Two months after receiving a merger of equals bid proposition from Tattersall's, UNiTAB Ltd. on June 1 received a higher bid for its business from Australia's largest gambling company, Tabcorp Holdings Ltd.
UNiTAB's board on Monday rejected Tabcorp's offer, however, stating that it prefers the merger deal with Tattersall's, and a higher offer from Tabcorp now seems very likely.
The A$1.9 billion (US$1.4 billion) bid from Tabcorp values UNiTAB--the continent's second largest gambling company--at A$14.25 per share, which is about 82 cents below its trading price on Monday.
According to a statement from UNiTAB, the proposal "fails to adequately recognize the strategic benefits that Tabcorp would get from securing control of its only credible competitor in totalisator wagering services in Australia."
The company noted, "The concept of a nil-premium takeover has no appeal to UNiTAB in circumstances where Tabcorp would gain control of a potential competitor for its wagering businesses in Victoria and be able to extract significant synergies from forming a national wagering pool."
UNiTAB is also hesitant because a deal with Tabcorp is very conditional and uncertain because it would require approval from the Australian Competition and Consumer Commission, from the government and from the racing industry. At the moment, there is no way to be certain a deal would gain the necessary approvals, and it is possible that value could be lost in trying to appease the authorities.
On the other hand, the proposal from Tattersall's, Australia's largest lottery company, values UNiTAB at a lower price--about A$1.7 million. It would, however, give UNiTAB greater control of its business, with half the board of the newly merged company coming from UNiTAB. The merged company would also have the opportunity to extend its wagering services into Victoria, but only if it is successful in winning the license away from its current holder, Tabcorp.
While UNiTAB maintains that its board prefers the merger deal with Tattersall's, various Australian media sources hint that UNiTAB shareholders may not be pleased with the deal and could vote down the merger scheme at a July 6 meeting.
In the meantime, Tabcorp is likely to come back with another offer.
"Tabcorp has indicated they are prepared to go higher, so perhaps this is just a first step towards making sure you extract the highest possible price from Tabcorp for your shareholders," Matthew Hoult, an analyst at ABN Amro Asset Management, said.
Tabcorp's last large purchase came in early 2004 with the acquisition of TAB Ltd. of New South Wales. UNiTAB in October 2003 became the first company to pitch a bid for TAB Ltd., but Tabcorp made a higher offer the following month, which led to both company's increasing their offers even further.