Betmakers Technology Group Ltd (ASX: BET) shares were the second most traded on the ASX last week.
After tumbling over 60% to 99 cents each on the proposal, Betmakers shares have quickly rebounded around 20% to the current share price of $1.18 at the time of writing.
BET share price
Why were Betmakers shares sold off?
There could be a number of reasons why the market reacted negatively to the acquisition proposal. But I think it’s most likely that it’s because Tabcorp’s wagering business isn’t being seen as an extremely attractive asset to potentially acquire.
While Tabcorp’s lotteries division has been the primary source of revenue in recent years, its wagering arm was underperforming even prior to COVID-19.
A large component of the wagering business is its TAB retail outlets, which generated around 45% of the division’s revenue pre-COVID.
While TAB does have an online offering, it struggled to migrate its customers over when COVID-19 caused venues to close their doors. Growth in online bookmakers such as Ladbrokes and Sportsbet seemed to have outpaced that of TAB by a significant margin.
To make matters worse, there’s been a recent shift away from tote betting towards fixed odds bets. In tote betting, money from customers is pooled and the odds are based on the bets that have been placed.
While this has been popular in the past, there’s been a significant drop in the value of tote bets placed over the past year, which has contributed to the underperformance of Tabcorp’s wagering business.
There’s no sure way of knowing, but I don’t think the Tabcorp board will approve the acquisition proposal.
The current bidding war could suggest that higher offers might possibly be put forward that are on better terms. As my colleague, Lachlan Buur-Jensen noted in his recent article, an all-cash bid seems more attractive than one that comprises of Betmakers shares.
Not only would the valuation around its shares be complicated, but there’d be the ongoing battle to turn around the underperforming division.
Acquisition aside, it might also be worth considering Betmakers’ valuation as part of the research process. With a market cap of just under $1 million, it does seem to imply a certain blue sky scenario that might or might not eventuate.
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