Just as global gambling stocks are being hammered in the wake of the arrests of 18 employees (including a senior executive) of Crown Resorts (CWN) by the Chinese authorities, Tabcorp Holdings (TAH) and Tatts Group (TTS) are again pursuing merger talks that could create a $10 plus billion gaming giant.
The merger has nothing to do with events in China – that is just a coincidence of timing because if the merger occurs, it will be a highly defensive transaction designed to protect the core wagering businesses of both companies from the rising tide of competition from the likes of CrownBet, Ladbrokes, William Hill and Sportsbet, to name a few.
The two companies requested trading halts yesterday morning to review a scheme of arrangement proposal. An announcement will come today and it looks like being a done deal. It’s not the first time the two companies have talked merger – they did so 11 months ago without any deal eventuating.
The potential tie-up comes as the Melbourne Spring Racing carnival is underway – the peak period for wagering in this country. The Caulfield Cup was last Saturday, the Cox Plate is this Saturday and the Melbourne Cup is on November 1, with the RBA decision on interest rates (if you want an exotic double).
Any merger will face scrutiny from the Australian Competition and Consumer Commission, but that will very likely confirm there is no problem with the deal because of growing competition from online wagering and gaming sites.
In fact the justifications for the merger will sound very similar to those from Seven West media and News Corp in the sale by News of the Sunday Times (and the Perthnow website) to Seven earlier this year, the justification News is using to buy the 100 or so papers from APN in northern NSW and Queensland, the the reasons advanced by Fairfax and APN in NZ for the merger of their print and some radio interests across the Tasman.
And that is the rise of online competition. In the case of print media it’s the likes of Google and Facebook which are grabbing readers and advertisers.
In the case of the Tabcorp and Tatts, its the rise of and arrival of Bet365, Ladbrokes, William Hill and Paddy Power (Sportsbet) which are providing the competition for regular punting choices, and sports betting (non-football etc).
Tabcorp is active in sports betting and has just started a joint venture in the UK with News Corp daily, The Sun (called SunBets). News Corp also bought the website punter.com recently to give it scale in this area.
CrownBet, an arm of Crown Resorts has grown rapidly in sports betting and is close to the AFL and sponsors much of Seven’s coverage (and they are in a fantasy league venture with Foxtel).
The two companies requests for trading halts were almost identically worded.
"The trading halt is requested pending the outcome of discussions in relation to a potential change of control transaction pursuant to a scheme of arrangement that is under consideration by Tabcorp," Tabcorp’s statement to the Australian Securities Exchange said.
Fairfax pointed out that the the location of the HQ for the merged company will be interesting with Tatts based in Brisbane and Tabcorp based in Melbourne.
"The merger talks come just a week after NSW overturned its ban on greyhound racing, which represents around 5 per cent of Tabcorp’s total wagering turnover. Tatts has a much smaller exposure to the NSW greyhound racing industry,“Fairfax reported.
“Tabcorp is also currently subject to legal action from the Australian Transaction Reports and Analysis Centre for 236 breaches of anti-money laundering laws after it failed to tell the regulator that TAB accounts had been opened under false names and used by organised crime figures,” Fairfax reported.
