TTS Tatts Grp Fpo

SYDNEY—Australian betting firm Tabcorp Holdings Ltd. said Wednesday it would buy gambling company Tatts Group Ltd., in a deal that values it at around US$4.9 billion, a move designed to help both companies fend off competition from online and offshore rivals in a fast-changing market.

The acquisition, which would help Tabcorp diversify its revenues with the addition of Tatts' lottery business, would create a combined group valued at roughly 11 billion Australian dollars (US$8.5 billion), the company said.

Tatts shareholders will receive 0.80 Tabcorp shares and 42.5 Australian cents (US$0.326) in cash for each share held in Tatts. The implied value of A$4.34 per Tatts share is a 21% premium on the company's closing price Monday, and including debt, values Tatts at A$7.4 billion (around US$5.7 billion).

The deal "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. "The scale and efficiency benefits from this combination will provide a stronger platform in this dynamic environment."

Tabcorp Chairwoman Paula Dwyer said the deal creates a business that is "well placed to invest, innovate and compete, both in Australia and globally."

Both Tabcorp and Tatts run betting businesses, accepting wagers from customers on events such as horse racing, but executives described the takeover as complementary. Tabcorp derived 76% of its revenue from betting in its most recent fiscal year, which ended June 30, while Tatts derived just 21%, according to research from Morgan Stanley. The bulk of Tatts' revenue, 72%, came from its lottery business, and is viewed as more stable compared with sports-betting, where online competitors have mounted a challenge to Tabcorp's brick-and-mortar locations in pubs and clubs.

"The jewel in the crown here would be the lotteries business, and that in our opinion does improve the diversity of earnings and the stability of earnings," said Graeme Ferguson, director at S&P Global Ratings in Melbourne. "It does provide [Tabcorp] with somewhat of a buffer against some of the structural changes [and] evolving landscape in the wagering business."

Overseas companies such as Ladbrokes PLC and William Hill PLC have opened online betting platforms in Australia in recent years, making it easier for Australians to bet online and forgo more traditional retail betting. Tabcorp said in the most recent fiscal year that wagering activity at its retail locations fell 1.1%, though that was offset by a 12% increase on its digital platforms.

The companies said they expect the tie-up to be completed in mid-2017, subject to the approval of Tatts shareholders and the Australian Competition and Consumer Commission, which is expected to take a close look at the transaction.

Tabcorp and Tatts were in talks last year, but ultimately decided against a merger at the time. Now, some investors are cheering the long-awaited move. The companies said retirement fund AustralianSuper, one of Tatts' largest shareholders, has signaled it will vote in favor of the deal.

"It is a massive win for all shareholders," Matthew Felsman, private wealth adviser at brokerage and investment bank APP Securities, said in an email. "The company will be big enough to fend off international competition," he also said.

The combined group also plans to complete a A$500 million share buyback after the deal if it goes ahead.

Rebecca Thurlow contributed to this article.

Write to Mike Cherney at mike.cherney@wsj.com and Rhiannon Hoyle at rhiannon.hoyle@wsj.com

(END) Dow Jones Newswires

October 19, 2016 01:05 ET (05:05 GMT)

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