Tabcorp on Wednesday suffered a setback in its attempt to strengthen its control over Australia’s thriving gaming industry when the country’s competition regulator blocked the betting group’s A$1.9bn ($1.46bn) hostile bid for rival Unitab.

The decision by the Australian Competition and Consumer Commission is likely to leave the door open for Tattersall, which operates lotteries and poker machines, to proceed with what it has described as a “merger of equals’’ with Unitab. Unitab shareholders are expected to vote on the proposed union with Tattersall on Monday.

Tabcorp said on Wednesday it was “reviewing’’ its options following the antitrust veto. Dick McIlwain, chief executive of Unitab, said Tabcorp would be ill-advised to pursue its bid following the ruling. He suggested that all Tabcorp would achieve with a possible challenge before Australia’s Federal Court would be “a lawyers’ feeding frenzy”.

Mr McIlwain also indicated that Unitab could seek improvements to the terms of the proposed merger with Tattersall before seeking shareholders’ approval. “We’re going to spend the next couple of days talking to our biggest shareholders to see where they sit on it,” he said. “There’s a prospect that we kind of just muck around with the merger terms and we would then adjourn (the shareholders’ vote) for a couple of weeks.”

Nick Caley, gaming analyst at ABN Amro, said Wednesday’s decision gave Tattersall “a seemingly clear run at getting Unitab. The only question is whether shareholders will approve it on Monday and, if not, how far Tattersall will have to sweeten the offer.”

The takeover battle for Unitab underlines increased competition in Australia’s A$20bn gaming industry, as well as the significant economies of scale and licencing advantages that larger groups can achieve. From horse races to casino tables, Australians spend per capita more of their entertainment budget on gambling than any other nation.

Analysts said they were particularly surprised by the ruling because Tabcorp had offered concessions to the regulator. But the ACCC said on Wednesday those concessions failed to alleviate its concerns that Tabcorp would stifle competition, in particular for pooling services, where Tabcorp and Unitab currently compete head-to-head. The regulator also said it wanted to maintain competition for future betting licences.

Unitab shares fell 5 per cent to A$13.80 on Wednesday, closing the gap with the A$13.29 valuation of Tattersall’s offer. Tattersall shares gained 7 per cent to $3.07 while Tabcorp lost 2.6 per cent to A$14.90.

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