Tatts takeover game has a long way to run

The headline figure on Macquarie’s bid for Tatts may sparkle, but the detail is less impressive.

Macquarie won’t need the ACCC’s seal of approval to buy Tatts, which is Tabcorp’s biggest hurdle.

Game on — Tatts Group is now officially in play and the bases are loaded but it’s still a long way to go before there is a home run.

Macquarie has entered the race for Tatts by grouping together a consortium to frustrate wagering giant Tabcorp’s plan to create a $11.3 billion gaming behemoth.

The rival bid isn’t a surprise to the market given UBS-advised Tabcorp moved last month to secure a 10 per cent strategic stake in its target, as speculation mounted a rival offer was looming.

The Tatts board, led by Harry Boon, is now combing through the Macquarie-led offer, as those sitting ringside start to pick apart the new bid.

The headline figure on Macquarie’s opportunistic bid for Tatts might sparkle but pull back the layers and critics downplay any notion it is superior to Tabcorp’s share and scrip offer, which was valued at $4.34.

One investor said the rival bid appeared highly conditional and it was not yet clear if it was a superior proposal to the Tabcorp offer. The Tabcorp bid jumps to a value of $4.60 if the full synergies identified are realised.

Andrew Orbach, gaming analyst at Taylor Collison, was quick to push out a client note on his thoughts, saying there were numerous assumptions made in Macquarie’s $4.40-$5 cash bid that seemed “somewhat unrealistic”.

He also questioned the rival bid using the figure of $130m in synergies, given Tabcorp said it would hit that figure but not from wagering alone, meaning the Macquarie-led offer would realise maybe half of that figure in synergies.

Macquarie first approached the Tatts board in the middle of this year with an informal proposal from a consortium it had put together but when one member of that group left, the consortium fell apart.

Tatts didn’t have long to dwell because Tabcorp soon came knocking.

But Macquarie has regrouped and put together another consortium, with a few of the original players. The structure of its latest bid is said to be identical to what it was floating earlier this year — a proposal the Tatts board wasn’t then interested in — but with an improved valuation.

Tatts advisors are believed to have informally told the Macquarie-led consortium when they first approached midyear that if they were going to come back, to come back with a wagering partner.

Macquarie is also assuming that if its bid is successful and it spins out the wagering arm of Tatts, Tabcorp will happily swoop in and buy it -- but insiders say that is a big assumption to make.

Is the new bid enough to derail the Tabcorp offer? Probably not at this stage. Tatts has a heavy retail component and Tabcorp has its strategic 10 per cent stake, while Perpetual has 8.8 per cent.

Macquarie still needs all the racing and state government approvals Tabcorp must secure but it won’t need the ACCC’s seal of approval, which is the biggest hurdle for Tabcorp.

One observer said Macquarie could just be positioning itself ahead of the ACCC’s announcement, which is scheduled for the end of February.

The game has certainly started but it is a long way from the end. The ball is now in the court of the Tatts’ advisers to make the next move.