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Message was posted: 11:34 Aug 17th, 2006

User: Wildcat Rank: Casino Gold: 3095CG Contributor rating: 6560 Status: Offline

Gambling news from http://www.euro2day.gr/ Australians are among the world's biggest gamblers. That is fortuitous, since takeover battles in the sector often owe as much to Lady Luck as to prices. The gaming industry has been consolidating rapidly, a trend which presumably spurred UniTab, the smallest betting operator by market capitalisation, to agree a friendly merger with Tattersall's, which operates lotteries and poker machines. TabCorp sought to spoil the deal by launching a US$1.5bn hostile bid for UniTab. The competition regulator blocked TabCorp's advances on Wednesday – a ruling that surprised many – and on Thursday Tabcorp withdrew. In theory, that leaves Tattersall's free to snap up its prize. In practise, however, it is offering a price that looks stingy and may yet be rejected by UniTab shareholders when they meet on Monday. Based on Thursday's prices, Tattersall's bid values UniTab at A$13.64 a share. That is below UniTab's latest close and, in total, about US$80m less than TabCorp bid. It fits neatly within the independent experts' assessment of the stand-alone value of the two merger partners. However, these valuations rely on some questionable assumptions – not least the use of earnings multiples to arrive at Tattersall's valuation. Capitalising earnings that have a finite life – most pertain to fixed-term licences – is inappropriate, and at odds with the bulk of brokers who use discounted cash flow to determine fair value. The merger offers little to excite the seasoned gambler: in place of a takeover premium, shareholders are being offered a share in the (small) synergies and improved earnings per share and dividend potential. That, too, is a bit of a gamble. True, the domestic market has proved a money-spinner, with growth easily outpacing gross domestic product. But the industry is fraught with external risks, from smoking bans that could drive Australians away from their beloved "pokies" to renewal of licences. If UniTab shareholders want to gamble, they should stick to the machines – and use Monday's vote to raise the stakes.