TABCORP CONFIRMS AGREED ACQUISITION MOVE ON TATTS
Pressure in the Australian market from online gambling motivates successful merge talks.
Australia’s Tabcorp Holdings confirmed in a statement Wednesday that it has agreed to acquire rival Tatts Group for around A$6.4 billion ($4.9 billion), forming a powerful consolidated company capable of competing against the growing foreign-owned online gambling invasion of the market and ensuring shareholder value is retained and expanded.
The statement follows recent speculation that the two Aussie gambling giants were well advanced in acquisition talks as the threat of rival online gambling operators grows.
Tabcorp made a primarily scrip offer with a cash sweetener to buy Tatts that is equivalent to A$4.34 per share – a 20.8 percent premium to its closing price before the deal was announced.
Harry Boon, chairman of 135-year-old Tatts, told local reporters Wednesday:
"The offshore bookmakers have been consolidating and have been penetrating our domestic market. The merger of these two businesses creates a stronger platform for us to compete nationally and globally.”
Tabcorp chairman Paula Dwyer said the deal would bring together two complementary businesses with very little customer-facing overlap.
"The transaction we are announcing today will create a strong and diverse gambling business well placed to innovate, invest and compete in a rapidly evolving market," Dwyer said, adding:
“In wagering, combining our two complementary businesses will give us a national footprint and could create a pathway to larger wagering pools.”
The statement revealed that the combined companies will have an enterprise value of A$11.3 billion ($8.7 billion), but cautioned that the deal is subject to the approval of shareholders and the Australian Competition and Consumer Commission, which has already expressed some reservations about the proposal.
If approval is achieved, the companies expect the deal to close in 2017, and take around two years to integrate, at a one-off cost of around A$110 million.
Tabcorp and Tatts combined will have 31 percent of the Australian online betting market, which is growing rapidly at a time when the offline market is declining, Morgan Stanley analysts estimate.
Public sentiment appears to be positive thus far, with major shareholders voicing their approval; Tatts shares rose by as much as 18 percent to A$4.24 after the deal was announced, while Tabcorps shares were trading as much as 3.2 percent higher.
The statement summarized advantages flowing from the acquisition:
* Benefits for stakeholders and is expected to result in at least $50 million per annum of additional funding to the Australian racing industry;
* Revenue of over A$5 billion, EBITDA of over A$1 billion and a strong balance sheet with an intended investment grade credit rating;
* Expected to deliver at least A$130 million of annual EBITDA synergies and business improvements, net of benefits to the racing industry;
* Transaction expected to be EPS and value accretive for shareholders;
* Combined group expected to target a dividend payout ratio of 90 percent of net profit after tax;
* Combined Group expected to undertake a A$500 million share buyback;
* Based on a blended FY 2017 EV/EBITDA multiple for Tabcorp and Tatts of 10.7×7, the estimated synergies and business improvements are worth approximately A$1.4 billion;
* Estimated synergies and business improvement benefits indicate that the deal represents a pro forma value uplift for Tatts shareholders of approximately 30 percent per Tatts share;
* Transaction is unanimously recommended by the Boards of Tabcorp and Tatts;