PE consortium bids $5.4b for Australia gaming business Tatts
A consortium comprising Morgan Stanley Infrastructure, KKR, First State Super and Macquarie has submitted a buyout offer for Australian lottery operator Tatts Group that values the business at up to A$7.3 billion ($5.4 billion).
The consortium is willing to pay the equivalent of A$4.40-5.00 per share for all outstanding shares, according to a filing. This comprises A$3.40 in cash plus one share in Tatts' wagering and gaming division - which would be spun out - that the consortium values at A$1.00-1.60 per share. Tatts stock closed at A$4.14 on December 13, the day before the offer was announced, and closed up 8.45% at A$4.49 on December 14.
The deal would be financed through a combination of equity and debt, with current aggregate equity commitments to the transaction totaling A$3.4 billion. The Tatts board said it started engaging with the consortium in mid-2016, allowing preliminary due diligence, but ceased discussions on entering into a merger agreement with Tabcorp, another listed Australian gaming company.
That transaction, announced on October 19, would see Tatts investors receive 0.80 Tabcorp shares plus A$0.425 in cash for each Tatts share. The implied valuation is A$4.34 per Tatts share. The merger would create a diversified gambling and entertainment business with an approximate pro forma enterprise value of A$11.3 billion, revenue in excess of A$5 billion, and EBTIDA of more than A$1 billion.
Tatts has been in operation for 134 years and has a commercial footprint covering every state and territory in Australia as well as New Zealand. It is Australia's leading lottery operator, generating more than A$4.5 billion from seven million customers through brands such as Tatts, Golden Casket, NSW Lotteries and SA Lotteries. Games are played in-store, online or via mobile app.
The company also owns Ubet, which provides fixed price betting services covering horse and greyhound racing as well as other sports such as Australian rules football, rugby league, rugby union, football and cricket. The Ubet network comprises over 1,400 stand-alone pub, club and on-course outlets. In addition, more than 150,000 account holders bet by phone or through websites and mobile apps.
The third leg of Tatts' business is gaming and gaming systems, which covers the full range of services from venue operation to developing regulated monitoring systems for governments.
The company posted A$2.93 billion in revenue - of which A$2.14 billion came from the lotteries business - for the 12 months ended June 2016, up from A$2.8 billion a year earlier. EBITDA rose marginally to A$494.8 million from A$491 million, while net profit dropped to A$233.8 million from A$252 million.
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