Grant Samuel Ticks Tatts-Tabcorp Merger
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No wonder the independent expert’s report reckons the $11 billion takeover deal on offer from Tabcorp is a no brainer for Tatts shareholders.
First up the remain independent option isn’t very attractive - the two companies have made it clear in their PR campaign in favour of the deal, that all sorts of monsters are out there in the online gambling game, some of whom could very well eat the business models of both companies if shareholders don’t agree to merge.
But a lot of investors aren’t too wrapped in the deal, especially holders of Tatts shares which has lost 20% of their value since the deal was announced 11 months ago.
Tatts shareholders have been offered 0.80 Tabcorp shares plus 42.5 cents cash for each Tatts share held. When the deal was launched in October it represented a 20.8% premium, but that has faded as Tabcorp shares have slipped from $5 to near $4.
Tabcorp says the scheme is worth between $4.25 and $4.67 for each Tatts share and represents a significant premium over the independent experts’ valuation of Tatts shares on a stand-alone basis of $3.68 to $4.00.
Tatts shares were four cents (1%) higher at $3.95, while Tabcorp shares were 2.7% higher at $4.16.
Grant Samuel said in yesterday’s Target Company statement that the proposed merger, to be implemented by way of a scheme of arrangement, is in the best interests of Tatts shareholders in the absence of a superior proposal (the usual caveat in these deals).
But Grand Samuel reckons Tatts shareholders are getting a fair deal in the proposed merger because it is materially favourable in comparison to the share contributed by them to the merged company.
“Based on share prices over the three months prior to the announcement of the scheme on 19 October 2016, Tatts shareholders are contributing approximately 56-58 per cent of the value but are receiving a 61 per cent share of the value," Grant Samuel said in the Tatts scheme booklet released yesterday.
"In effect, Tabcorp is 'paying away' synergy benefits arising from the merger to Tatts shareholders to enhance the attraction of the transaction to Tatts shareholders."
Grant Samuel also said that the advantages and benefits of the scheme for Tatts shareholders outweigh the disadvantages, risks and costs.
One of the key benefits is the creation of a diversified gaming company offering lotteries, wagering and gaming services, with a suite of long-dated licences.
A disadvantage is that Tatts shareholders will have a significantly lower exposure to lotteries and a much higher exposure to wagering (which has been weakening for Tabcorp in recent years).
Tabcorp expects the merger with Tatts to close on November 1, with Tatts shareholders scheduled to vote on the scheme of arrangement on October 18 at a meeting in Brisbane, before a second court hearing into the merger six days later.
“With substantially all pre-implementation regulatory approvals now in place, we look forward to continuing to work with Tatts to successfully complete the transaction," Tabcorp chairman Paula Dwyer said in a statement yesterday.
Tabcorp says the merger is expected to deliver at least $210 million in annual earnings from what it calls synergies and business improvements, tech integration, corporate cost savings and other consolidations.
It will take about two years to fully merge the two businesses. So by 2019=20 the merger should be paying off. But will the online giants such as Ladbrokes, Betfair, Paddy Power, William Hill and others allow the benefits to be met?
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.
At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.