ACCC will be a key player in Tatts, Tabcorp spring carnival union

Tatts and Tabcorp went into a trading halt yesterday after merger talks were resurrected.

Tabcorp chief David Attenborough. Artwork: Sturt Krygsman.

The ACCC will be a key player in today’s proposed spring carnival marriage of Tabcorp and Tatts, and on paper the deal will struggle to win approval.

The two companies went into a trading halt yesterday after merger talks were resurrected amid continuing weakness in the Tatts stock price.

Parties associated with the deal yesterday said the terms were still being settled and a “deal has yet to be done”, but the suspension in both stocks suggests there is now a real will to get the deal finalised.

Tatts closed at $3.59 a share on Monday ahead of the suspension and just off its 52-week low, compared to its high of $4.42 back in December.

Tabcorp has enjoyed a better year. Its stock hit a 52-week high of $5.29 early this month, up from a low of $3.87 in March.

The argument to ACCC chairman Rod Sims will be based around the fact that barriers to entry are rock bottom, thanks to technology and the entrance of all the big names in global betting, from Ladbrokes to Bet365 to Paddy Power and William Hill.

Tatts and Tabcorp are players in the online market but the internet has opened the game to new entrants. The two are big players in their respective states in so-called pub tabs.

They are both big players in the poker machine monitoring and management business and Tatts was working on a deal to buy rival Intralot’s machine auditing ­licence for about $100 million.

The deal was problematic, given Tatts also repairs the machines it was to audit.

Tatts audits the NSW poker machines and together with Tabcorb target eBET, the machines in Queensland (this deal is already being studied by the ACCC).

The marriage partners’ argument on new entrants is a powerful one but Tatts and Tabcorp will create the single biggest betting pool in Australia. Tatts earns most of its money from lotteries, which account for $2.1 billion of its $2.9bn in revenues and $320m of its $419.6m in earnings.

Tabcorp relies heavily on its wagering business, at $1.8bn in revenues from a total of $2.2bn, and $382.1m in earnings before interest, tax, depreciation and amortisation out of $515.8m.

In 2006, the ACCC stopped Tabcorp bidding for the Queensland tab, UniTab. It is now owned by Tatts, which also controls the South Australian TAB.

Victoria and NSW are owned by Tabcorp and the WA TAB also pools into the big east coast network, and this will be where ACCC eyes are focused.

Sims has come under fire for letting too many mergers through, which has ­allowed cosy industry structures to form.

While Tatts’ stock price has been steadily sliding all year, its market value, at $5.3bn, is larger than Tabcorp’s at $4bn, thanks to the monopoly-like lottery assets.

Yesterday’s announcement will show whether Robbie Cooke at Tatts has agreed to a spring carnival marriage of equals.

Caltex at the bowser

Caltex boss Julien Segal won some awards yesterday for the most ­obvious market release by telling the ASX he had made a bid for the Woolworths petrol sites on auction. This was like telling the market the Pope is a Catholic. The company’s stock price went down 4.2 per cent to $32.87 a share.

The company explained the statement, which followed a press report saying BP had its nose in front in the auction, was to clear the air for investor meetings around the Citigroup conference.

The Woolies sale is a big deal for Caltex, given the retailer ­accounts for about one quarter of Caltex’s liquid fuel sales.

It is also a big deal for the ACCC whether BP or Caltex wins the auction, given both have a big slice of the action already.

For the record, the Morgan Stanley-led auction is still weeks from conclusion and yesterday’s report was described as “speculative”.

TYME on his side

Commonwealth Bank boss Ian Narev yesterday said he now had 20,000 new account holders thanks to technology rolled out through his $40m acquisition of TYME in 2014.

The South African technology group has now expanded from 40 people to 200 and having ditched its original technology, is now being delivered via 500 kiosks in Pick n Pay stores throughout South Africa.

This will be expanded to 700 stores shortly.

The bank has picked up 25,000 new accounts at the cost of $1 per account. The ­kiosks take a photo of the new customer and record fingerprints. The accounts are then verified with government data bases.

The process takes five minutes.

For the bank, it’s a fabulous way to boost customer numbers in countries where people are more likely to have a mobile phone than a bank account. The machines will now be rolled out in Indonesia and Vietnam.

The analog mobile-based technology explains why CBA and other banks are seeking authorisation from the ACCC to negotiate collectively with Apple to be able to use their applications on its digital phones so they get to own the customer.

This is possible on Android phones and the banks want to cut a deal with Apple to allow it on its phones.

At present, mobile payments on Apple phones go through the Apple system and it clips the ticket before being recorded on your bank account.

The issue is a complicated one but having signed up in April, ANZ is happily signing on new customers using Apple Pay to get access to their ANZ accounts.

It is a classic study in customer convenience. The ANZ system acknowledges the technology provider’s right to collect some of the interchange fees and the reality that some people have cards from different banks.

The CBA et al fight is to keep the customer and minimise the tech provider’s access to cash.

The question then is who the bank is trying to help: itself or the customer.

ANZ would rightly argue it is meeting the customer demand while CBA et al are trying to line their own pockets.

Milk will be spilt

Next week’s Murray Goulburn annual meeting looms as a major showdown given the co-op ­already has a class action lawsuit against it from 2200 farmers wanting to know what they will get paid, and little issues like whether David Mallinson will be confirmed as the long-time boss.

The farmgate milk payment issue is promised before the meeting.

As noted yesterday, the co-op is looking at forgiving the $183m in debt so it will not be treated as a liability to reduce the farm gate price for the next three years.

The money is the difference between the $5.60 originally paid and the $4.80 final price left on the balance sheet and not expensed.

If it was expensed, the $40.6m profit reported would have converted to a $143m loss and unitholders would not have got their promised dividends.

Just how the debt was allowed to be treated as debt is a question auditors PwC will have to answer to because the asset has no apparent corresponding liability.

The answer, it seems, is the loan money has some future benefit so it can be classed as an asset but then again, just who will provide the benefit?

MG has said the money is not a loan to farmers.