Tatts Group Limited (ASX: TTS) received a proposal from the Pacific Consortium, mainly led by Macquarie Group to acquire 100% of TTS for a consideration of A$7.3 billion ($5.5 billion) consisting of the combination of cash and scrip. The Pacific Consortium includes four financial investors, First State Superannuation Scheme, Morgan Stanley Infrastructure Inc., as adviser to and manager of North Haven Infrastructure Partners II LP, one or more affiliates of Kohlberg Kravis Roberts & Co. LP, and Macquarie Corporate Holdings Pty Limited. TTS has been comparing the indicative proposal from the Pacific Consortium to the proposed Tabcorp merger terms announced in October 2016. The directors of TTS earlier believed that the Tabcorp bid is in the best interests of the shareholders and has unanimously recommended in favor of the proposed Tabcorp Merger, in the absence of a better proposal and would be subject to an independent expert view. The combination of Tabcorp and TTS merger was expected to deliver significant value to both the companies’ shareholders while the deal was expected to result in at least $50 million per annum of bonus funding to the Australian racing industry, as well as expected to enhance the long-term sustainability.
 
Pacific Consortium’s proposal highlights: The proposal was said to be worth between A$4.40 to A$5 for each TTS share while the Tabcorp merger had valued TTS at A$4.34 per share. Further, the investors of TTS would get A$3.40 in cash and a share in the newly separated wagering unit that will be valued between A$1 and A$1.60. On the other side, TTS lotteries business was reported to post an EBITDA growth of 10% to A$345.5 million in FY16 which includes the performance from the successful brands, The Lott and Golden Casket. Under the proposal, the group is assumed to have net debt of $1,041 million as at 30 June 2016 while Wagering & Gaming was allocated $378m of net debt.
 
Tatts take on the proposal: The group has assessed the proposal terms and does not consider the same to be superior to proposed Tabcorp merger. TTS further stated that the conditional cash and scrip offer from Pacific Consortium has been based on either incorrect assumptions or terms inconsistent with TTS’ expectations. For instance, TTS stated that the net debt for the group is higher than the value assumed in the proposal. Further, an unfavorable jackpot sequence has impacted FY17 lottery EBITDA which has not been correctly accounted in the proposal. Overall, the group’s viewpoint indicates that the consortium might have a lot of work to be done to buy the business.
 
Amidst all these developments, TTS stock has risen 10.17% in the last one month (as on January 03, 2017).

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