21 October 2016

Australian gambling firms Tabcorp and Tatts to merge

Tabcorp has on 19th October reached an agreement to acquire Tatts as both Australian Securities Exchange (ASX)-listed companies seek to ward off competition from online gambling operators. Tabcorp will settle the payment with a combination of cash and new shares equating to an offer price of AUD 4.34 (USD 2.56) apiece, up 5.3 per cent from the target’s close on 2nd August 2016, the day when the deal was first reported.  As a result of the share consideration, Tatts’ stockholders will own a 58 per cent stake in the combined entity. Pending approvals from shareholders, the Australian Competition and Consumer Commission and Federal Court of Australia, the deal is expected to close in the middle of next year.

With an enterprise value of around AUD 7,400 million, Tatt is poised to be Tabcorp’s largest acquisition to date, according to Zephyr, the M&A database published by Bureau van Dijk. In addition, the group plans to launch a share buyback programme worth AUD 500 million following the merger.

Tabcorp derives most of its revenue from betting activities in pubs and clubs, the Wall Street Journal reported. This makes the company particularly vulnerable to firms such as the UK’s Ladbrokes and William Hill, which have set up online betting platforms in Australia. Tatts, however, will serve to complement the acquiror as the former’s business is more focused on lottery operations, making it relatively more immune to online rivals, according to the newspaper.

Rationalising his company’s decision, Tatts’ chairman Harry Boon commented: “It [the acquisition] comes at a time of escalating competition from new business models and rapid consolidation of gaming and wagering companies globally,” adding that the larger scale will provide a stronger platform in the industry. Similarly, Tabcorp’s chairman Paula Dwyer stated that the merger will “create a strong and diversified business that is well placed to invest, innovate and compete both in Australia and globally.”

Tabcorp disclosed in an ASX announcement that the enlarged business will have an enterprise value of around AUD 11,300 million and will yield over AUD 5,000 million in revenue annually from a wide range of gambling activities. The group is also set to become the single largest source of funding for Australia’s racing sector, adding at least AUD 50 million per year to the industry. More importantly, the synergy between both firms is expected to cut annual cost by AUD 130 million, delivering significant value to stockholders.

This is not Tabcorb’s first attempt to acquire Tatts as it last year offered to buy the firm at an implied price of AUD 3.92 apiece. Negotiations later broke down as both parties failed to agree on the transaction terms. Determined, Tabcorb in August this year decided to give the deal another shot as it faced mounting pressure to strengthen its gaming business. The move came as Tatts was in talks to purchase the Australian and New Zealand assets (worth around AUD 100 million) of Greece’s Intralot, a lottery system developer, in a bid to expand its business. 

Following the announcement of the merger, Tatts’ shares closed 15.9 per cent higher at AUD 4.16 on 19th October 2016, while Tabcorp’s equity rose 3.5 per cent from the previous trading day.

© Zephyr