Shares in Betmakers Technology Group Ltd (ASX: BET) are down another 10.7% today.
This means that since announcing the proposed acquisition of the wagering arm of Tabcorp Holdings Limited (ASX: TAH), Betmaker’s market valuation has tumbled around 35%.
Even after this sell-off, Betmaker’s shares are still up 60% since the start of the year.
BET share price
Acquisition proposal recap
Betmakers has just put in a $4 billion offer for the wagering and media arm of Tabcorp – consisting of $1 billion of debt and $3 billion of new Betmakers shares.
If the deal is accepted, it would result in a combined entity where Tabcorp shareholders potentially hold a majority stake (65%).
According to Betmakers, the rationale behind the proposed deal mainly lies within the potential synergies of the two businesses, which could result in a competitive global wagering platform servicing both B2B and B2C markets.
Why did the market react negatively?
While it’s hard to pinpoint the exact reason behind the sell-off, one could likely narrow it down to a couple of possible reasons.
The first would be the target itself – the Tabcorb business. While Tabcorp’s lotteries business has been a strong performer, its wagering and media arm has been underperforming in recent years as it’s lost market share from more tech-oriented companies like Entain (owner of Ladbrokes) and Sportsbet.
It’s possible the market doesn’t see value in the deal, especially considering the high price tag.
Of course, Betmakers is still quite an early-stage company, so other investors might be thinking it’s trying to bite off more than it can chew. Over $3 billion of new Betmakers shares would be issued if the deal was to go ahead, which could prove to have a dilutive effect on existing shareholders.
Summary
While Tabcorp has acknowledged the offer, it hasn’t come to a decision yet. If it were to reject the offer, there might be a recovery in the Betmaker’s share price.
Betmakers is an interesting growth story that’s been one of the hottest stocks since the start of the year.
In many overseas markets including the US, legislation around sports betting has been repealed to allow such activities, so this has been a large tailwind behind the Betmakers share price.
I’ll be waiting on the sidelines for the moment, but Betmakers is still on my watchlist nonetheless.
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