Tatts merger: Tabcorp lodges application with Australian Competition Tribunal

Sims, the ACCC chairman, has to be careful what he says as it would be inappropriate to send a signal to the Australian Competition Tribunal about which way his final decision might have gone.

"We are surprised they have done what they have done," he said after Tabcorp announced it was stopping the ACCC process in its tracks by going straight to the tribunal. Sims noted Tabcorp's right to take whatever process is available to it but was unable to comment further.

It is rare for a company to use the tribunal – which is presided over by a Federal Court judge – as an alternative avenue for merger approvals but it is even more unusual to do so unless the ACCC has already knocked back a bid.

The closest this has come to happening before was in 2013 when Murray Goulburn took a takeover of Warrnambool Cheese & Butter to the tribunal, fearing the ACCC was going to knock it back. That case never played out though as Canada's Saputo came in with a rival bid and knocked Murray Goulburn out of the game.

There is an element of forum shopping going on here which means the lawyers have a field day working out which authority gives them the best chance of getting the deal through. It also undermines the ACCC's authority in making competition judgments.

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Proposed changes under Ian Harper's competition review will prevent companies doing this in the future as parties will only be allowed to go directly to the ACCC. The tribunal can still be used as an avenue of appeal

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Tabcorp says its motivation for lodging the application with the tribunal is that it provides more certainty around timing and will take into consideration the public benefits of the tie-up rather than solely focusing on the competition elements.

However, it is safe to assume Tabcorp must have some serious jitters around how the ACCC views the tie-up, or else why bother? Shares in Tabcorp and Tatts rose last week after the market interpreted Sims' comments on the deal favourably.

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Sims said the increase in the number of online bookers had improved the competitive landscape

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The ACCC had been expected to make its final decision on May 4, although it has the power to extend that timeframe. One condition was the sale of Tabcorp's Queensland electronic gaming machine business Odyssey, which is worth around $15 million is a relatively small part of the business. But there are also concerns around the Sky Racing operations.

Tabcorp chief David Attenborough says the tribunal will take into account the benefits to the racing industry, business partners, customers and governments from the deal. Tabcorp and Tatts say they delivered $1 billion to the racing industry in the 2016 financial year and more than $200 million in state government taxes.

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Tabcorp also believes taking the deal to the tribunal provides more certainty around timing although bypassing the ACCC process could drag things out for longer

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The ACCC has given an indicative May 4 date to make a decision but there is nothing to stop that being pushed out. The tribunal process has a statutory three-month period.

While Tatts will publicly endorse the move, it was purely Tabcorp's decision and has surprised many of the parties involved in the deal given the ACCC's statement of issues gave the impression the deal was headed in the right direction.

In 2014 the Competition Tribunal overturned the ACCC's rejection of AGL Energy's $1.5 billion acquisition of power station owner Macquarie Generation. That was the first time the tribunal had overturned an ACCC decision.

Last July, the tribunal approved Sea Swift's acquisition of Toll Marine's Northern Territory and north Queensland marine freight assets which the ACCC had opposed.

There is still no guarantee Tabcorp's bid will be successful, as a rival consortium of infrastructure investors is still waiting in the wings. The Pacific Consortium, which includes Macquarie, KKR and Morgan Stanley's infrastructure arm, is still weighing up its options but the market is betting it will come in with a higher offer. It is believed the consortium is in talks with potential partners interested in Tatt's wagering arm.