KKR-backed consortium makes $5.5 billion counterbid for Australia’s Tatts
A group including private equity firm KKR and Macquarie Group Ltd on Wednesday offered up to A$7.3 billion ($5.47 billion) to buy Australian lottery operator Tatts Group, threatening a takeover deal with Tabcorp Holdings Ltd.
Tatts said in a statement that its board had not yet formed a view on how the proposal compared with the Tabcorp offer currently valued at about A$6.03 billion, but two Tatts shareholders said they believed it was a superior deal and could spark a bidding war with the entry of additional players.
The consortium, also including Morgan Stanley Infrastructure and First State Superannuation Scheme, has the advantage of not needing approval from the competition regulator, which is closely examining the offer from Tabcorp, Australia’s biggest bookmaker.
Tabcorp in October agreed to acquire Brisbane-based Tatts to form a gambling powerhouse and fend off a growing challenge from overseas online rivals. But that deal is now in doubt as the new offer already has the backing of at least some shareholders.
“The value of the lotteries business is starting to be recognised,” said Charlie Green, a director at Hunter Green Institutional Broking, which owns Tatts shares. “It is now undeniably game-on in terms of an auction.”
The latest offer, while an improvement on Tabcorp’s, was unlikely to be the last, said Gabriel Radzyminski, managing director of activist investor Sandon Capital, which also owns Tatts shares.
Tatts’ stock soared as much as 13 percent to a nine-year high of A$4.74 after it announced the new proposal, suggesting the market prefers the consortium’s bid.
The proposal from the Pacific Consortium comprises A$3.40 per share cash for the lotteries business and shares in a spinoff wagering company the consortium values at A$1 to A$1.60 a share, Tatts said.
The wagering company would be listed in Australia under the proposal, unless it was sold to a strategic buyer, such as Tabcorp, first.
Tabcorp has outlined A$1.4 billion of synergies associated with the Tatts merger, all of which relate to wagering rather than lotteries.
“The consortium bid, in a way, is an exploration if Tabcorp values lotteries or not,” Radzyminski said, calling the structure of the new offer an invitation to Tabcorp to drop its takeover proposal and acquire the wagering component from the consortium.
TWO HORSE RACE?
Tabcorp’s offer of 0.80 Tabcorp shares plus A$0.425 cash for each Tatts share held equated to A$4.11 per share based on Tabcorp’s trading price on Wednesday.
Tabcorp’s shares were down 1 percent, further lowering the value of its offer.
A Tabcorp spokesman said the company remained committed to completing the Tatts deal.
Each member of the Pacific Consortium holds a 30 percent stake except for Macquarie, which holds 10 percent, said a source familiar with the situation who was not authorised to speak publicly.
It was not immediately clear which member of the group would call the shots if the bid succeeded, the source said.
Pacific Consortium Chairwoman Kerry Schott said in a statement the group had a record of long-term investment in assets that “deliver annuity-style returns similar to infrastructure assets”.
Tatts shareholder Green said lotteries were attractive to infrastructure investors because they offered large, reliable cashflows. Wagering, he said, was more volatile.
Radzyminski said he believed Ontario Teachers’ Pension Plan (OTPP), the owner of UK lottery operator Camelot Group, might also consider bidding for Tatts.