Tabcorp’s offer still the best for Tatts, according to analysts

THE bidding war many pundits predicted for the Tatts Group has not come to pass since the Pacific Consortium made its play for the Australian gambling giant last week.

Market nalysts have suggested Tabcorp remains the dominant bidder and there’s no need for the gambling giant to increase its bid to beat out the offer put forward by the Macquarie Group and the KKR.

Last week, Pacific Consortium submitted a revised $4.21 a share in an all-cash bid for Tatts.

Tatts said it’s considering the offer.

Credit Suisse analysts commented on the revised bid – the Consortium entered a bid last year which was dismissed – and suggested it was not only was inferior to Tabcorp due to dividends, but it also provided regulatory uncertainty.

While the offer is all-cash, it will still have to get approval from industry bodies.

Tabcorp has already had to get over 100 approvals and the Consortium would need to get most of them too, but so far it has none.

Deutsche Bank analysts told clients it could take Pacific Consortium up to one year to gain regulatory approval for any deal.

“While this proposal could provide greater certainty than the Tabcorp proposal given that it is all cash, we are of the view that the offer is inferior to Tabcorp’s merger proposal in relation to the time to complete, and the conditions as to the non-payment of dividends, and the Victorian lotteries licence terms,” the analysts said.

“We believe this proposal could take up to 12 months to complete given the probity and other regulatory requirements in each state.”

Credit Suisse analysts told clients “Tatts shareholders miss out on potential 2-3 dividends under the PC proposal.”

“Tabcorp’s proposal allows for one more Tatts operational dividend of 8¢ per Tatts share not to be deducted from the cash component should the merger occur after Tatts full-year result,” the analysts said.

The analysts added that Tabcorp’s offer was more important to the racing industry due to Pacific Consortium’s commitment to Tatts’ wagering business.

If the Consortium is successful, it has been suggested Tabcorp will most likely buy the Queensland TAB for a virtual national tote monopoly.

Key racing figures have said Racing Queensland would be $20 to $25 million better off if Tabcorp does take over Tatts instead of the Consortium since increased racing infrastructure has already been agreed to by the two wagering giants.

Racing Queensland chairman, Steve Wilson, commented on the merger between Tabcorp and Tatts stating it would help racing across Australia.

“I would say there’s logic for Tabcorp and Tatts to merge and that there would be very substantial benefits for the Queensland industry,” Mr Wilson said.

“For a start, there’s the prospect of a larger betting pool and Tabcorp and Tatts back racing, we know they are committed to racing.”

But Mr Wilson added they would be happy to negotiate with the Consortium in regards to the bid.

“We are yet to speak to Macquarie … but if they have answers to our questions then we would listen to them.”

Racing Victoria, on the other hand, is against the Tabcorp-Tatts merger and is an intervenor of the Australian Competition Tribunal regulatory approval process.

It’s not clear yet if the Victorian racing code is supportive of the Pacific Consortium’s offer.