers share price may not reflect the true value of the company.
The reality is with a company at the stage of BetMakers' development, that is a challenging assessment for Tabcorp shareholders to make.
Matt Williams, portfolio manager at Tabcorp shareholder Airlie Funds Management, also urged shareholders to evaluate the Betmakers share price.
In an interview with the Sydney Morning Herald (SMH), Williams asked stakeholders to consider whether they thought BetMakers' shares were fairly valued.
A headline in the AFR today described the Betmakers takeover proposal as 'audacious'. The article referred to the degree of difficulty for a small company with a market capitalisation of $897.54 million to digest the much larger Tabcorp, which has a market cap of $11.35 billion.
The bull case
The architect of the deal is Betmakers CEO Matt Trip. He cites many opportunities for Tabcorp shareholders, one being Betmakers' growing presence in international markets. Tripp said in Friday's release:
Building on BetMakers' success to date, the combined entity would be a compelling investment proposition as one of the most broadly deployed global racing networks in the market. We are uniquely placed to pursue commercial opportunities globally, and in particular, in the United States.
According to the proposal, Tripp also promises a technology upgrade that would introduce a second brand to allow punters to bet in sports instead of just horse racing. According to Tripp, this would revive Tabcorp's wagering arm.
Tripp has had the runs on the board when it comes to the wagering industry, having helped turn Sportsbet into the country's second largest bookmaker behind Tabcorp and then partnered with Crown Resorts to set up Bet Easy.
"I am happy with the bid and where we've landed. It's a real win for shareholders every way I look at it," he told AFR Weekend.
Tabcorp has acknowledged the proposal, but has yet to respond.
