Tabcorp share price the dark horse in Tatts race
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
A merged Tatts-Tabcorp is expected to have annual revenue of about $5 billion. Inset, Tabcorp CEO David Attenborough