Tabcorp in bid for Tatts

Tabcorp’s boss will head a wagering giant after an $11.3bn merger deal that needed Tatts’ chief to “get out of the way”.

Tabcorp CEO David Attenborough will head the merged company. Pic: Stuart McEvoy

Tatts Group boss Robbie Cooke says he is “absolutely gutted” to not have the top role of the $11.3 billion wagering giant created in a deal with Tabcorp, but says he had to get out of the way for the deal to proceed.

The two companies today announced the long-awaited deal, with Tabcorp offering Tatts’ shareholders a 20 per cent premium to secure the merger.

The directors of Tabcorp (TAH) and Tatts (TTS) are backing the bid, saying it is in the best interests of shareholders.

Tabcorp chief executive David Attenborough will take the top role of the newly combined group. The new board will include existing Tabcorp directors with Paula Dwyer as chairman. Tatts chairman Harry Boon will join the new board.

Talks between the two companies broke down last year because they could not agree on price and there was also market speculation at the time that Tatts and Tabcorp struggled to agree on the design of the management and board of a combined group, with Mr Cooke keen on a chief’s role.

Mr Cooke said today: “100 per cent I would have loved to have run it.

“I am disappointed not to be there … it was the right thing to get out of the way. There is $1 billion in shareholder value that has been created and no man should get in the way of $1bn.”

Disappointed: Tatts’ Robbie Cooke

The Tatts chief executive did not rule out returning to the top of an Australian-listed company, saying he had already been fortunate enough to run a few listed companies.

“I’m 50, fit and healthy and keen … we’ll see what happens.”

The deal sees Tatts shareholders get 0.80 Tabcorp shares plus 42.5 cents cash for each Tatts share held.

Based on the most recent closing price of Tabcorp shares, the companies said the transaction implied a value of $4.34 per Tatts share, which they said was a premium of approximately 20.8 per cent to the most recent closing price of Tatts shares.

Shares in the two companies slightly lifted today on news of the deal, which is backed by Tatts’ two largest shareholders, AustralianSuper and Perpetual.

Tatts’ shares climbed 14.2 per cent higher to a 10-month high at $4.10, while Tabcorp was 2.5 per cent higher at $4.99.

The combined group is expected to have a pro forma enterprise value of approximately $11.3 billion, market capitalisation of approximately $8.6bn, revenue of over $5bn and EBITDA of over $1bn.

The ASX-listed firms say they expect to complete the merger by mid-2017. The deal is subject to regulatory approval.

The new company will launch a $500 million share buyback.

“In today’s rapidly changing landscape, bringing together our businesses will create a strong and diversified business that is well placed to invest, innovate and compete, both in Australia and globally,” Tabcorp’s Ms Dwyer said.

“Together we will be able to pursue more investment and innovation to deliver a winning offer for customers, including best-in-class digital products and experiences.

“In wagering, combining our two complementary businesses will give us a national footprint and could create a pathway to larger wagering pools.

“We are excited by this opportunity, which we believe will deliver an enhanced wagering experience for our customers and in turn will generate stronger returns to the Australian racing industry, underpinning its sustainability.”

Tatts’ chairman Mr Boon said the combination of Tabcorp and Tatts was based on clear industrial logic and a strong and tangible synergy proposition.

“It comes at a time of escalating competition from new business models and rapid consolidation of gaming and wagering companies globally. The scale and efficiency benefits from this combination will provide a stronger platform in this dynamic environment,” he said.

The companies said the combination would create a world-class, diversified gambling entertainment group, with a pro forma enterprise value of approximately $11.3bn.

The new company would have a diverse suite of product offerings across wagering, media, lotteries, Keno and gaming services.

Tatts and Tabcorp said the estimated synergies and business improvements were worth approximately $1.4 billion.

The two companies and advisers Goldman Sachs for Tatts, and UBS for Tabcorp, worked overnight to thrash out the deal details.

Mr Boon said a combination of Tabcorp and Tatts had been the subject of numerous discussions between the two companies over time, adding that this transaction was fully supported by the respective boards.

“We believe the implied value accretion for Tatts shareholders fairly reflects the strategic value of our businesses,” he said.

“Further, the scrip consideration allows Tatts shareholders the opportunity to participate as shareholders in the combined group, with ongoing exposure to the future growth of wagering, while also retaining exposure to Tatts’ unique and growing lotteries business.”

The two companies said the transaction was expected to generate earnings per share accretion (before significant items) and value accretion for both Tabcorp and Tatts shareholders.

The combination is expected to deliver at least $130 million of annual EBITDA synergies and business improvements, net of benefits to the racing industry, in the first full year following completion of integration.

Completion of integration is expected to take approximately two years, subject to the receipt of all necessary regulatory approvals.

The companies have pitched the transaction to the racing industry by saying it is expected to result in at least $50 million per annum of additional funding.

“The transaction provides a pathway to national pooling for parimutuel wagering, subject to regulatory and racing industry approvals and an enhanced ability to adopt strategies to address the national decline in parimutuel betting,” the companies said.

The new gaming giant will have totalisator and fixed odds licences and retail wagering networks in NSW, Victoria, Queensland, South Australia, Tasmania, the ACT and the Northern Territory. It will offer wagering products in approximately 4300 retail outlets.

It will also have national Sky Racing media business and an Australian lotteries business with licences to offer products everywhere except Western Australia.

Net one-off estimated integration costs and capital expenditure are estimated at approximately $110 million.

Details of the deal also outlined that the combined group expects to undertake a $500 million share buyback, post implementation of the transaction and subject to board approval and market conditions.