Tabcorp Valuation

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Executive Summary
On 18th October 2010, Tabcorp Holding Limited announced a demerger of its 4.3 billion casino and wagering business into two separate commercial entities: Echo and New Tabcorp. The term ‘New Tabcorp’ in this report refers to Tabcorp Holdings Limited after demerger and ‘Old Tabcorp’ refers to Tabcorp Holdings Limited before demerger. The report offers evidences to prove that the Old Tabcorp was suffering a conglomerate discount and the demerger has a positive outcome. The first part gives a brief introduction of Tabcorp, including the background and demerger movements. The second part begins with a PEST analysis of the gambling industry in Australia which aims at drawing an image of the gambling industry environment. This part also contains financial analysis of the three entities, Old Tabcorp, New Tabcorp and Echo, and describes the financial performance and position and the valuation process. An industry consolidation analysis, as well as a synergy analysis, is given then. Finally, a conclusion is reached that demerger is an intelligent decision and will bring benefits to both shareholders and debtors of new entities.

Introduction
Tabcorp Background
Tabcorp Holding Limited (TAH) is one of the top gambling and entertainment enterprises in Australia, which was incorporated with the privatization of the Victorian TAB in 1994. Nowadays Tabcorp group offers more diversified gambling and entertainment products, including wagering, media and international, gaming and keno across the whole Australia. The details of its divisions are listed in Table 1. Table 1 Divisions of Tabcorp

Divisions Descriptions
WageringThe main functions are the totalisator and fixed odds betting activities, which are operating in the Victorian and NSW. Main games are sports, horse racing, and some animated games. There also commenced TAB Sportsbet & FootyTab in Victoria and NSW and Luxbet in Northern Territory through the internet, the pay TV and phone (Damien Choizit 2009). The new licence of Vic Wagering and Betting will start from August 2012 to August 2024. Media and InternationalIt contains the national and international broadcasting of racing and sporting events, which engages the radio and television operations. simultaneously it operates sky channel, network, the national commercial satellite racing broadcaster and narrowcast stations in NSW (Worldwide Company Profile 2012, Tabcorp Holding Limited, para. 2). Victorian GamingElectronic Gaming machines are operated in licensed hotels & clubs under the brand of Tabaret. And Tabcorp Gaming Solutions provides specialized consulting and support services for electronic gaming machine operators, post August 2012 (Wiki 2011, Tabcorp Holdings-Business Overview). KenoIt operates in licensed clubs & hotels through Victoria, NSW and Queensland. And the new Victorian licence will initiate in April 2012 (Wiki 2011, Tabcorp Holdings-Business Overview). 1.2 Demerger movements by Tabcorp in 2011

On 15 June 2011, the Echo Entertainment Group Limited (EGP) was demerged from Tabcorp Group due to the Casino business of Tabcorp being separately listed. And other divisions were retained by Tabcorp (Tabcorp-History, 2012). As the demerger of Echo, several companies were also demerged from Tabcorp, including Jupiters Limited, Breakwater Island Limited, Breakwater Island Trust, Jupiters Custodian Pty Ltd, Jupiters Trust and Jupwind Superannuation Pty Ltd. (Tabcorp annual report, 2011)

The Case Analysis
Industry Analysis
Generally speaking, the prevalent types of gambling in Australia used to be lotteries, racing, wagering. As time goes by, the gambling industry nowadays produce more new activities, such as Electronic Gambling Machine (EGMs) and internet gambling. The following is the PEST Analysis for Gambling Industry in Australia. Political With the rising of gambling, more problems appeared. Hence, corresponding regulations were designed to conduct those problems. For instance, the...
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