Day, and thank you for standing by. Welcome to Tabcorp market update. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask a question during the session, you need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Gillon McLachlan, Managing Director and CEO. Please go ahead.
Good morning, all, and thank you for joining us. I'm Gillon McLachlan. I'm joined on the call by our CFO, Mark Howell, and COO, Rob Fraser. This morning, we announced an agreement to acquire 100% of the issued shares in BetMakers Technology Group by way of a scheme of arrangement for consideration of AUD 0.24 per share. There is an option for BetMakers shareholders to receive a portion of their consideration in Tabcorp scrip, with the Tabcorp scrip to be issued at a minimum of AUD 1.00 per share. The acquisition of BetMakers represents a unique opportunity to accelerate our transformation to a modernized technology-led company and establish a global B2B growth engine. BetMakers is a business we know well. We've had a commercial relationship for a long time and have watched as Jake and his team successfully transformed into a lean and profitable technology business with an entrepreneurial culture.
I'll take the presentation as read and provide you with an overview of our thinking before handing over to Mark to step you through the financials. You'll see on slide four, there are four parts to our strategic rationale for this acquisition. Firstly, it accelerates our technology modernization. This deal will enable us to fast-track to a leaner cloud-native technology stack. Put simply, we expect to deliver products to market faster and it'll cost us less to run. The modernized platform will create product innovation opportunities at a new speed for Tabcorp. This means faster speed to market, new features, and new user experiences across both our tab and B2B offerings. The tech modernization is also expected to unlock opportunities in the media space, including evolved vision production capability. Secondly, we're creating a global B2B business that will deliver vision services and deeper pools for professional punters.
Our international businesses like PGI and Sky Racing World contribute AUD 350 million in revenue annually and are an often underappreciated component of our company. We'll create greater scale and diversification globally with an end-to-end offering across both wagering and media. BetMakers complimentary assets will assist in executing that ambition. The opportunity is more Tote hosting and co-mingling opportunities. Enhanced vision, data, technology, and distribution capabilities. I would note that Tabcorp, via its global media business, Sky, is a well-established wholesaler of racing vision for Australian and international bookmakers. As part of this service, we have a close working relationship with our partners to deliver bespoke vision feeds with integrated branding, odds, and data services. This is a model we are committed to, and this deal assists us in expanding our wholesale solutions as a data, vision, and wagering services provider. Thirdly, we'll welcome new talent.
BetMakers' team has significant capability which we'll benefit from, including their early adoption of AI. They're proven in digital transformation and will harness that capability. Their focus on being lean and efficient and fast aligns with the culture that we are building at Tabcorp. The fourth pillar behind doing this deal is the attractive financials. We'll deliver a more efficient cost base and CapEx profile. We're targeting a run rate of AUD 30 million of cost synergies to be delivered by the end of year two of our ownership. There is also further revenue upside from the international B2B growth opportunities that the combined business will target. Both businesses will be stronger together. We expect the transaction to deliver double-digit EPS accretion from year three, whilst our balance sheet will remain strong with pro forma leverage of 1.9x at December 2025, enabling flexibility for further growth and execution.
We've also ensured strong alignment with BetMakers. Key executives will be retained and incentivized to ensure we deliver the integration and realize the synergies. It's a deal that makes sense. We're transforming our company strategically, and BetMakers are very complimentary. I'll now hand to Mark to talk you through the financial slides.
Thanks, Gil. Good morning, everyone. Like Gil, I'm excited to be talking to you this morning about what we believe is a highly compelling opportunity for Tabcorp to accelerate our strategy. Slide three covers the key terms of the transaction. I'll keep it to the headlines. On deal terms, Tabcorp will acquire BetMakers at AUD 0.24 per share on a fully diluted basis. That implies an equity value of AUD 283 million and an enterprise value of AUD 267 million. The offer represents a premium of approximately 42% and 37% to three and six-month VWAPs respectively. It implies an EV June 2026 pro forma EBITDA multiple of 6.1x , including the full run rate cost synergies. The consideration will be funded primarily with available cash and undrawn debt facilities, with up to a maximum aggregate of 25% scrip at the election of BetMakers shareholders.
