HONG KONG (Reuters Breakingviews) - Tatts could wring more out of its financial suitors. On Wednesday, a KKR-backed consortium made a fresh attempt to gatecrash the Australian betting group's takeover by rival Tabcorp. At A$6.2 billion ($4.7 billion), the interloper's new proposal broadly matches Tabcorp's bid in value, but is not yet a knockout. The target's directors could open up the books and push for a little extra.
In December, Tatts rebuffed an earlier proposal from the Pacific Consortium, which is backed by First State Super, Morgan Stanley Infrastructure, KKR and Macquarie. The Tatts board said it did not beat October's agreed sale to Tabcorp. Fair enough: the quartet's plan hinged on convincing shareholders to accept a fiddly combination, which comprised both cash and stock in a spun-off "wagering" business. The valuation of that unit, which handles bets on sports and racing, was given as a punchy 11.7 times trailing EBITDA or more, based on optimistic assumptions.
The foursome has now returned with an all-cash offer at A$4.21 a share. On first glance, that is bang in line with Tabcorp's largely share-based offer, given where the latter's shares closed on Tuesday. But it has extra attractions, too. The certainty of hard cash generally beats the fluctuating value of a stock offer, and there is no risk of financial acquirers running afoul of competition regulators.
However, going with Pacific would mean forgoing the potential benefits from combining two complementary businesses. Tabcorp has promised synergies with a net present value of A$1.4 billion. In a largely share-based union, a big chunk of those would flow to Tatts investors.
Despite having an agreed deal, the target's board is able to offer due diligence to others if it thinks that could lead to a "superior proposal". There is a good case for doing that now, and pushing for a bit of a sweetener from Pacific, to arrive at something that is unequivocally better for Tatts shareholders.
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