Australia | Aug 17 2006
By Greg Peel
The story so far:
The three major wagering and gaming companies in Australia are TABCorp (TAH), which currently holds the Victorian and NSW betting license as well as poker machines and Star City Casino, UNiTAB (UTB) which holds betting licenses in Queensland, South Australia and the Northern Territory as well as poker machines, and Tattersalls (TTS) which controls lotteries and poker machines in Australia and overseas.
In 2012, the lucrative Victorian wagering license (think Melbourne Cup) will be reissued to only one of these three contenders. We’ve been hearing about this license for a while now, and Lord knows we’ll be hearing about it for a long time yet. Great stake is placed upon it.
This year the battle has begun in earnest, with Tatts deciding to strengthen its case by offering to merge with UNiTAB. The equivalent value of that offer is $13.49.
Fearing it would be left at the gate, TABCorp decided to stretch itself and trump Tatts with a straight out takeover bid for UNiTAB of $14.25. While the market spiked the UNiTAB share price to over $15.00 earlier in the year, in the hope of a bidding war, lack of a response from Tatts and potential problems with the ACCC has seen the share price drift back to under $14.00.
The ACCC has now rejected TABCorp’s bid on the basis the company would control all major Australian totalisator betting pools. This would lessen competition for future wagering licenses, particularly Victoria (2012) and NSW (2013).
Few brokers expect the Tatts merger proposal to be accepted by shareholders when they vote on August 21. The register contains a large proportion of small shareholders, who will likely see the bid as inadequate and be looking to force Tatts to come back with a better one. They could also reject it simply to buy time, because there is a very real chance TABCorp will take the ACCC to the Federal Court.
Leading the charge on this is Deutsche Bank, who described the ACCC ruling as “erroneous and misguided”. Deutsche believes TABCorp has strong grounds to contest. JP Morgan echoes Deutsche’s views.
Citigroup, however, thinks the chances of TABCorp challenging the decision are low. The bottom line is that citi does not believe a combined Tatts/UNiTAB has any better chance of winning the Victorian license than either one does individually, and that in fact a merger is good for TABCorp as it removes one challenger.
ABN Amro suggests that if UNiTAB shareholders do reject the offer, Tatts has room to sweeten the deal a little. Macquarie is in agreement.
But Macquarie throws another spanner into the works. What if UNiTAB were to turn around and bid for Tatts?
The next few weeks will be interesting, but rest assured the value of each company involved varies materially dependent on whether licenses are won or not. And we still have years of this.
On a Buy/Hold/Sell basis the current ratios in the FN Arena database are TABCorp 4/4/1, Tattersalls 2/3/4 and UNiTAB 2/5/2.