Investment Banking

challenge
Industry overview

● Operates Keno, gaming ● Operates lotteries, ● Operates in the online

monitoring, and gaming monitoring sports betting market
wagering businesses and wagering ● Profit of $154m in 2016
across Australia businesses in Australia
● Profit of $161m in 2016 ● Profit of $233m in
2016

● Operates in online ● Operates in online ● Operates in wagering

betting and sports wagering (Crownbet ● Acquired Sportingbet,
gambling market and Betfair) within Centrebet, and
● Global profit of $718m for Australia tomwaterhouse.com
the year ended 27 March ● Total gambling ● Ebit of $79.5m in 2015
2016 operations EBITDA
of $14.8m in 2016

Major participants
 Industry overview
Characteristics and trends
● Growth and widespread use of online
wagering
● Increase in fixed odds and sports
wagering as a proportion of total gambling
expenditure
● Growth of corporate bookmakers due to
regulatory environment in NT and
changes in advertising restrictions

$1167

Sports wagering $1243

Race wagering
$1172
Gaming (incl. lotteries)
$1167
 Advantages of an Acquisition of Tatts
Geographic diversification
Gaming Wagering
● Tatts generally
maintains strong
presence in QLD, NT
and SA
● Tabcorp’s wagering
and Keno licenses in
eastern states are Lotteries Keno
complemented by
Tatts’ licenses
 Advantages of an Acquisition of Tatts
Geographic diversification State
VIC NSW QLD ACT SA NT TAS WA

Gaming
Business
presence Wagering

Lotteries

Keno

New presence through Tatts acquisition

Already present in market
Lack of presence after acquisition
Advantages of an Acquisition of Tatts
Improved licence portfolio
● Exposure to the lucrative lotteries
business
● Long-dated licences ensure
long-term profitability
● Increased market share of
Australia as a whole
● Potential for national pooling of
pari-mutuel wagering

Tabcorp licences
Tatts group licences
Valuation of Tatts Group
Current share price: $3.68 Comments
High: $4.39 @ Dec 1st 2015
$3.54 $4.39 Low: $3.54 @ Mar 8th 2016

$4.30 Morgan’s May 2016 report

Max: Paddy Power Betfair @ 14.26x

$3.50 $5.30
Min: Intralot @ 3.85x
$2.80 $4.63 Max: Paddy Power Betfair @ 13.39x
Min: Intralot @ 3.29x

Max: Tatts purchase of NSW Lotto. Corp @

$1.80
14.10x
$3.61
Min: Sportsbet purchase of IAS @ 4.0x
$3.80 $4.17 Assuming 7.6-8% WACC, 3.0% LTGR

$4.70 $5.15 Assuming 7.6-8% WACC, 3.0% LTGR with

additional $110mm synergies from 2017
 Funding the transaction
Recommended funding 40% debt / 60% equity
Requires raising total $7,028m at a 30% premium to market
Debt/EBITDA ratio will rise to 4.1 following deal
 Financial impact
Accumulated accretion of 14 cents/share in 3 years
following transaction
Risks Regulatory Competition

Need ACCC approval - may prove difficult after

recent consolidation in gambling industry

State-level gambling regulations may find issue

with national betting pools Prominent M&A transaction may attract
institutional investors looking to outbid Tabcorp

Potential bidders include Superfunds, private

Public disposition towards gambling generally equity firms and other asset management
negative - could renew calls for increased companies
legislation, especially towards marketing practices
Approach strategy
Engage immediately with the Tatts Group board and begin purchase process
Bid initially at a 20% premium but be prepared to raise bid to respond to
counterbidders

Engage Negotiate Receive Complete

with Tatts initial deal regulatory transaction
Manage
board Oct 25th approval Mid 2017
counterbids and
Oct 6th regulatory issues
Early
Nov 2016-Feb 2017
2017
 Final recommendation
We recommend..
● Approach the Tatts Group board with
an offer worth $7,028m or $3.68/share
+ a 30% premium
● Fund through a 40/60 split of debt and
equity
● Offer scrip and cash - 0.8 Tabb share
per Tatts share plus 74c
● Begin negotiations now with option to
raise offer to 40% premium if
necessary