To the extent that BetMakers shareholders elect to receive scrip, Tabcorp shares will be issued at the greater of AUD 1.00, a 12% premium to Tabcorp's last close, or the five-day VWAP prior to the scheme record date. To the extent scrip elections exceed the cap, elections will be scaled back on a pro forma basis. As Gil noted earlier, we are targeting a run rate of AUD 30 million of cost synergies by the end of year two. The transaction is expected to be EPS accretive from year two and deliver double-digit EPS accretion from year three. Pro forma net debt to EBITDA is 1.9x , well within our target leverage range of less than 2.5x Through the cycle. I note this pro forma leverage is calculated based on earnings and net debt levels of the combined businesses as at December 31, 2025.
We will update the pro forma leverage calculations at our full-year results on the August 26th, when we roll forward the calculation to June 26. The BetMakers board unanimously recommends the transaction and intend to vote their shares in favor of the transaction, subject to the usual conditions. The transaction will require approval by BetMakers shareholders. It would also be subject to court approval, ACCC clearance, and the receipt of required regulatory approvals in certain jurisdictions in which BetMakers operates. Completion is targeted for the third quarter of FY 2027. Turning to slide eight. As I mentioned, we are targeting a run rate of AUD 30 million of cost synergies by the end of year two of our ownership. The synergies are largely tech-based and primarily relate to Tabcorp's cost base.
They'll come from a material simplification of our product development workflow following the adoption of the BetMakers product suite, rationalization of data centers, corporate applications, and technology contracts, as well as efficiencies across corporate and support functions. In addition, we see significant upside from international revenue growth opportunities. The combined business will deliver an expanded offering that unlocks the full growth potential of our unique existing international media and tote assets, as Gil touched on earlier. For our shareholders, the financial outcomes are compelling, with double-digit expected EPS accretion whilst maintaining a strong balance sheet. I've already talked through the key details of slide nine, which provides a summary of how we intend to fund the transaction. I'll now hand back to Gil to make some closing remarks.
Thanks, Mark. Today is an important day for our company, with an opportunity to fast-track our transformation. We believe with BetMakers, we can create faster speed to market with greater cost efficiency. We'll benefit from bringing our complementary assets together to grow scale and diversify globally. To reiterate, this acquisition accelerates our technology modernization and uplifts capability. Building on our existing international assets, we will now establish a global B2B growth engine, creating a differentiated offering for the international market. We're committed to delivering the targeted run rate of AUD 30 million of cost synergies, with further potential revenue growth opportunities. Finally, the transaction delivers attractive financial returns for our shareholders, while maintaining a strong balance sheet position for future growth. We'll be relentless in executing the integration and delivering the synergies and value that we see in this deal.
I'm now happy to take your questions along with Mark and Rob, who lead our technology and product teams.
Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by as we compile the Q&A roster. First question from Andre Fromyhr from UBS. Please go ahead.
Thank you. Good morning. Just wanted to ask about the targeted AUD 30 million per annum of cost synergies. I guess the first part of the question is, if the benefits are primarily derived from the existing Tabcorp cost base, what is it about this transaction that allows you to do that you couldn't have otherwise pursued for your own tech overhaul that's self-led?
Hi, Andre. It's Rob Fraser. Primarily, the BetMakers team have significantly transformed their technology environment, their technology stack. Tabcorp, in comparison, still has a lot of legacy, a mix of on-prem and cloud infrastructure, four data centers, and a range of, obviously, third-party services supporting all that. Essentially, the cost synergies will be delivered with BetMakers much faster and cheaper than we would be able to do ourselves. That's borne out of some detailed analysis of the alternative options as well. Mark, I don't know if you want to make a comment there, but that's essentially the background.
The only other thing I'd say, Andre, as we thought about it, as Rob said, it was sort of the cheapest and most efficient way home, and in our view, was also the lowest risk option we had ahead of us t o modernize the tech stack.
Okay. Then if I could just follow up on that. I guess it's been a while since Tabcorp has done M&A and been through an integration process. I guess, if anything, it's gone the other way, following the de-merger a few years ago. Can you talk us through why you've got the confidence that you'll achieve that scale of cost synergy in that time? I understand that's a necessary condition to get the double-digit accretion in year three, is having the run rate completed by year two.
