Gambling giant Tabcorp just acquired Tatts Group for USD 4.9 billion.
The Australian gambling industry was astounded early this week when Tabcorp announced that it will purchase Tatts Group Ltd. for almost 5 million US dollars. The merger is said to be effective by Q3 2017 which will depend on shareholder and regulatory approval. The amalgamation of Australia’s biggest gambling companies is worth more than $11 billion.
The merger will also generate $130 million in saved costs as Tabcorp and Tatts make strides in the sporadic changes of the industry. It will support the companies’ conquest to overwhelm online and offshore competitors. Tabcorp will also be able to diversify its revenues through the combined racing sportsbooks and Tatts’ lottery business.
Australian Gambling Industry is Booming
The gambling market down under has increased by 6% in 2015 to around A$24.1 billion. Bloomberg reports that the online gambling industry saw $14 billion in acquisitions and mergers over the past two years. Australia’s population of 23 million is considered the biggest spenders in gambling activities.
Tabcorp and Tatts Group are running betting services, horseracing betting, and lottery. Executives mentioned that the merger will complement each other’s gambling specialty offerings. Morgan Stanley reports that Tabcorp is enjoying a great year with 76% of its revenue from betting, while Tatts has only a meagre of 21%. Tatts’ cash cow would be in its lottery business which garnered a 72% increase in revenues.
“The combination of Tabcorp and Tatts is based on clear industrial logic and a strong and tangible synergy proposition. It comes at a time of escalating competition from new business models and rapid consolidation of gaming and wagering companies globally,” said, Tatts’ Chairman Harry Boon.
What It Means for Shareholders
Tabcorp and Tatts Group were actually discussing a possible merger in 2015. Investors are all smiling now after the merger was signed. The merger will commence in mid-2017 which is subject to approval of Tatts shareholders and the Australian Competition and Consumer Commission. The reinforced Tabcorp-Tatts company plans to initiated an A$500 share buyback once the deal is completed.
What do you think of this merger? Will it put the Australian gambling industry more on the hotseat?