Tabcorp Bid Hangs On Government Nod

Financially better offer for UNiTAB conditional on Queensland Premier and Australian Competition and Consumer Commission concessions.

The fierce rivalry between Australian gaming giants Tattersall's and Tabcorp recently came to a head in fierce bids for UNiTAB Ltd. The later Tabcorp bid appears to offer shareholders distinctly more and looks to be gaining ground with government regulators.

At stake for Tabcorp is a dominant position in the gaming business in Australia. UNiTAB holds licences to operate totalizator and fixed-price betting on horse and dog racing and sports events in Queensland and South Australia.

The UNiTAB Board favors the "merger of equals" with Tattersall's, which would require the approval of UNiTAB shareholders at the extraordinary general meeting on 6 July 2006 in Brisbane.

As to the Tabcorp offer of A$14.25 a share, the Board argues that this is too low, less than 10% premium over the Deloitte independent expert valuation midpoint and the stock's three-month average price. UNiTAB stoutly insists that something like a 25% premium would be justified by the strategic benefits that Tabcorp would get from "securing control of its only credible competitor in totalizator wagering services in Australia." The target also snidely suggests that Tabcorp is really trying to absorb a potential competitor for its wagering businesses in Victoria.

The Tattersall's offer of 4.33 of its shares for each UNiTAB share values the latter at A$12.04, based on Friday's close. It is this disparity in share price offers that concerns independent analysts most.

On the other hand, there is also the matter of Tattersall's limited cash offer worth A$14 a share.

In its defence, the UNiTAB Board point to independent Deloitte Corporate Finance having estimated the fair market value of the consideration being offered to UNiTAB shareholders as being $13.86 to $15.16 per UNiTAB share. The Board also talk up the benefits of shared control, wherein the Chairman and half the merged entity's Board will come from UNiTAB and its shareholders will own up to 45% of the merged entity.

Price aside, the Tabcorp offer was criticized for being contingent on gaining a raft of ACCC, government, and racing approvals. The need for the Queensland government to make legislative changes and for the ACCC to accept a virtual nationwide monopoly on totalizator business were hurdles to the Tabcorp bid.

Queensland Premier Peter Beattie was said to have been concerned about the dislocation and unemployment that might result if Tabcorp took the UNiTAB headquarters out of state. The latest word Friday, from Treasurer and Deputy Premier Anna Bligh, is that six conditions must be met before the Government would agree to legislative changes allowing Tabcorp's offer to succeed.

Among these are retaining Tabcorp's casino headquarters in Queensland, building the merged company's shared services department there, and the "delivery of significant benefits" to the state's racing industry.

As to competition commission concerns, there are precedents. The ACCC did approve the 2004 merger of TAB and Tabcorp which represented an even larger concentration of market power.

At that time, the Beattie government also thought well enough of certain concessions (such as setting up certain business functions in Queensland) to give the nod to a TAB-UNiTAB merger.



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