UNiTAB Wants the Best of Both Worlds

Board covets both control and premium on share price if only Tattersall's and Tabcorp can be drawn into a bidding war. The UNiTAB board reveals its hand by conveniently postponing a key shareholder vote on accepting the Tattersall's "merger of equals" proposal after the Australian Competition and Consumer Commission shall have ruled on the Tabcorp bid on July 19.

This after the Queensland government had cleared one hurdle, freeing Tabcorp CEO Matthew Slatter from having to keep the UNiTAB headquarters in Brisbane.

Officially, the July 26 shareholder meeting has only one proposal to consider, that made in March by Tattersall's. But events are conspiring to change that, perhaps to the ultimate benefit of UNiTAB shareholder pockets.

Gaming industry leader Tabcorp launched an unsolicited bid in early June. This plan immediately ran up against Queensland license law and needed an ACCC judgment that there would be no undue concentration of industry power.

On June 24, Deputy Premier and Treasurer Anna Bligh announced that the government could make a concession on the law requiring that UNiTAB headquarters stay in Queensland provided Tabcorp accede to six conditions. Among these are that no employees be let go, that the Jupiters Casino headquarters remains in Queensland, that the New South Wales monitoring group transfer to Queensland, UNiTAB's wagering operations remain in Queensland, that a shared-services department be sited there and that the state's racing industry must receive "significant benefits".

With that assent in hand and given what is at stake - Tabcorp would gain a monopoly of the totalizator and wagering business in "Australia - Mr. Slatter naturally waxed enthusiastic and made fulsome promises about doing his utmost to meet government conditions.

UNiTAB Chairman Dick McIlwain was quick to cast doubt on just how feasible it would be for Tabcorp to move the NSW operation to Queensland. He also pointed out that meeting all the conditions would diminish the benefits Tabcorp looks to gain from the takeover.

Still, one must remember that the only reason the board rejected the Tabcorp offer out of hand was that it did not constitute a "clearly superior" offer.

The ACCC may be a harder nut to crack. Aiming to conduct "inquiries to assist in assessing whether Tabcorp Holdings Limited's proposed acquisition on Unitab Limited is likely to result in a substantial lessening of competition" and concerned that a Tabcorp acquisition might effectively reduce the number of potential applicants for licenses in the future, the commission has called for submissions. Among these submissions are the publicly-announced unenthusiastic views of both the Queensland and Victoria racing industries.

The volume of responses has been such that the ACCC revealed on Monday the need to deliberate for two more weeks. Which means the UNiTAB shareholders meeting will have to be re-set yet again.

But if Mr. Graeme does give Tabcorp his blessing, the UNiTAB board and shareholders would abruptly have two proposals to mull over. Then more consideration might be given to valuation of UNiTAB shares.

Tabcorp has tendered A$14.251 per share against the Tattersall's offer of 4.33 shares in exchange for 1 UNiTAB share. The latter is obviously subject to variation from day to day.

On July 4, Tattersall's closed at A$2.8000, corresponding to an offer price of A$12.124 whereas UNiTAB ended the day at A$14.780. At this point, therefore, neither offer constitutes a premium for UNiTAB shareholders.

But Tattersall's has refused to be drawn into prematurely announcing a counter-bid. After all, the UNiTAB Board still publicly endorses the Tattersall's proposal.

More important, perhaps, than return on shareholder equity is that Tabcorp has been unable to match the Tattersall's concession for UNiTAB to get the chairmanship and half the board seats in the merged company.

Getting this concession early on did not prevent Mr. McIlwain from inviting Tattersall's this Monday to offer UNiTAB shareholders more inducements. For it is clear that UNiTAB would be an earnings-accretive addition to the Tattersall's operation, besides giving the bidder a first foothold in the wagering business.

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