Tatts and Tabcorp go ahead with a $11 billion merger

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Tabcorp and Tatts are merging to create diversified gambling entertainment group and ASX 50 company valued at $11.3 billion and with combined revenue of more than $5 billion.

The deal will create a new entity combining TAB betting, lotteries, Keno and gaming services and is expected to deliver at least $130 million of annual synergies and business improvements.

The scheme of arrangement will give Tatts shareholders 0.80 Tabcorp shares plus 42.5 cents cash for each share held.

Tabcorp shares last traded at $4.89 and Tatts at $3.59. The transaction implies a value of $4.34 per Tatts share before the value of synergies and business improvements.

The two had talks last year about creating a massive gaming enterprise but negotiations stalled. After the merger, Tabcorp shareholders will end up with 42% of the combined group and Tatts about 58%.

Both Tatts and Tabcorp board of directors are recommending shareholders accept the deal. AustralianSuper, one of Tatts’ largest shareholders, has indicated it intends to vote in favour.

David Attenborough, the chief executive of Tabcorp, will be managing director and CEO of the combined company.

Tabcorp’s chairman, Paula Dwyer, who will chair the new company, says combining the complementary businesses will give a national footprint and could create a pathway to larger wagering pools.

“Bringing together our lotteries, Keno and gaming services businesses will give us the capability to create an even more compelling offer for customers and retail stakeholders as the combination increases capability, while increasing diversification,” says Dwyer.

Tatts’ Chairman, Harry Boon, says the combination is based on clear industrial logic and a strong and tangible synergy proposition.

“It comes at a time of escalating competition from new business models and rapid consolidation of gaming and wagering companies globally,” he says.

“The scale and efficiency benefits from this combination will provide a stronger platform in this dynamic environment.”
Together, they would have combined revenue of $5.2 billion.

In the latest full year results, Tabcrop post a net profit after tax of $169.7 million on revenue of $2.188 billion. Tatts had a full year profit of $263 million on revenue of $3.03 billion.

Both companies went into a trading halt yesterday, indicating a “potential change of control transaction”.

Here’s how the different gaming businesses will combine after the merger, with wagering and media becoming the biggest revenue stream, followed by lotteries:

UBS is acting as financial adviser and Herbert Smith Freehills is legal adviser to Tabcorp. Goldman Sachs is acting as financial adviser and Clayton Utz is legal adviser to Tatts.

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