Two of Australia’s biggest gambling companies – Tabcorp Holdings Ltd. and Tatts Group Ltd. confirmed earlier today that there have been ongoing discussions for a potential merger but those were eventually called off as the two parties could not reach an agreement.
If a merger had been completed, the two companies would have had a combined market capitalization of A$9.4 million. Gambling experts have long expected such consolidation talks as both Tabcorp and Tatts have witnessed drops in their earnings since 2012, when their gambling licenses were deregulated.
Originally, the two companies discussed a merger of equals. However, it has been reported that Tabcorp would have been the acquiring party and Tatts shareholders would have been issued Tabcorp shares.
Tabcorp has seen its shares drop more than 10% since October 29, when it issued its trading update. Tatts shares, on the other hand, have been flat over the same two-week period. Back in September, the company witnessed a sharp increase in its shares. And it is the drop in Tabcorp shares that is considered the main reason for merger talks being called off.
Commenting on the latest revealings, Tabcorp said in a statement that the two parties were not able to agree on “mutually acceptable terms.” As for Tatts, it disclosed in a separate statement that no further discussions about “a nil-premium merger of equals” or any other kind of transaction will be taking place for now. It is important to note that if a merger had been agreed upon, the companies would have created synergies of more than A$100 million.
During negotiations, Tabcorps and Tatts decided that the Chairman of one of the businesses and the Chief Executive Officer of the other would have managed the combined entity.
This was not the first time when the companies discussed a possible merger. In 2006, there were similar talks. However, the Australian Competition and Consumer Commission decided against a merger.
Analysts have pointed to the fact that the Australian competitive landscape has changed significantly since then, with major gambling operators such as Ladbrokes and William Hill introducing their services around the continent. Given this, Tabcorp and Tatts were not likely to face any considerable regulatory hurdles, provided that merger discussions came to fruition.
Currently, Tabcorp manages retail businesses in New South Wales and Victoria. As for Tatts, its operations are based in the Northern Territory, Queensland, and South Australia.
