A Tabcorp-Tatts Group merger “makes sense” but is unlikely to materialize until the Western Australian wagering licence is sold, said CLSA Research.
Recent mergers and acquisitions in the UK wagering sector have increased the focus on a potential deal highlighting synergies and the importance of scale especially, said CLSA in a note.
The Tabcorp and Tatts wagering businesses suggests synergies could be about A$80 million ($56.4 million) for a full merger or A$45 million for a trade sale.
“We conclude a trade sale or merger of equals would be beneficial to all shareholders and could receive regulatory approval, but is unlikely until the Western Australian wagering licence is sold.”
“For Tabcorp shareholders, a takeover bid for Tatts would likely be earnings dilutive, suggesting a merger of equals would be more palatable. On the other hand, we estimate the acquisition of Tatts wagering only is earnings accretive up to ~15x FY16 EBITDA.”
For Tatts shareholders, a sale of wagering could de-risk the turnaround and potentially drive a re-rating of Tatts’ remaining assets such as lotteries.
“There is less transparency on hurdles within wagering licences but we believe changes can be agreed given the benefits to racing of single strong TAB operator.”