Tabcorp, Tatts Group mulling $9.4b merger to compete with int’l betting operators

Australian gambling operators Tabcorp and Tatts Group are reportedly discussing a merger that would create a $9.4b betting behemoth.

On Friday, The Australian quoted ‘top-level’ sources saying the two betting firms were “on the verge of a merger” that was likely to be announced “in the near future.” Tatts has a market cap of $5.7b while Tabcorp is worth $3.7b.

CLSA analyst Sacha Krien suggested that if Tabcorp were to acquire Tatts, Tabcorp would pay a 30% premium to Tatts’ current share price, while subsequently realizing about $80m in annual synergies. Should the parties proceed with a merger of equals, Tatts’ shareholders would end up controlling 58% of the new entity.

Neither company has seen fit to confirm or deny the reports, but the two parties have been down this road before. Exploratory talks in 2011 ended up going nowhere but as recently as this April, Tatts CEO Robbie Cooke was forced to deny rumors that Tabcorp was mulling a $1.7b takeover of Tatts’ wagering operations.

The entry of European online gambling firms including Bet365, Ladbrokes, Paddy Power, William Hill and Unibet over the past few years has reportedly convinced Tatts and Tabcorp that only betting Goliaths will be able to compete for the love of Aussie punters.

The fact that domestic operators now have more international rivals may also help assuage regulators’ competition concerns, as will the fact that the Western Australian government is pressing forward with plans to sell the state-owned TAB wagering monopoly to the highest bidder.

Tabcorp reported group revenue up 1.1% to $544m in its most recent quarterly report, in which online wagering growth outshone its retail operations.

Last month, Tatts CEO Cooke told shareholders that turnover at the company’s wagering business had risen 3.6% in its most recent quarter. Tatts rebranded its wagering operations under the Ubet moniker in April – a decision Tabcorp mocked in newspaper ads – and Cooke said the company would wait until February 2016 before deciding whether to consider spinning off the division in order to focus on Tatt’s core lottery operations.

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