Tabcorp, Tatts set for $9.4bn merger
Wagering majors Tabcorp and Tatts Group are poised to create a $9.4bn gaming behemoth with a bid tipped to be imminent.
Australian wagering majors Tabcorp and Tatts Group are poised to create a $9.4 billion gaming behemoth with takeover talks escalating this week and a bid tipped to be imminent.
Tabcorp, with a market value of $3.7bn, and the $5.7bn Tatts Group have tested the waters for a tie-up in the past, most recently in 2011, though talks at that time were reported as “tepid”.
A $1.7bn deal that would have seen Tabcorp buy the wagering arm of Tatt’s had been strongly mooted previously, but the current deal is understood to involve a full takeover, including Tatt’s flagship lotteries business.
Top-level sources yesterday told The Weekend Australian the pair were on the “verge of a merger” and a bid was to “unfold in the near future”.
Shares in Tabcorp closed at $4.42 yesterday, while Tatts Group was at $3.92.
The market is likely to view a long-awaited deal between the two, which would push the combined entity into the ASX 50, as a positive given the increased competition in the space.
Previous merger attempts between the two have raised competition concerns, but analysts say the increased number of companies in the space from overseas online giants has significantly altered the playing field.
Tabcorp declined to comment and Tatts did not return calls last night.
The main concern from the Australian Competition & Consumer Commission could be around wagering licences, but it is believed this hurdle could be lowered with the West Australian government looking to sell its betting operation.
“There is less transparency on hurdles in wagering licences but we believe changes can be agreed given the benefits to racing of a single strong TAB operator,” CLSA’s Sacha Krien said in a recent client note. He said transaction activity in the British wagering sector had increased the focus on a potential deal between Tabcorp and Tatts, as it had highlighted the need for scale and synergies.
“We conclude a trade sale or merger of equals would be beneficial to all shareholders and could receive regulatory approval,” Mr Krien said.
UBS analyst Sam Theodore said that though a move by Tabcorp in 2006 on the then named UniTAB had failed, there was potential to revisit a merger.
“While this same transaction hit competition issues back in 2006 — both from competition for new licences and competition for pooling services — we believe the market is now in a different position given competition from the Northern Territory bookmakers, and hence this risk is likely to be able to be managed,” Mr Theodore said in a client note.
Tabcorp, which is being advised on the deal by UBS, recently reported a 3.2 per cent increase in its wagering turnover for the September quarter to $3.1bn, while Tatt’s recently reported a 3.6 per cent lift in its wagering turnover.
Tatts, which derives about 70 per cent of its revenues from its lotteries business, had relaunched its wagering business as Ubet in April, but industry insiders say the effectiveness of the marketing of the new brand had fallen flat.
CLSA’s Mr Krien said in his base-case scenario of a full takeover by Tabcorp of Tatts, Tabcorp would pay a 30 per cent premium to acquire Tatts and realise about $80m a year in synergies. If the deal was to be a merger of equals, Tatts shareholders would have 58 per cent in the combined entity with Tabcorp shareholders holding 42 per cent.
“In our view, this scenario appears the most compelling for all shareholders,” he said.
Additional reporting: Bridget Carter
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