Tatts turns down takeover offer from group including KKR, still favors rival deal
By Robb M. Stewart
MELBOURNE, Australia -- Tatts Group Ltd. rejected a takeover offer from a group of investors that includes private-equity firm KKR & Co. and Australian bank Macquarie Group Ltd., and said it continues to back a planned merger with rival Tabcorp Holdings Ltd.
The wagering and lotteries company said Friday it wouldn't allow the Pacific Consortium to go through its books or engage in discussions over the group's buyout offer of as much as 7.34billion Australian dollars, or roughly US$5.3 billion.
A spokesman for the consortium said the group was reviewing its position, as well as a "material profit downgrade" by Tatts.
In its written statement Friday, Tatts said earnings before interest, tax, depreciation and amortization were expected to fall 14% year-to-year for the lotteries business to about A$153 million because of unfavorable jackpots.
The Pacific Consortium earlier this month offered A$3.40 a share for Tatts's lottery business, plus shares that it valued at between A$1 and A$1.60 in the wagering operations that it plans to float or sell. Under Tabcorp's offer, Tatts shareholders would receive 0.80 Tabcorp share and 42.5 Australian cents in cash for each share held in Tatts, which implied a value of A$4.34 a share.
Tatts said it concluded the consortium's unsolicited, indicative and conditional offer was inferior to the deal with Tabcorp.
The value the consortium ascribed to its lottery business was inadequate, Tatts said, adding that the consortium's offer was based on assumptions that were either incorrect or inconsistent with its own current expectations.
KKR, Australian pension fund First State Superannuation Scheme and Morgan Stanley, as an adviser and manager to North Haven Infrastructure Partners II LP, each have 30% stakes in the consortium and Macquarie the remaining 10%.
Last month, Tabcorp bought a roughly 10% equity stake in Tatts, which holds several lottery licenses in Australia and owns over-the-counter betting shops.
Australia's gambling industry has attracted attention from overseas in recent years, and betting activity in Tabcorp's retail locations has fallen as a result of the heightened competition. Companies such as Ladbrokes Coral Group PLC and William Hill PLC have opened online betting platforms in the country.
Tatts said the estimated A$1-a-share trading price for the wagering and gaming business that the consortium could list was too high, and the amount of debt that the offer suggests for the business could hurt the trading price.
The company also said that its current net debt was about A$1.2 billion, while the consortium's proposal assumed debt of no greater than A$1.04 billion. And unlike the assumption in the offer, it said there was no certainty its lottery license in southern Victoria state would be renewed or if it would be on the same terms, with the outcome of the process not expected before June.
Tatts said that even if the consortium updated its assumptions, with no changes to important terms and conditions, the board would still reach the conclusion the offer wasn't superior to the planned Tabcorp deal.
Write to Robb M. Stewart at email@example.com
(END) Dow Jones Newswires
December 27, 2016 02:47 ET (07:47 GMT)
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