Thanks, Andre. It's Gil, I'll make some comments then hand over to Rob as well, I think who's been leading transformation in the business for some time. I think that we have a willing partner in this, I think we'll have the support in the migration of the BetMakers team. I think that's very important, they'll be participating in this, they've got a history of turning their business around and leaning into the exact integration story we'll be talking about in terms of the cost base and the change. We've distributed across new resources. A lot of the team that'll be running this are new. Rob will be leading and owning the technology piece. Sharon Broadley running the operating efficiency piece. Jarrod Villani will be running the international growth piece, Mark will have overall responsibility. We'll be partnering strongly with BetMakers.
We've got a team that's clear, their targets are established, we've got a structure in place that we think will see us through. There's, I hope, an emerging culture at Tabcorp of doing what we say and being very disciplined and relentless about delivering what we've said to the market and our shareholders that we'll do. There's that focus, that clear alignment and structure and a clear plan that's been established over many months of work, I think, that sees us in good stead.
Just to add a bit of color as well, Andre. Although the last significant activity, as you mentioned, was the de-merger of Lotteries, that covered all aspects of our technology environment, in a great level of detail. A lot of the team that will drive the integration here were deeply involved in that de-merger process, so they're intimately in knowledge of all the systems and what it'll take. Equally on the BetMakers side, they have a deep set of knowledge and experience around these same systems as well and obviously what it takes to modernize those systems. We think the combination of those two will hold us in good stead. We have some deep experience on this side for this type of process, too.
Okay. Thank you.
Thank you. Just a moment for our next question, please. Next, we have Liam Robertson from Jarden.
Thanks. Morning, guys. Look, just firstly on the timing, obviously a sizable transaction. Appreciate you guys have got plenty going on in the business, not least the AUSTRAC proceeding. I guess, should we read into this deal that you've got confidence in a manageable outcome from an AUSTRAC perspective? Thanks.
Liam, Gil, I'm not going to make any comment on that. I don't think that's appropriate other than, we made the comments that we've remediating our business in a compliance sense generally faster than had been since we got there. We feel we've got the right people, and we will lean into any issues that come that way with great transparency and all the seriousness required. That is a comment. More broadly, we are committed to not being distracted across the business. These things have a history of taking some time to resolve. We are committed to moving forward with our strategic agenda and dealing with both issues with our full attention. I don't believe that anything should read into the AUSTRAC stuff other than we are taking that as seriously as it should be and with great transparency and put the right resources around that.
We are getting on with the rest of our business in parallel, and this is an important step in our transformation journey.
Very clear. Thank you. Just secondly, in terms of the revenue breakdown, obviously helpful in providing some of the contract, the breakdown between top 10 customers, et cetera, in the back. I guess, just with several of BetMakers customers being your direct competitors, do the contracts have change of control clauses? And can you give us a sense of the terms remaining on some of those contracts?
I'm not going to get into all of that, Liam, and the details other than just say, there is a level of tenure and comfort in all the agreements we have. That we have a history, in my view, through Sky Vision, of actually having wholesale relationships with our competitors. We have good relationships with them. I will be in have and will be continuing to engage in discussions that we will deliver those services with integrity and fairly. I think we hope that our history in doing that with Sky Vision stands to good stead, that we actually can be competing in the B2C space and also have wholesale relationships ongoing. Frankly, these are wholesale relationships I hope to expand into lots of different areas as we diversify and change the shape of our business.
Perfect. Then just last one, more of a near-term financial one. Can you give us a sense of some of the integration costs you'll be expecting? I'm conscious, doesn't sound like the deal will be accretive in year one. Just trying to, I guess, wrap our head around what some of those incremental costs outside of the financing related costs will be.
Yeah, Liam. Just in terms of what we'd say, obviously, like any deal, we'll have integration costs as we move exit contracts, technology contracts, et cetera. Just in terms of financial metrics for you, we're saying that in year one post-ownership, we expect those sort of, call it one-off, cost to be in the order of about AUD 20 million. They're the usual things in terms of efficiencies. As we move from our platform to theirs, obviously exiting, as I said, data centers and those types of costs as well. Then obviously, efficiencies across corporate areas as well.
Right. Thank you. [crosstalk]
Which have costs associated. Yep.
Thank you. Just a moment for our next question, please. Next, we have Kai Erman from Jefferies.
