Pacific whim

14 December 2016 By Quentin Webb

A quartet including Morgan Stanley, KKR and Macquarie has gatecrashed Tabcorp’s near-$5 bln takeover of rival Tatts. The new approach is fiddly and has a questionable valuation. Still, a canny target could use this to wring a bit more out of Tabcorp.

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Australian betting group Tatts said on Dec. 14 it had received an indicative takeover proposal from a consortium of financial investors, potentially upsetting the company's agreed sale to smaller rival Tabcorp.

The Pacific consortium is made up of First State Superannuation Scheme, Morgan Stanley Infrastructure Partners II, Kohlberg Kravis Roberts, and Macquarie Corporate Holdings.

The quartet values its proposal at A$4.40 to A$5.00 a share, implying a total value for Tatts' equity of A$6.5 to A$7.3 billion ($4.8 billion to $5.5 billion). That includes A$3.40 a share in cash, plus a share in a "wagering and gaming" business which Pacific will spin off. The consortium says this could be worth between A$1.00 and a maximum A$1.60 a share if it was acquired by a "strategic party".

Tabcorp agreed to buy Tatts on Oct. 19. That deal, comprising 0.8 Tabcorp shares and A$0.425 in cash, was worth A$4.34 a share or $A6.4 billion on announcement, although Tabcorp's shares have since dropped.

Tatts said it had "not yet formed a view" on the comparative merits of the two proposals, but its board and advisers would review the new proposal and report back "as soon as practicable".

By early afternoon in Sydney, Tatts shares stood 9.3 percent higher at A$4.53, while Tabcorp shares fell 1.3 percent to A$4.59.

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