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Tabcorp provides update on combination with Tatts
11 Sep 2017 | Tabcorp 
Tabcorp on Monday provided update on the combination process with Tatts.

Tatts shareholder meeting convened

Tabcorp Holdings Limited (Tabcorp) notes the announcement by Tatts Group Limited (Tatts) on Friday 8 September 2017 that the Supreme Court of Victoria has made orders to convene a meeting of Tatts shareholders on Wednesday 18 October 2017 to consider and vote on the proposed combination of Tabcorp and Tatts (together, the Combined Group) via a Scheme of Arrangement (Transaction).

Tatts has released details of the Scheme meeting, including the Scheme Booklet and the Independent Expert's Report on the ASX.

Transaction update

Following the release of the Scheme Booklet by Tatts, Tabcorp is pleased to provide an update on the Transaction.

Tabcorp's Chairman, Paula Dwyer, said:"The release of the Scheme Booklet represents another important step towards creating a world-class, diversified gambling entertainment group that is expected to deliver substantial financial and other benefits for both Tabcorp and Tatts shareholders, customers, business partners and other stakeholders.

"Together we will be well placed to pursue more investment and innovation across all our businesses, including best-in-class digital products and experiences.

“With substantially all pre-implementation regulatory approvals now in place, we look forward to continuing to work with Tatts to successfully complete the Transaction and are expecting implementation to take place in November 2017."

AustralianSuper, one of Tatts' largest shareholders, has indicated that it continues to support the Transaction and that it intends to vote its Tatts shares in favour of the Transaction, in the absence of a superior proposal and subject to there being no material adverse change in circumstances.

Independent Expert's Report

Independent Expert Grant Samuel was appointed by the Tatts Board to prepare an Independent Expert's Report in relation to the Transaction, which is included as an annexure to the Scheme Booklet.

The Independent Expert has concluded that the Transaction is in the best interests of Tatts shareholders, in the absence of a superior proposal. The Independent Expert referred to the fact that the value of Tatts shareholders’ collective interest in the Combined Group will be greater than their contribution of value to the Combined Group, and the terms of the Transaction provide a meaningful premium and payment for synergies and business improvements.

Tabcorp has calculated the implied value of the scheme consideration (based on the Independent Expert's fundamental value of Tabcorp and Tatts plus a notional value for synergies and business improvements and less transaction costs), as $4.25 to $4.67 per Tatts share. This value includes $0.47 per Tatts share of value in relation to the expected synergies and business improvements (assuming these benefits are realised in full, of which there is no guarantee) and net of one-off integration costs. This valuation range represents a significant premium over the Independent Expert's fundamental value of Tatts shares on a standalone basis of $3.68 to $4.00 per Tatts share.

The Independent Expert's Report in the Scheme Booklet has indicated that the Transaction is expected to be c.22% EPS and DPS accretive for Tatts shareholders on a FY17 pro forma basis (post buyback and before applicable significant items, and assuming synergies and business improvements are realised in full, of which there is no guarantee).

Synergies and business improvements

Tabcorp continues to expect the Transaction to deliver at least $130m p.a. of EBITDA from synergies and business improvements.

Tabcorp expects that the Transaction will deliver at least $80 million p.a. of EBITDA in operational expenditure synergies, which are expected to be derived from:

Consolidation of wagering functions (at least $19 million p.a. of EBITDA)
Technology integration and systems optimisation (at least $24 million p.a. of EBITDA)
Corporate cost rationalisations (including property and field services savings) (at least $37 million p.a. of EBITDA)

Tabcorp also expects the Transaction to deliver significant wagering business improvements from optimising the performance of UBET's fixed odds wagering business and driving turnover growth across the UBET business through a number of initiatives. Tabcorp also expects the Transaction to deliver Keno business improvements in Tatts' South Australian Keno business.

In addition to the expected synergies and business improvements of at least $130 million p.a. of EBITDA, it is expected that approximately $10 million p.a. of capital expenditure synergies will be available to the Combined Group through the rationalisation of wagering systems development functions.

The Transaction also creates a pathway to national pari-mutuel pooling (which would require racing industry and regulatory approvals).

It is anticipated that the delivery of the full 'run-rate' of at least $130 million p.a. of EBITDA from expected synergies and business improvements will be realised in the first full year following completion of the integration of the businesses. Integration of Tatts and Tabcorp is expected to take approximately two years to complete from the date of implementation, subject to the receipt of necessary regulatory approvals.

The incremental one-off costs and capital expenditure associated with integration to achieve synergies and business improvements is estimated to be approximately $119 million (post-tax).

Status of regulatory approvals and indicative implementation timetable

Tabcorp is very well progressed in obtaining the necessary regulatory, industry and government approvals required to implement the Transaction.

The Australian Competition Tribunal (Tribunal) granted authorisation for the Transaction on 22 June 2017. The Australian Competition and Consumer Commission (ACCC) and CrownBet Pty Ltd (CrownBet) subsequently applied to the Federal Court of Australia (Federal Court) for judicial review of the Tribunal's authorisation. The Full Court of the Federal Court heard both the ACCC’s and CrownBet’s applications on 28 and 29 August 2017 and the parties are currently awaiting the Federal Court's decision. Tabcorp remains confident that the Tribunal’s authorisation will be upheld.

Tabcorp has now received substantially all of the pre-implementation regulatory and other approvals required to implement the Transaction (including regulatory approvals from Queensland, South Australia, Victoria, NSW and Northern Territory, and required change of control consents from Racing Queensland and South Australia Racing). Tabcorp expects to receive the remaining required pre-implementation approvals before the scheduled date of the Scheme Meeting.

The Second Court Hearing in relation to the Transaction is expected to take place on 24 October 2017, with implementation of the Transaction expected to take place on 1 November 2017.
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