Tabcorp and Tatts Have Failed to Agree on Merger Deal

Tabcorp’s sell off of shares that placed rival Tatts with stronger hand in merger talks had derailed on a deal, however the lure of savings and a lower likelihood for corruption concerns will probably keep a possible tie-up on the agenda, said a market source.

Tabcorp said that the two companies were unable to come to a mutual and acceptable terms of agreement and that the discussions had ended. They continued that there would be no further discussions between the parties with regards to the merger or any other form of corporate transaction.

The sell-off of Tabcorp shares followed a trading update on October 29 was one of the major impediments to the deal proceeding since shares in Tabcorp have declined more than 10$ since. In comparison, Tatts first-quarter trading "had begun with a solid start" and that with both lotteries and wagering were performing well.

Tatts reported that there had been disagreements on "a nil-premium exchange ratio".

In a deal between Tabcorp, who runs the TABs in NSW AND Victoria, and Tatts (who is an operator of the tote in Queensland, Northern Territory and SA), has for a long time been mooted, there has been speculation on whether Tabcorp would be buying the Tatts Group's wagering division. UBS has placed a price tag of $1.3 to $1.6 billion on the business.

Merger Talks

The merger talks focused on a full merger of the two companies. And annual annual synergies identified at about $100 million a deal was pursued.

Tabcorp’s holding out for a higher price after the slide of its shares, Tatts directors were aware of their firmer negotiating position given their successful lotteries business. It is believed that while they could have ceded some ground, with the decline of Tabcorp's share price, it wouldn’t go far enough at wining Tabcorp's support.

Another source said that Tatts could have also argued that the market had undervalued its lotteries business.

Tatts shares rose 3.3% after the announcements up to $4.05, and Tabcorp shares fell 0.7% to $4.39. Tatts shares have gained 16% over the past year, compared to 5% increase for Tabcorp and an 8% fall in the S&P/ASX 200.