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New bidder lifts stakes for Tatts

AAP logoAAP 13/12/2016 Petrina Berry

Tabcorp's plan for an $11 billion merger with Tatts Group has hit a hurdle with a rival full takeover bid emerging from a consortium that includes Macquarie Bank and US private equity firm Kohlberg Kravis Roberts.

The Pacific Consortium bid values Tatts Group at between $6.4 billion and $7.3 billion and has the potential to derail Tabcorp's proposed merger with the Queensland-based wagering company.

Pacific Consortium, which also includes First State Super and Morgan Stanley Infrastructure, have made a 100 per cent cash-and-shares offer for Tatts two months after Tabcorp offered $6.4 billion to merge with Tatts to create a $11.3 billion gambling behemoth.

The Pacific Consortium wants to spin off Tatts' wagering and gamining businesses to either float on the ASX or sell to another party, while hanging onto the group's lottery business.

The bidders are offering $3.40 in cash plus one share in the hived-off wagering and gaming business - valued between $1 and $1.60 - for each Tatts share.

Tatts said it has not formed a view on the consortium's bid yet and while its board and advisers will assess the proposal, the group continues to back the Tabcorp deal.

"In the meantime, the directors of Tatts continue to believe the proposed Tabcorp merger is in the best interests of Tatts' shareholders and unanimously recommend the proposed Tabcorp merger, in the absence of a superior proposal ...," it said.

Tabcorp said its proposal had the advantage of being simple and it remained committed to the merger.

"Our proposal is simple, more certain and delivers for shareholders, the racing industry and a wide range of other stakeholders," a spokesman for Tabcorp said.

Tabcorp has offered a 20 per cent premium for each Tatts share, and the plan is for the combined company to launch a $500 million share buyback once the merger is completed in the middle of 2017.

Under the deal, Tatts shareholders will receive 0.80 Tabcorp shares plus 42.5 cents cash for each Tatts share with existing Tabcorp shareholders to own about 42 per cent of the merged group and existing Tatts shareholders to own about 58 per cent.

Both Tabcorp and Tatts supply fixed odds and sports wagering services, with Tabcorp running the TAB in Victoria and NSW, and Tatts operating UniTAB in Queensland, South Australia, the Northern Territory and Tasmania.

Tatts is the country's biggest lottery operator, comprising of Tatts, Golden Casket, NSW Lotteries and SA Lotteries.

If it merges with Tabcorp, subject to approval from the competition watchdog, the new company is expected to generate annual revenue of more than $5 billion, with the racing industry to benefit from an extra $50 million in funding each year.

Tatts said it was in talks with members of Pacific Consortium, who undertook preliminary due diligence on the company in mid-2016.

However, Tatts ceased discussions with those parties before entering into the agreement with Tabcorp on October 19 and the consortium's bid was unsolicited.

In November, Tabcorp secured a 10 per cent stake in Tatts to shore up its position.

Tatts shares closed up 35 cents, or 8.5 per cent, at $4.49 while Tabcorp shares were four cents lower at $4.61.

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