William Hill, Ladbrokes lodge interest in Tatts Group’s wagering arm acquisition

There were claims at the weekend that both firms had lodged their interest in a potential acquisition of the Tatts wagering arm with parties associated with the Pacific Consortium, comprising Macquarie, KKR, First State and Morgan Stanley Infrastructure, should it become successful in their cash bid for the company’s lotteries arm.

Earlier this year, Tatts and Tabcorp agreed on a scrip deal for Tabcorb to buy the company for what is now valuing the company at $4.10 a share in an offer that is said to generate $130 million in synergies. At the time, the offer was worth $4.34 a share. The deal currently values Tatts at just over $6bn and values the wagering arm at 70c a share.

Last week, the Pacific Consortium offered to pay shareholders between $4.40 and $5 for Tatts. Shareholders would receive a $3.40 a share cash payment for the lotteries arm and would be paid in scrip for the wagering arm, which the consortium expects to equate to $1.60 a share. The Pacific Consortium says its offer is 18 times the company’s earnings.

Sources close to Tatts say the two separate offers remained under consideration, but weakening the prospects for the Pacific Consortium was that the company had not yet guaranteed $1.60 a share in scrip for the Tatts wagering arm.

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It was only when that occurred that the Tatts board would face a more real dilemma about what deal to back

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Some are betting that the situation will play out where the Pacific Consortium does in fact guarantee $1.60 a share for wagering before Tabcorp increases its offer in what has been described as a “do or die situation for Tabcorp”.

The price of $1.60 a share for the Tatts wagering operations equates to a value of 11 times its earnings, and sceptics have questioned whether the division is really worth such a rich multiple.

William Hill generates £189.9m in annual profit and, in addition to its online sportsbook operations the company offers online gambling games.

London-based Ladbrokes boasts £5.1m of annual income, and there were unfounded rumours that it was eyeing Tatts Group in the weeks before the Pacific Consortium emerged.

Consolidation is unfolding among global betting companies amid a period in which they are facing disruption from the internet, and both parties are widely thought to be eager to expand their footprint in the Australian market.

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The situation is interesting from the perspective of industry disruption

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Ladbrokes and William Hill entered the Australian betting market in 2013 and have aggressively brokered a range of sponsorships with sporting clubs.

William Hill is licensed in the Northern Territory and Ladbrokes on Norfolk Island. The pair have been stealing market share from Tatts and Tabcorp while operating in territories that pay less tax than the latter parties based in Queensland and Victoria.

Should one of the British groups secure the wagering arm of Tatts, some question whether they will operate the business out of their current jurisdictions, although there are said to be plans afoot to change the rules for companies operating out of the Northern Territory.

Macquarie had tried to strike a deal to buy Tatts Group mid-year but its plans were thwarted when Brookfield pulled out of the consortium and was replaced only recently by KKR.

Tabcorp is advised by UBS, which recently raided the Tatts share register on its client’s behalf, securing a 10 per cent blocking stake in the target, while Tatts is advised by Goldman Sachs.