New bidder for Aussie gambling group

The cat is well and truly among the pigeons in the increasingly complicated Tabcorp-Tatts proposed merger in Australia; in addition to strong rumours of a competing bid by Ladbrokes Coral (see previous report) the news surfaced Wednesday that a consortium including US private equity firm KKR & Co. and Morgan Stanley has offered as much as A$7.3 billion ($5.5 billion) for Tatts, setting up a potential bidding war.

Tatts has confirmed the offer, which it calculates is worth around A$4.50 to A$5 a share.

The consortium, titled Pacific Consortium, which includes Macquarie Group Ltd. and First State Investments, is primarily interested in the lottery business, and has plans to sell or separately list Tatts’ wagering and gaming business, according to local media reports.

Tatts lottery assets operate across Australia and generated record earnings in its most recent financial year, with EBITDA climbing 10 percent from a year earlier to A$345.5 million.

Tatts shares soared on the news of another bidder, up almost ten percent midday local time on the Australian Stock Exchange, whilst potential acquirer Tabcorp took an almost 2 percent hit.

The Bloomberg business news agency reported that KKR, Morgan Stanley and First State each own 30 percent of Pacific Consortium, whilst Macquarie has the remaining ten percent.

Early reportage on the deal reveals that Tatts investors would receive A$3.40 in cash and a share in the newly separated wagering unit that will be valued at between A$1 and A$1.60.

Tatts said it is assessing the offer and has not yet developed an opinion on how competitive it is vis-a-vis the Tabcorp bid. However, the company said that its directors continue to believe that for now the Tabcorp bid is the best bet for shareholders. That may be part of a negotiating strategy.

Tabcorp was silent on the issue when we went to press Wednesday morning, but readers will recall that two months ago the group offered to acquire Tatts at A$4,34 a share.

The potential merger is under consideration by the Australian Competition and Consumer Commission, which prior to Wednesday’s revelations was expected to announce a decision at the end of February 2017.

Concerns have already been expressed about the impact on market competition of a Tatts-Tabcorp merge.