A tie-up of Tatts Group Holdings (ASX: TTS) and Tabcorp Holdings Limited (ASX: TAH) has long presented an opportunity which savvy investors may seek to exploit.
The $5.7 billion Tatts Group runs the tote in Queensland, Northern Territory and South Australia. The $3.7 billion Tabcorp runs the TABs in Victoria and New South Wales. A merger would bring significant cost savings and a dominant market share to the combined group.
Of course, the Australian Competition and Consumer Commission (ACCC) would run its ruler over the combined group before a deal could take place. Tabcorp's takeover attempt of UNiTAB nearly a decade ago fell by the wayside thanks to a ruling by the ACCC.
Nonetheless, growing competition in the online wagering market from the likes of Crown Resorts Ltd (ASX: CWN), and international heavyweights such as Bet365 and William Hill plc, is creating a need for incumbents to be innovative in how they respond to competition.
Unfortunately, after much media speculation over the past week, it appears talks between the two Australian betting giants have broken down.
In a statement to the ASX, Tabcorp said, "Tabcorp confirms that while confidential discussions have taken place regarding a potential merger, the companies were unable to agree mutually acceptable terms and those discussions have ended."
Tatts, the larger of the two parties, added, "Tatts confirms that confidential discussions have taken place between the parties regarding a potential nil-premium merger of equals. Tatts confirms the parties have been unable to reach agreement on key transaction terms, in particular as it relates to a nil-premium exchange ratio."
"As a result, these discussions have now concluded and there are no further discussions taking place between the parties relating to a nil-premium merger of equals or any other form of corporate transaction with Tabcorp."
Foolish takeaway
For now, it appears we're unlikely to see any meaningful developments in the merger talks between the two parties.
However, while a deal shouldn't be ruled out, I suggest investors consider each business on its merits over the long-term, before committing to a purchase of stock in either company.
