Tatts rebukes Macquarie-led takeover offer

A Macquarie Group-led consortium is reconsidering its bid for Tatts Group after the target issued a detailed critique.

The Tatts Group has issued a critique of the Macquarie-led consortium’s takeover offer.

A Macquarie Group-led consortium is reconsidering its bid for Tatts Group after the target issued a detailed critique and appeared to lower expectations for its first half earnings.

Tatts said the offer from the Pacific Consortium valuing Tatts at between $6.46bn and $7.34bn was “not a superior proposal” to the agreed merger with wagering rival Tabcorp unveiled on October 19.

“Tatts notes the indicative proposal is predicated on number of key assumptions that are either incorrect, inconsistent with Tatts’ current expectations or unknown,’’ the company said in a statement to the stock exchange.

The result confirmed analyst and investor critiques that the Pacific Consortium had placed too much value on the wagering business by assuming it could be handed back to shareholders or sold to a controlling investor for between $1 and $1.60 a share.

“The price ascribed to LotteryCo is inadequate and the assumed trading and control price estimates for Wagering & Gaming Co are overly optimistic, together with other factors relating to conditionality,” Tatts said yesterday.

“Accordingly, having made these determinations and under the terms of the merger implementation deed, Tatts is unable to grant the Pacific Consortium due diligence or otherwise engage in discussions regarding the indicative proposal.”

A week out from ruling off its first half results, Tatts said it expected its first half earnings to be $153m, down $13.8m on the previous corresponding period because of a comparatively low number of jackpots.

So far this year there had only been 15 jackpots of $15m or more, compared to 24 in the first half of 2015-16 and 18 in the first half of 2014-15. Jackpots stimulate additional lottery ticket sales and earnings.

Tatts said the indicative proposal from the Pacific Consortium assumed lotteries would deliver full year earnings before interest, tax depreciation and amortisation of $353.6m, up 2.3 per cent on the previous year.

“Given the (first half) performance is expected to be down, the indicative proposal’s assumptions ... are likely to be too high,’’ Tatts said.

A spokesman said: “The Pacific Consortium is reviewing its position and absorbing the details of the material profit downgrade announced by Tatts Group.”

The consortium, which includes First State Super, Morgan Stanley Infrastructure Partners and private equity house Kohlberg Kravis Roberts at 30 per cent each and Macquarie Capital at 10 per cent, stunned the market this month with a surprise bid to spoil the Tabcorp-Tatts deal.

It offered Tatts shareholders $4.40 to $5 a share in cash with $3.40 ascribed to the lotteries business and $1-$1.60 from either refloating the wagering business — which owns totalisator and online and mobile betting businesses in Queensland, South Australia and Tasmania — or selling it to a corporate player such as Tabcorp.

Analysts have said the wagering business could be worth as little as 55c a share, meaning shareholders would get less value than from Tabcorp.

Some investors have also said the bid undervalues the lotteries business, which has a national monopoly and provides reliable long-term returns, and have urged the company to put that business up for auction to realise its full value.

Tabcorp values Tatts at $6.2bn and has offered 42.5c a share cash and 0.8 Tabcorp shares for every Tatts share owned. But its value has dropped 11.5c a since it was first put forward as a $4.34 a share offer.

It would have created a gaming giant worth $11.3bn and put Tabcorp in line to collect an estimated $130m of synergies from merging the wagering businesses. Fearful of a spoiler bid, Tabcorp raided the Tatts register for a 10 per cent stake that could block a rival bidder getting full ownership of the company.

Tatts shares fell 13c to $4.42 yesterday, while Tabcorp rose 1c to $4.76, valuing its offer at $4.23 per Tatts share.