Australia's Tatts rejects $5.4b bid from PE-backed consortium

Last week Morgan Stanley Infrastructure, KKR, First State Super and Macquarie submitted a bid that equates to A$4.40-5.00 per share of Tatts, comprising a cash consideration and equity in the company's wagering and gaming division, which would be spun out. This compares to an implied valuation of A$4.34 per share under a merger with Tabcorp, with investors receiving a combination of cash and Tabcorp stock.

However, Tatts said in a filing that the buyout offer is predicated on a number of key assumptions "that are either incorrect, inconsistent with Tatts' current expectations or unknown." As such, it is unable to assess what impact these factors might have on the terms and conditions of the bid. These assumptions relate to projected EBITDA for the lotteries business, the company's net debt position, the renewal of lottery licenses, and the financial implications of separating the wagering and gaming division.

It also concluded that the consortium's cash offer of A$3.305 per share - which rises to A$3.40 on payment of an interim dividend - is too low while the estimated valuation of the wagering and gaming division of A$1.00-1.60 per share is too high.

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 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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• Topics
• Australasia
• Buyouts
• Consumer
• Infrastructure
• Australia
• KKR
• Macquarie Group
• Morgan Stanley