After suspending trading in their respective shares on Tuesday, the two companies issued statements on Wednesday saying each of their respective boards had unanimously recommended sealing the deal, which combines Tabcorp’s wagering strength with Tatts’ leading lottery operations.
The deal, which expects to be complete by mid-2017, will be implemented via a Tatts Scheme of Arrangement that will see Tatts shareholders receive 0.8 Tabcorp shares plus 42.5¢ cash for each Tatts share. The price represents an 18.4% premium to the one-month average price of Tatts shares. Tatts shareholders will control 58% of the enlarged entity, with Tabcorp’s shareholders holding the remaining 42%.
The new entity’s board will be comprised of Tabcorp’s current board of directors and current Tabcorp chair Paula Dwyer will remain chair of the enlarged entity. Current Tabcorp CEO David Attenborough will continue as CEO of the new company. Tatts chairman Harry Boon will join the new board as non-executive director.
Boon said the deal was based on “clear industrial logic and a strong and tangible synergy position.” Dwyer added that combining the two companies’ complementary businesses would “give us a national footprint and could create a pathway to larger wagering pools.”
The two companies currently run tote betting in every state and territory except Western Australia, and each company has expressed interest in acquiring that operation if the state goes forward with its TAB privatization plans. The new company would control around 90% of the country’s tote betting operations, which could cause problems in securing the approval of the Australian Competition and Consumer Commission.
Perhaps anticipating these potential stumbling blocks, the parties are stressing that their union will result in “at least $50m per annum of additional funding to the Australian racing industry.”
Tabcorp earns the bulk of its bones from its retail wagering operations, which are twice the size of its online betting operations, which include the Tab.com.au and Luxbet brands. The company recently expanded overseas via the launch of the UK-facing Sun Bets joint venture with Rupert Murdoch’s News UK. Tabcorp also boasts smaller keno and gaming services units.
Tatts’ lottery operations are nearly three times the size of its wagering division, which includes the online UBET brand. Tatts also has an electronic gaming services division and a technical support services unit.
Tatts generated more revenue ($2.9b) in FY16 than Tabcorp ($2.2b) but Tabcorp posted larger earnings ($516m) than Tatts ($495m). Tatts is carrying more debt ($1.04b) than Tabcorp ($870m).
The combined group is expected to earn 48% of its earnings from wagering & media, 32% from lotteries, 13% from gaming & gaming services and 7% from keno. The group will boast 4,300 retail betting venues and 4,200 retail keno venues.
As for the inevitable duplication of services that arises from such unions, the parties say they expect to deliver “at least $130m of annual EBITDA synergies and business improvements,” net of those aforementioned $50m benefits to racing.