Over the Thanksgiving weekend there has been press speculation that bookmaker Ladbrokes Coral is preparing a bid for Australian media and gaming company Tabcorp.
A look at a possible tie-up
If it happens, the move wouldn’t be a complete surprise. Ladbrokes reportedly bid for Tabcorp back in 2013. CEO David Attenborough, who worked for Ladbrokes when it was part of the Hilton Group, rejected that bid.
Ladbrokes is still in the throes of its merger with Coral which completed earlier in November. The merger created a group with a market value of £2.4 billion ($3 billion).
Tabcorp is currently trading at a valuation of Au$3.92 billion ($2.93 billion). Assuming a bid premium of around 30 percent, that means Ladbrokes Coral would need to bid around $3.8 billion.
In other words, the regulators would probably class the deal as a reverse takeover. Ladbrokes would be taking over a company with a higher value than its own.
A research note from Citi released on Monday said that this may be “difficult bite” for Ladbrokes Coral to take.
The Tabcorp merger with Tatts complicates matters
On October 19, Tabcorp and its Australian rival Tatts agreed to merge in an amicable deal recommended by both boards of directors.
The deal is subject to many regulatory approvals, including an investigation by the Australian Competition and Consumer Commission. The ACCC has already said that the merger raises “major concerns.”
One driver for the deal has been to create an Australian gaming business that can compete effectively with international operators.
Tatts Chairman Harry Boon said:
“The offshore bookmakers have been consolidating and have been penetrating our domestic market. The merger of these two businesses creates a stronger platform for us to compete nationally and globally.”
The Tabcorp board is not likely to be immediately disposed towards accepting Ladbrokes’ offer. The board has already played the “creating a national champion” card, and moved so far as to enter into a mutual equity swap for 10 percent of Tatts shares.
On the other hand, a deal with Ladbrokes Coral would create fewer concerns for the ACCC, and the merged companies would have substantially less than the 31 percent market share of online gambling that a Tatts/Tabcorp merger would create.
Sports betting is a major part of the deal rationale
Ladbrokes has long wanted to increase its presence in the Australian sports betting market.
In September 2013, Ladbrokes bought Gaming Investments Pty Ltd, owner of Bookmaker.com.au and sports marketing company Panda Gaming.
At the time Ladbrokes CEO Richard Glynn said:
“The acquisition of this fast growing business represents an excellent opportunity for Ladbrokes to establish a strong presence in Australia, in line with our strategy to extend geographic reach to key regulated markets.”
Apart from some frantic competition between 888 and GVC to acquire bwin.party, the recent wave of gaming mergers and acquisitions has not seen much in the way of suicidal bidding wars.
Would William Hill get involved with a higher bid if Ladbrokes Coral does put a bid on the table? That seems unlikely.
Assuming Tabcorp merges with either Ladbrokes or Tatts, the new company will be the clear market leader in online sports betting in Australia.