PE consortium ups bid for Australia's Tatts

This follows Tatts’ rejection of a previous offer at a valuation of about A$7.3 billion. The new bid entails a cash offer of A$4.21 per Tatts share, representing a 3% discount compared to the stock’s last closing price of A$4.35. Shares in the company were trading at A$4.41 as of late morning on April 19.

According to a statement, Tatts will review the consortium’s new proposal but is continuing to support a competing deal that would result in a merger with another local gaming company, Tabcorp. Under that transaction, Tatts investors would receive 0.8 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.

Tatts rejected the PE consortium’s first offer late last year on grounds that the key assumptions were either incorrect or could have an unpredictable impact 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.

Underlying key financial assumptions of the revised bid require that there be no material negative change in Tatts’ capital structure and that the current net debt level of about A$1 billion does not increase. The transaction also remains subject to approval from Australia's Foreign Investment Review Board.

It will be financed through a combination of A$4.6 billion in equity commitments and debt. The consortium has received indicative support letters for the debt component from Australia’s four major banks.   

Founded in 1885, Tatts 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 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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