Tattersall’s, the country’s second largest gaming group seems to have got a bargain with its $530 million purchase of Queensland’s government-owned Golden Casket lottery business.
But has it?
The Queensland Government keeps the name, (although TTS pays no royalties for its use), continues to collect the $185 million a year in taxes on lottery sales and retains the $150 million honey pot of cash in the business being sold.
So in effect Tattersall’s has paid $530 million to manage the Golden Casket business, take some income and collect taxes for the Queensland Government each year.
No wonder the PE for the deal of just over 10 times appears low to TTS’s high PE of more than 24 times earnings.
With its Tatts business, it has a monopoly in three of the nation’s six states, Queensland, Victoria and Tasmania, as well as the ACT and the Northern Territory.
Tattersall’s will fund the purchase, (which has come from nowhere with no sign of an auction or trade sale process by the Beattie Government) with debt and the company claims it will add positively to earnings.
Tattersall’s will hold the right to the Lottery business, called the Golden Casket until at least 2016. No other licence will be issued by Queensland up till then.
Under the terms of today’s deal, Tattersall’s agreed to keep Golden Casket’s headquarters in Queensland and establish a new center in the state to oversee all its lottery businesses, which is similar to the agreement with the Queensland Government for UniTab
The Queensland Government will retain ownership of the Golden Casket brand and Tattersall’s will have the right to use the name until 2072 without having to pay royalties which again sounds mighty generous.
But the Queensland Government will also continue to receive lottery taxes, which totalled $185 million last year and under the arrangement another $150 million in surplus cash held by Golden Casket will be returned to the Government.
And what will the Government do with the money? Use it to fund a new children’s hospital in Brisbane to cost $700 million.
Treasurer Anna Bligh said:” This hospital was due to be funded by borrowings and debt. Now it can be funded outright, so the Queensland taxpayer gets a new state of the art Queensland children’s hospital without having to dip into their pockets to pay for borrowings.”
Brokers were positive about the deal, saying it will boost Tattersall’s annual lottery sales to more than $2 billion.
Tattersall’s is paying less than 10 times Golden Casket’s forecast 2008 earnings before interest, tax depreciation and amortization, which appears to makes it a cheap buy. TTS has a PE ratio of more than 24 per cent but that also reflects its gaming businesses in Victoria and the UK while it also has a large but low growth wagering business in based on Queensland.
But it’s a management deal, not ownership of the name like it has with the Tattersall’s brand name in the states where it operates.
This is TTS’s third takeover in the past seven months after paying $2 billion in September for Unitab Ltd. in an acrimonious fight with Tabcorp, which owns the largest wagering business in the country.
Tattersall’s also partnered with Macquarie Bank in January to buy British poker machine operator Talarius plc for 244 million.
Tattersall’s needs a deal like this. Its permit to run lotteries in Victoria expires in July of next year. The company is of course chasing a renewal of that licence but there are others in the race.
Tattersall’s will also be chasing Tabcorp’s Victorian wagering licence but should it retain its lotteries business it would be highly unlikely to win the wagering business now run by TAH.
Tattersall’s shares rose then fell, finishing around $5.17 yesterday afternoon as some analysts re-assessed the value of the deal and the impact of another tax hike by the Victorian Government.
Tattersall’s and Tabcorp will now have to pay $59.5 million a year each in levies for the 13,750 slot machines they each have in Victoria, the Government said in a separate statement. Crown Casino, owned by PBL will also pay more, according to the statement.
The Victorian Government’s increased the annual levy on electronic gaming machines from $3033 to $4333 per machine.
Tabcorp said “the tax increase on Tabcorp’s 13,750 gaming machines is worth another $17.9 million a year to the Victorian Government which is now set to collect $59.5 million a year from Tabcorp through the levy”.
With Crown Casino’s payments, the take from the levy will total $130 million a year. Crown will pay $11 million a year. PBL shares ended down 7c at 19.82
TAH shares fell 15c to $16.84.