Morning, guys. I think you've outlined pretty clearly some of the opportunities from a revenue synergy perspective, it'd be helpful to get some kind of specifics on that in terms of specific products that you'll be offering in combination with BetMakers in the international wagering and media space, the potential timing to seeing some of those come true as well.
Yeah. Thanks, Kai. I think we're talking about using the BetMakers distribution for enhanced distribution of Sky and of global tote offerings. I also think Tabcorp's international rights and content using their form and their data. That also include integrating RACELAB into Sky coverage, improved data analysis. Ultimately what we're talking about is having a full suite of vision, data, technology, and wagering services, and having them end-to-end and distributing to every significant territory in the world. They have complementary assets. The timing of those and the exact opportunity in each market will differ. What we would be looking to do is create an end-to-end service that builds on the vision we have and the pooling and premium customer offerings and the co-mingling operations we have with their increased distribution, with their technology, with their data and analytics and other services.
They go well together to have an end-to-end offering that hopefully goes to every market in the world that is currently fragmented and not owned by anyone.
Thanks, Gil. That makes sense. Obviously, there's a lot of opportunity with the B2B wholesale side. How about your B2C business in Australia, particularly from a digital side? Do you see any opportunity there with the combination?
Well, obviously that goes to the tech platforms both in terms of Fixed Odds and Tote. We think that we'll be more agile, to use a sort of lumpy term. We'll be more agile, we'll be faster to market, and we'll be able to do product develop more cheaply, and that will help ultimately our B2C business in Australia. I might hand over to Rob to add in there.
Just a little bit more. A lot of the capability we like in BetMakers is around their customer intelligence data capabilities and content and experience capabilities, including some of the media capabilities they've got. I'll also just note that, on the Tote side, I think we would have the largest and best Tote team in the world in terms of product development for Tote. I think that'll hold us in good stead in the combination of both businesses.
Great. Thanks, guys. I'll pass it on then.
Thank you. Just a moment for our next question. As a reminder, if you wish to ask a question, please press star one one on your telephone keypad. Next, we have Justin Barratt from CLSA.
Hi, guys. Thanks for your time. I note, Gil, you sort of spoke about the fact that you guys have had a commercial relationship with BetMakers for some time now. I was just wondering if you could quickly summarize the services, if any, that BetMakers currently provides Tabcorp.
Was the question around current services?
Yeah.
Yeah. We currently have an arrangement in place with BetMakers where they distribute our vision. Primarily, that's the largest component of the relationship. They distribute it to their operators, or their customers, I should say. That's the primary aspect. We've got a sort of longstanding integration and partnership with them, in that regard.
Okay, fantastic. There's some comments in there around BetMakers executives to be sort of retained and incentivized. Can you talk at all about how long that retention arrangement currently stands?
The specific arrangements, Justin, are to be negotiated. We've obviously got line of sight on individuals, and we've had direct conversations with them, and should this get through all of the regulatory hurdles and all the appropriate approvals, we're clear about the talent that's there. I feel confident in the discussions I've had about all of the key executives wanting to come and be part of the opportunity to go forward. I think you should take the fact that the BetMakers have negotiated to secure a percentage of the consideration in Tabcorp's group as a broad-based support from the BetMakers side for what is possible with this tie-up. That ultimately, shareholders and others and potentially board members would want to stay involved in owning Tabcorp's group.
I think that confidence is reflected through the management as they see the opportunity with our scale and our assets and their hunger and their speed and their distribution and their other complementary products of what we can build.
Understood. Thank you.
Thank you. I see no further questions at this time. I will now hand back to Gillon.
Thank you. Thanks, everyone, for participating on the call. As I said in my opening remarks, I think it was asked by potentially Liam or one of the callers. We know there's a lot of hard work to do here. There's obviously hard work because we've got to get the necessary approvals. Then there is the integration story that we are committed to. The opportunity for us to have a modernized tech stack that is faster and cheaper to run, the ability to continue to expand our wholesale business, and particularly internationally, we think it's a compelling diversification opportunity for us. We think we're going to get a lot of talent in the business. We're going to change our operating model, and we believe it's financially attractive if we execute like we know we can.
We're pleased with the deal, and we look forward to talking about it in more detail in our results in a couple of weeks. We thank everyone for their time on the call today.
This concludes today's conference call. Thank you all for participating. You may now disconnect.