Australian betting giants Tabcorp and Tatts’ $8 billion merger could be on the rocks. The consortium of investors known as the Pacific Consortium, which includes private equity firm KKR, the Macquarie Group, and the infrastructure arm of Morgan Stanley, made an all-cash offer of $5.4 billion Tuesday to acquire Tatts.
Is it enough to throw Tabcorp-Tatts tie-in into uncertainty? According, Gabriel Radzyminski, managing director at Sandon Capital, which is a Tatts shareholder, it’s certainly enough to gain the attention of the Tatts board.
“This looks like it is clearly designed to get the board to give them due diligence,” he told the Australian Financial Review. “We now have the beginning of a bidding war.”
The valuation is ostensibly the same as a cash and paper offer that was rejected by Tatts just before Christmas, but because this one is cash-only it won’t be subject to adverse stock market fluctuations.
Tabcorp Bid Has Depreciated
Tabcorp’s bid, by contrast, has lost value since it was proposed last October and will probably continue to do so unless it comes up with an approved offer.
That bid valued the Tatts at $4.47 billion, or $4.34 a share at the time, but it has shrunk to around $4.20 at current share prices, while the two companies await approval from the competitions regulator.
Despite both of the consortium’s bids sounding higher than Tabcorp’s sole offer, its first was rejected out of hand because it was not deemed to be materially superior, due to the value of synergies between Tabcorp and Tatts that would create cost savings over time.
The Tatts board dismissed the approach on December 22, describing the value ascribed to its lotteries business by the consortium as “inadequate,” adding that it would continue to unanimously recommend the Tabcorp agreement to its shareholders.
The consortium is solely interested in acquiring Tatts’ near-monopoly on the Australian lottery market, as opposed to its betting assets. It sees the lottery sector as a stable revenue stream and one that’s less volatile than the betting business.
The merger comes at a time when homegrown Australian bookmakers are facing fiercer competition from foreign commercial operators, like Ladbrokes, William Hill, and Paddy Power. Consolidation, then, would create an Aussie betting superpower on a greater scale than ever before, enabling the enlarged company to compete with the invaders.
“The offshore bookmakers have been consolidating and have been penetrating our domestic market,” said Harry Boon, chairman of Tatts, in announcing the deal with Tabcorp. “The merger of these two businesses creates a stronger platform for us to compete nationally and globally.”