Tabcorp, Australia’s biggest gaming group, has launched an eleventh hour unsolicited A$1.9bn offer for Unitab, in a bid to prevent its smaller rival from merging with another betting operator.
If successful, the deal would cement Tabcorp’s position as the winner in the rapid consolidation of Australia’s large gaming industry in recent years.
Although almost exclusively domestically-based, the enlarged group would be the world’s sixth largest listed gambling and entertainment company, giving it a strong platform for international expansion.
“This scale, combined with the diversity of the merged entity’s earnings, its investment grade credit rating and broad gaming experience, would enhance Tabcorp’s ability to compete effectively for global growth opportunities,” Tabcorp said.
The proposed deal, however, is sure to be scrutinised by Australia’s tough competition authority and Tabcorp conceded it might be forced to sell parts of the enlarged business in return for regulatory approval.
Tabcorp’s cash-and-paper offer – which had been widely forecast - values the Queensland-based Unitab at A$14.25 a share, assuming a Tabcorp share price of between A$15 and A$17.
This trumps a rival A$1.7bn paper bid for Unitab, unveiled in March, from Tattersall’s, the formerly privately-held Victoria-based that listed last year.
“There are certainly regulatory issues and it all hinges on resolving those,” said Cameron McKnight, an analyst at JP Morgan in Sydney. “But Tabcorp’s offer seems vastly superior, in direct financial upside and from a strategic perspective.”
But Tattersall’s – which many analysts expect to counter-bid – vigorously disputed Tabcorp’s claims that its offer was superior, saying its arguments were “misguided and based on foundations which are in the main spurious”.
But its shares fell 8 cents to A$2.89, further undermining its paper-based bid while Tabcorp jumped 37 cents to A$15.59.
If Tabcorp succeeds, it will scupper Unitab’s takeover ambitions for the third time in as many years. It outbid it for the Jupiter’s casino business in 2003 and the following year took over Tab which had planned to merge with Unitab.
All three companies – Tabcorp, Tab and Unitab – were formerly state-based monopoly totalisator betting operators. But Tabcorp’s acquisition spree has helped it diversify, reducing its dependence on state gaming licences.
Tattersall’s bid for Unitab has been undermined by uncertainty over whether it will be successful in holding onto its licenses, and at what price. Its Victorian lotteries licence expires in 2007 and its gaming licence in 2012.
Tabcorp said around one third of its forecast 2005/06 earnings before interest, tax, depreciation and amortisation was derived from Victorian and New South Wales licences that are due to expire in the next six years.It said that compared with nearly all of Tattersall’s forecast EBITDA.
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