Tatts rejects KKR-backed consortium offer as inferior...

• Tatts rejects KKR-backed consortium offer as inferior
• Competition tribunal due to rule on Tabcorp bid in mid-June
• Consortium could return depending on ruling: source

(Recasts, adds shareholder comments, share price)

The bidding war for Australia's Tatts Group Ltd (TTS) could be resolved by a competition ruling in June, investors said on Friday, after the lotteries operator rejected a A$6.15 billion ($4.59 billion) takeover offer from a group backed by KKR & Co in favour of a bid from Tabcorp Holdings Ltd (TAH).

Tatts is viewed as a prized asset given the lucrative and reliable earnings from its lotteries business, which benefits from monopoly licences in Australia. It also owns a smaller wagering business that competes against Tabcorp, the nation's largest betting operator.

The competing proposals are valued at less than Tatts' trading price and shareholders had been divided over whether the board should favour the KKR-led all-cash bid over Tabcorp's cash-and-scrip offer and allow the U.S. private equity giant to do due diligence.

Tabcorp on Friday said it had determined the Pacific Consortium bid was not superior to the Tabcorp offer.

"In these circumstances, Tatts is unable to provide due diligence or engage with the Pacific Consortium," the company said in a statement.

The Tabcorp bid valued Tatts at A$4.249 at the close of trade on Thursday, compared with the A$4.21 price of the offer from Pacific Consortium.

SCRIP VS CASH "The value of the Tabcorp offer washes around in the tide," Charlie Green, a director at Hunter Green Institutional Broking which owns Tatts shares, said of the heavily scrip-based bid.

"I think everyone keeps their powder dry now until the Australian Competition Tribunal (ACT) decision."

The ACT is due to rule on the offer in mid-June, unless the timetable is extended. The ACT will consider public interest benefits as well as the impact on competition in its decision.

Pacific Consortium has no plans to raise its offer but a negative ACT decision could trigger a new approach, said a source familiar with the situation who was not authorised to speak publicly about the matter.

"That is part of the risk for Tatts," said Gabriel Radzyminski, managing director of activist investor Sandon Capital, who was disappointed Tatts did not offer due diligence access to the Pacific Consortium.

"What happens if Tabcorp don’t get the approval and they have to pull out? Pacific sits back and says we don’t need to pay near what we did before.”

Tatts shares fell as much as 2.5 percent on Friday morning but regained ground later to trade 0.7 percent lower.

Representatives for Pacific Consortium and Tabcorp declined to comment.

Pacific Consortium also includes Macquarie Group Ltd (MQG), Morgan Stanley Infrastructure and First State Superannuation Scheme. Tatts in December rejected an initial proposal from the group.

Tatts and Tabcorp in October said their agreed merger would offer A$130 million a year in synergies. ($1 = 1.3392 Australian dollars)