Federal Court Derails Tabcorp, Tatts Merger
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The Federal Court has blown up the $11 billion merger of the two gambling giants, Tabcorp and Tatts.
In a surprise judgement yesterday afternoon, the court set aside the decision of the Australian CompetitionTribunal to approve the deal, instead accepting arguments from the competition regulator, the ACCC that the decision should be reviewed and set aside.
"The court orders that the decision of the tribunal be set aside," Justice Nye Perram said, "and the matter be referred back to the tribunal for consideration." Justice Perram ruled that the reasons for the decision would not be made public for at least five days.
Tabcorp and Tatts earlier this year took what some analysts saw was the risky and arrogant step of bypassing the Australian Competition and Consumer Commission’s (ACCC) approval process and instead took their merger bid directly to the Australian Competition Tribunal which gave it the greenlight in June.
The ACCC had voiced serious concerns about the merger proposal.
The tribunal granted approval with a single minor condition, and dismissed a list of concerns raised by the ACCC and other wagering operators about the immense market power that the merged Tabcorp-Tatts behemoth would command.
The ACCC then applied for the Federal Court to undertake a "judicial review" of the approval, alleging the competition tribunal made "reviewable errors" in its assessment of the detriments the merger would cause.
CrownBet (owned by James Packer’s Crown Resorts) also launched an application, saying the decision to approve the proposal had been “irrational”, and claiming it was “bad for punters and competition”. In a statement late yesterday the ACCC reminded readers of the three points it raised in the hearing,
“The ACCC’s application for review was based on three grounds. The first was the Tribunal’s reasoning that it could only find that the proposed acquisition was likely to result in a detriment to be considered in the net benefit test if it concluded that there would be a substantial lessening of competition,” chairman Rod Sims said in the statement.
“The second ground was that the Tribunal made an error when it failed to compare the likely future state of competition both with and without the proposed acquisition in order to assess competitive detriment,” Mr Sims said.
“Finally, the ACCC argued that the Tribunal had made an error in failing to assign less weight to benefits which would be retained by Tabcorp, its shareholders and the racing industry, and not shared with consumers more broadly,” Mr Sims said.
The ambitious Tabcorp-Tatts merger has been under a cloud ever since the appeals were lodged in July, and the sinking share price for both companies indicated this concern.
But Tabcorp has consistently told shareholders it was “committed to the transaction” and confident of delivering the deal. Scheme booklets have already been sent to Tatts shareholders, and a vote on the proposed merger was scheduled to run on October 18.
When the deal was announced last October the Tabcorp share price was $4.89, which indicated that Tatts shares were worth $4.34.
Yesterday Tabcorp shares fell 1.5% to $4.29 (a fall of 12.2%) and Tatts shares edged up 0.6% to $4.075.
The deal is sunk those board members and executives (and their advisers) who argued for going direct to the Competition Tribunal should be sacked and compensation sought.
I can feel a class action or two coming on and this time don’t worry about shareholders suing shareholders.
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.