Tabcorp building shareholding in Tatts as merger talks continue

Australian reports Friday indicate that Tabcorp has purchased a 10 percent stake in Tatts as the two companies further develop their planned “merger of equals” (see previous reports.)

ASX filings show that Tabcorp entered into a cash-settled equity swap which gives it rights to 147 million shares in Tatts Group, or around 10 percent of the company.

“The transaction is intended to help facilitate the proposed combination of Tabcorp and Tatts and provide shareholders with improved financial outcomes,” said Tabcorp in a statement.

The equity swap has an average reference price of A$4.34 per Tatts share, and provides Tabcorp with voting rights over Tatts shares. The combination does not change the proposed capital structure after the merger completes because it does not receive the underlying shares at the end of the swap. It does, however, give Tabcorp a 10 percent pre-bid stake, making it more likely the proposed merger is approved by Tatts Group shareholders.

“It will now be more difficult for the merger to be voted down and/or for a third party to build a stake. This looks like a pre-emptive move rather than in response to an imminent bid or proposal,” analysts observed.

Tabcorp and Tatts currently expect the merger to complete in mid-2017.