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the likely usage of $300 million cash Lotteries a licence for Tatts team-up
By Andrew Trounson
12-09-2005
From: The Australian

THE renewal of Victorian gambling giant Tattersall's state lotteries licence could be the catalyst for the company to seek a merger partner, such as Queensland's Unitab or casino operator Sky City.

Broker Goldman Sachs JB Were says Tattersall's strong balance sheet boasts more than $300 million in net cash, and mergers and acquisitions will be high on the agenda.

Tattersall's has already said it is on the lookout for local and overseas growth opportunities.

"The most obvious options involving some sort of tie-up with Unitab or Sky City look interesting, but may not be near-term options due to licence renewal risks that they may not be prepared to absorb just yet," Goldman says in a report.

Uncertainty over the Victorian Government's decision on Tattersall's lotteries licence renewal, expected early next year, could act as a break on any corporate dealing before then.

In addition, Tattersall's more lucrative pokies licence expires in 2012 and the Government is not expected to make a decision on the post-2012 gaming licence environment until 2007.

"If Tattersall's are successful in extending this licence on terms that are more favourable than we are currently assuming, there may be more confidence in its ability to extend its gaming licence, but note that given the gaming licence renewal process won't be known until 2007, this may still be too early," Goldman says.

In assessing a potential merger with either Unitab or Sky City, Goldman says a deal with Unitab appears the more attractive.

A merger with Unitab, capitalised at $1.64 billion, would bring in Unitab's wagering business, while eliminating a potential competitor for its Victorian gaming licence. It would also give Tattersall's the potential to muscle in on Tabcorp's wagering monopoly in Victoria when the wagering licence comes up for renewal in 2012, it says.

Goldman upgraded its short-term recommendation on Tattersall's to "market perform" from "underperform".