Tabcorp pushes Tatts merger, CrownBet tipped as late bidder

TABCORP is persisting with the Tatts merger despite legal interference – and it may be due to a potential late bidder.

The merger between the two Australian gambling giants has caused a stir in the industry, demonstrated by the Australian Competition and Consumer Commission (ACCC) appealing the tie-up.

Last month the Australian Competition Tribunal ignored the ACCC’s recommendations regarding weakened competition and approved the deal.

Tabcorp proceeded to complete the deal with Tatts, but the ACCC, as well as the corporate bookmaker CrownBet, have created a few hurdles by appealing the tribunal’s decision.

Additionally, the ACCC has withdrawn its injunction to save its “resources to focus on the main game”, according to chairman Rod Sims.

While Sims said he did not believe Tabcorp would push to complete the deal, it appears the wagering company is continuing the transaction as normal.

According to media reports, Tabcorp has started to put together the scheme booklet which will be sent to shareholders following the Tatts scheme first court hearing.

Tabcorp has also reportedly commenced negotiations with Tatts with regards to management post-merger.

Tabcorp’s CEO, David Attenborough, is guaranteed a position, along with CFO Damien Johnston.

Since Tabcorp does not have any lottery experience, it stands likely that key employees from Tatts would remain on board following the merger.

The Federal Court hearing takes place next month and the correct application of the public benefits test will be reviewed.

If the court rules the Tribunal has erred in its judgement and rejects the deal, Crownbet is reportedly tipped as a late bidder.

Analysts have suggested that if the merger is rejected CrownBet’s performance has made it the number one candidate to acquire Tatts.

CrownBet has also lodged an appeal against the tie-up due to the potential of weakened competition.

Crownbet said in its appeal that the decision was “so unreasonable that no reasonable person could have so exercised the power and/or the decision was otherwise contrary to law”.

“It [the Tribunal’s decision] was irrational, illogical and not based on findings or inferences of fact supported by logical grounds,” CrownBet’s legal counsel argued.

Investment bank JP Morgan said the bookmaker’s second half earnings in 2017 should be around $5.9 million, which is an increase of 36 percent from the same time in 2016.

CrownBet could be up against Pacific Consortium if the group makes another revised offer.

The Consortium, led by Macquarie and KKR, submitted an offer alongside last year but the lottery and wagering giant preferred Tabcorp’s offer.

Earlier this year the Consortium entered a revised all cash offer but Tatts rejected the deal again.

The group said it would be walking away but it is not yet clear if Pacific Consortium is really out of the race.

Could a CrownBet and Tatts tie-up work?

CrownBet is currently in the midst of securing a deal with ClubsNSW.

If approved, the digital wagering partnership will see the bookmaker roll out machines to participating clubs in New South Wales. Additionally, the clubs will receive commission for every punter who signs up via the app in a participating venue.

Tabcorp has threatened to pull its services, including its Sky Racing service, if clubs partner with the corporate bookmaker. The retail gambling giant argued that the clubs would be breaching consumer law if they went through with the deal.

The main issue with the Tabcorp Tatts tie-up is weakened competition. If the two companies merge, they will have betting monopoly in all of Australia’s states and territories except for Western Australia. The two companies also have online wagering sites.

Tatts has retail monopoly in South Australia, Queensland and the Northern Territory, while CrownBet operates online in an already incredibly competitive market.

Even if the ClubsNSW deal gets the green light, a CrownBet-Tatts merger would still not weaken competition in the industry as significantly as a Tabcorp tie-up would.