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Tatts Group Limited and Tabcorp Holdings Limited merger on the cards

Gambling chips dice and cards

A potentially new $10 billion company could be created if betting companies Tatts Group Limited (ASX: TTS) and Tabcorp Holdings Limited (ASX: TAH) merge.

Both companies went into a trading halt this morning, “pending an announcement in relation to a potential change of control transaction…that is under consideration.

In other words, both companies are considering a merger.

It’s not the first time the two have considered joining together.

Back in November 2015, the two companies called off discussions regarding a potential merger because they couldn’t agree on the terms.

Tatts runs totalisator betting in Queensland, South Australia, Tasmania and the Northern Territory as well as the lottery businesses in all states and territories except Western Australia. Tabcorp runs the TAB in Victoria, NSW and the ACT, Luxbet, Sky Racing, Keno alongside some other brands.

The biggest roadblock in the path of a merger is the Australian Competition and Consumer Commission (ACCC). Already ACCC chairman Rod Sims said the merger raises major concerns. Speaking at a conference in Sydney, Mr Sims said, “Clearly there’s a lot of overlap between what Tatts and Tabcorp do. So on the overlap issue, there’s major concern.

Against that, the ACCC will need to consider the rise of online gaming and betting rivals. Several online-only players have entered into Australia and the Australian Wagering Council estimates there are 2,443 online casinos and gambling websites available to Australians – many illegal. The council’s members include Bet365, Betfair, Sportsbet and Unibet.

Other online sites include William Hill, Ladbrokes, Palmerbet and Crown Resorts Ltd’s (ASX: CWN) CrownBet, so there’s plenty of competition in several categories.

The ACCC is also interested in Tabcorp’s bid to takeover Intecq Ltd (ASX: ITQ) ex-eBet. Tabcorp is offering cash of $7.15 for each Intecq share, but the market doesn’t think it’s a done deal yet, with Intecq shares trading at a discount price of $6.98. Intecq handles poker machine monitoring in Queensland, and Tatts is reportedly in talks to buy Intralot’s Australian monitoring business, giving it control of NSW and Victoria.

Foolish takeaway

It seems clear that this is a complex merger and could take some time to work through, including gaining approval from the ACCC.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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