Tab­corp share price the dark horse in Tatts race

The Weekend Australian - - BUSINESS REVIEW - SARAH-JANE TASKER

As pun­ters gear up for the big­gest event on the rac­ing cal­en­dar — the Spring Car­ni­val — wa­ger­ing giant Tab­corp is hop­ing its multi­bil­lion dol­lar bet on Tatts Group is about to pass the win­ner’s post.

It is al­most a year since Tab­corp moved on Tatts and the odds are now short­en­ing that the deal will get done, but as sea­soned horse rac­ing en­thu­si­asts know, never dis­count a sur­prise in the home straight.

That sur­prise could come from the tar­get’s share­hold­ers, now re­view­ing the scheme book­let on the trans­ac­tion ahead of a vote on the deal — to cre­ate an $11 bil­lion gam­ing be­he­moth — next month.

Tatts chair­man Harry Boon said his share­hold­ers would love it if the Tab­corp share price was ma­te­ri­ally higher than it has been re­cently, mak­ing the de­ci­sion a “no brainer” for them.

“They are all keep­ing their pow­der dry un­til we get closer to the vot­ing date,” Mr Boon told The Week­end Aus­tralian.

The value of the deal to Tatts’ share­hold­ers has jumped around over the past year given it de­liv­ers them 0.80 Tab­corp shares plus 42.5c cash for each Tatts share.

The scheme book­let, re­leased last week, out­lined that based on the clos­ing price of Tab­corp shares just be­fore that doc­u­ment was re­leased, the im­plied value of the Tab­corp of­fer was $3.66 per Tatts share. But based on the clos­ing price of Tab­corp shares on the last trad­ing day be­fore the deal was an­nounced in Oc­to­ber 2016, the trans­ac­tion im­plied a value of $4.34 per Tatts share.

One in­dus­try in­sider said Tatts share­hold­ers would have to vote on what is in front of them now, which was a harder de­ci­sion given Tab­corp’s share price.

CLSA’s An­thony Longo is of the view the trans­ac­tion will pro­ceed, but he flagged in a client note that he could not dis­count the po­ten­tial for ei­ther a late of­fer for Tatts or share­hold­ers vot­ing against the of­fer.

For the deal to be ap­proved, more than 50 per cent of Tatts share­hold­ers must be present and vot­ing at the scheme meet­ing on Oc­to­ber 18, with at least 75 per cent of votes cast in favour.

Char­lie Green of Hunter Green In­sti­tu­tional Broking, which owns Tatts shares, told his clients this week that given the present value of the deal, he did not be­lieve 75 per cent of share­hold­ers would back it.

He said the im­plied cross-price for Tatts was now com­fort­ably be­low its present share price, the value of Pa­cific Con­sor­tium’s ri­val pro­posal and the cross-price when the Tab­corp deal was first an­nounced. The Mac­quarie-led Pa­cific Con­sor­tium had of­fered $4.21 cash per share for Tatts, be­fore walk­ing away from the takeover bat­tle in April af­ter the tar­get’s board re­fused the suitor ac­cess to its data room.

Mr Boon told share­hold­ers in a let­ter in the scheme book­let that the Tatts board had as­sessed the at­trac­tive­ness of the Pa­cific Con­sor­tium pro­pos­als in De­cem­ber 2016 and April 2017, and on each oc­ca­sion had de­ter­mined they were not su­pe­rior pro­pos­als.

Mr Boon said he was cau­tiously op­ti­mistic the deal would be ap­proved by in­vestors, say­ing it was a strong deal for share­hold­ers given they would own about 58 per cent of the com­bined group.

He be­lieved Tab­corp’s share price would even­tu­ally re­flect the $130 mil­lion in syn­er­gies the com­bined en­tity would cre­ate.

The com­bined group is ex­pected to have pro-forma an­nual rev­enue of about $5bn. It will have to­tal­isator and fixed odds li­cences and retail wa­ger­ing net­works in NSW, Vic­to­ria, Queens­land, South Aus­tralia, Tas­ma­nia, the ACT and the North­ern Ter­ri­tory, of­fer­ing wa­ger­ing prod­ucts in about 4300 retail out­lets. The em­pire could fur­ther ex­pand, with the West Aus­tralian gov­ern­ment seek­ing ad­vice on whether to sell its TAB, a ven­ture Tab­corp has pre­vi­ously said it would bid for.

Mr Boon is en­cour­ag­ing share­hold­ers to take a long view, rather than a spot view, of the share price, say­ing they all agree on the “in­dus­trial logic” of the deal.

Aus­tralianSu­per, which holds 5 per cent of Tatts, has said it will sup­port the deal in the ab­sence of a su­pe­rior pro­posal. Per­pet­ual, which holds 9.8 per cent, said when the deal was an­nounced it sup­ported the move. But Tab­corp’s share price has moved south since that time — it was just north of $5 in Oc­to­ber 2016 and sits around $4.30 now — and the ma­jor in­vestor is yet to con­firm how it in­tends to vote next month.

Tab­corp chief ex­ec­u­tive David At­ten­bor­ough said Tatts share­hold­ers should take com­fort from the in­de­pen­dent ex­pert’s fun­da­men­tal val­u­a­tion of the deal.

The suitor has cal­cu­lated that based on fig­ures in the in­de­pen­dent ex­pert’s re­port by Grant Sa­muel, share­hold­ers would re­ceive be­tween $4.25 and $4.67 of value a share once syn­er­gies were fac­tored in. “The in­de­pen­dent ex­pert has ap­plied a lot of rigour to as­sess­ing this, and that is the ba­sis on which I think Tatts share­hold­ers can take some com­fort,” Mr At­ten­bor­ough said.

He added that the re­port de­ter­mined it was rea­son­able to ex­pect some im­prove­ment in the share price once there was cer­tainty of im­ple­men­ta­tion, and as ev­i­dence of the syn­ergy ben­e­fits emerged.

“There is now a clearer time­line out there and a process in place for the trans­ac­tion, so we would ex­pect that the in­de­pen­dent ex­pert’s com­ments will start to be re­flected out there,” he said.

Tatts was cleared to push ahead with its Oc­to­ber share­holder meet­ing while the out­come of an ap­peal by the Aus­tralian Com­pe­ti­tion & Con­sumer Com­mis­sion to an ap­proval of the deal is still be­ing de­ter­mined.

Tab­corp has said it is con­fi­dent the Aus­tralian Com­pe­ti­tion Tri­bunal’s ap­proval of the deal, which the ACCC chal­lenged, will be up­held. Still, the le­gal case could fur­ther test the pa­tience of Tatts share­hold­ers, with the po­ten­tial to de­lay the Oc­to­ber meet­ing. But should Tab­corp be cor­rect in its as­sump­tion of the out­come, and the reg­u­la­tory hur­dles are cleared, it could also fuel that sur­prise in the home straight with an 11th-hour ri­val bid.

‘There is now a clearer time­line out there’ DAVID AT­TEN­BOR­OUGH TAB­CORP

AAP

A merged Tatts-Tab­corp is ex­pected to have an­nual rev­enue of about $5 bil­lion. In­set, Tab­corp CEO David At­ten­bor­ough

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