The Tabcorp Holdings Ltd (ASX: TAH) share price could be set to benefit from its proposed demerger.
According to one industry expert, the demerger of its lotteries business represents greater long-term potential for shareholders.
Let's take a look at what this industry expert had to say and why the Tabcorp share price could benefit.
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Tabcorp share price could benefit from demerger
Recently, a senior analyst from Montgomery Investment Management penned an article on Tabcorp's proposed demerger.
The analyst noted the proposed demerger could provide a better outcome than a trade sale for shareholders.
According to the article, the demerger would "provide potential bidders with a level playing field and greater transparency".
In addition, the analyst said strong and stable cash flow and moderate growth would see Tabcorp's separate lotteries and Keno business get rerated by the market.
As a result, the article noted the new business could get the attention of income-seeking pension funds.
The analyst also highlighted that the broader market did not view the demerger as a positive for Tabcorp.
According to the article, this was due to the perception that a trade sale would generate greater value. In addition, higher costs associated with the demerger could impact Tabcorp's share price.
Overall, the analyst noted a demerger would allow both entities to focus on and control their separate strategies.
More information on Tabcorp's demerger
Earlier this month, Tabcorp announced the conclusion of a strategic review. As a result, the company is contemplating a decision to demerge its lotteries and Keno business. The Tabcorp share price fall sharply on the news.
A demerger would see two separately listed companies — the standalone lotteries and Keno business, and the existing listing of Tabcorp.
Under the demerger, Tabcorp aims to retain its wagering, media and gaming businesses.
If a demerger results, Tabcorp shareholders will receive shares in the lotteries and Keno business proportional to their existing holdings.
Tabcorp estimates the demerger process will incur between $225 million and $275 million in one-off separation costs. In addition, the company estimates $40 million to $45 million per year of ongoing incremental costs.
Following the news earlier this month, Tabcorp shares were sold off. Shares in the company were down more than 8% for the month, hitting a low for the month of $4.69.
At the time of writing, the Tabcorp share price has recovered slightly, currently trading at around $4.92. It is down 0.71% on yesterday's closing price.
