Macquarie Consortium Bid for Tatts Too Low

Harry Boon, chairman of Tatts, believes that the consortium’s valuation of his company’s lottery arm was “inadequate” and is recommending the Tabcorp merger to shareholders. (Image: Tony Grant-Taylor/Courier Mail)

A Macquarie-backed consortium that attempted to spoil the planned merger of betting giants Tabcorp and Tatts by launching a bid for the latter, needs to bid higher, financial experts said this week.

Tabcorp and Tatts reached agreement to merge in October last year. The proposed $11.3 billion deal would create an Aussie betting superpower, with revenues topping $5 billion and more than a 90 per cent hegemony over the Australian pari-mutuel betting market.

But a surprise intervention from the Macquarie consortium in December briefly plunged that deal into uncertainty.

The new group, which, as well as Macquarie, included private equity firm KKR, proposed to acquire Tatts for $7.3 billion.

Consortium Knocked Back

Tabcorp was not part of the picture. It was clear that the consortium was largely interested in Tatts’ dominance of the lottery sector, rather than betting assets, which it saw as a stable revenue stream that was far less volatile than the betting business.

On December 22, Tatts dismissed the advance out of hand, describing the value ascribed to the lotteries business by the consortium as “inadequate.” The Tatts board said it would continue to unanimously recommend the Tabcorp agreement to its shareholders.

While, the consortium’s proposal offered a higher valuation of Tatts, on paper, Sacha Krien, an analyst at stockbroker CLSA, told the Mercury this week that the Tabcorp offer was “materially superior” to the consortium’s due to the value of synergies that would generate cost-savings over time. 

Bidding War, Anyone?

Of course, from Tatts’ point of view, there’s certainly no harm in igniting a bidding war if the consortium is willing to rise to the bait. But while Krien said he believed there is “every chance” the consortium will submit an improved bid, it would have to be a big one to turn heads.

Krien believes the consortium would need to sweeten the deal by $750 million, “at least,” but this would lower the potential return, such a bid may not be on the cards.

The merger comes at a time when homegrown Australian bookmakers are facing fiercer competition from offshore operators, like Ladbrokes, William Hill and Paddy Power, who have gained traction here since the deregulation of gambling licenses in 2012. Consolidation will offer greater scale for an enlarged company, which will help it 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.”