Tatts rejects Pacific Consortium’s bid and labels it “inferior”

Tabcorp remains the sole candidate to take over Tatts as The Pacific Consortium has stepped out of the ring.

Tatts told the Consortium, which comprises Macquarie Group and private equity firm KKR, the revised offer – an all-cash $7.2 billion or $4.21 per share for the company – was inferior. The Consortium made its first offer last year, but Tabcorp’s bid was deemed superior.

This is compared to Tabcorp’s offer which isn’t all-cash but the shares are valued at $4.25 at current market prices.

Tatts released a statement on Friday afternoon stating the “consortium’s offer cannot be reasonably be expected to result in a superior proposal when compared to the proposed Tabcorp merger”.

“In these circumstances, Tatts is unable to provide due diligence or engage with the Pacific Consortium,” Tatts said.

Many questioned whether the Consortium will submit a third offer but chairwoman, Kerry Schott, denied another bid would be made.

She added it is a disappointing outcome for Tatts shareholders.

“[The consortium] continues to strongly believe its proposal is superior to the competing Tabcorp proposal and there is no legal impediment to the [Tatts] board allowing the Consortium to conduct due diligence,” said Schott.

Schott is referring to Perpetual, the largest Tatts shareholder, which has been proactive about a bidding war. Perpetual also wanted to give the Consortium access to the books, which was reportedly the main reason why a revised second offer was submitted.

This clears the path for Tabcorp, though the gambling giant will still need to be approved by the Australian Competition Tribunal, a factor also considered by Tatts when the offers were compared.

“A number of quantitative and qualitative factors were considered by Tatts and its advisers in their relative assessment of each proposal, including … the potential risks associated with the current Australian Competition Tribunal process in relation to the Proposed Tabcorp Merger”.

Deliberations by the Tribunal will begin in the next few weeks with a decision set for June. But given the number of intervenors granted leave, including Racing.com and CrownBet, the deal isn’t set in stone.

Interested parties have made submissions to the tribunal, with hearings scheduled for next month.

Economists have commented on the deal, including Gregory Houston, a founding partner of HoustonKemp Economists.

Houston said in a report on the Tabcorp-Tatts deal, as requested by CrownBet’s lawyers, Minter-Ellison, the $11 billion gaming company deal would lessen competition which would, in turn, result in more expenses for punters.

“My analysis shows that the proposed transaction will lessen competition in a large, and the fastest-growing, part of the national wagering market, being the provision of online and over-the-telephone wagering services,” he said.

“The combining of two forms of structural advantage available to the merged entity only through the leverage of monopoly rights and exercise of market power will cause much greater long-term detriment to prices and output.”

Still, Tatts obviously believes there won’t be any adverse findings, or it will be worth the risk in association with the Consortium’s offer.

Our thoughts – We were hoping the Consortium’s bid would win

We had high hopes for the Pacific Consortium’s offer because it would mean the industry wouldn’t suffer from weakened competition. This deal plays into Tabcorp’s hands – the gambling giant wants its competition eliminated.

The Interactive Gambling Amendment Act 2016, along with a number of secondary amendments and recent strategies agreed to by the federal government including bans on gambling ads and lines of credit, favours Tabcorp over the online bookmakers such as CrownBet.

This, alongside the $11 billion takeover, will allow for Tabcorp to strengthen regulation to its advantage and protect it from increased competition. It will also allow Tabcorp to increase the price of gambling for punters as it will lower supply.

All we can do now is hope the Tribunal will see this and evidence will be supplied by CrownBet or other intervenors to cease the merge.