Wagering and gaming business Tabcorp has announced its intention to purchase gaming management system operator Intecq, offering $7.15 per share – a 31% premium to Intecq’s last closing price. The deal values Intecq at $115m, and is not far from our estimate of fair value.
The two companies have entered a scheme of arrangement, which has been unanimously recommended by both boards. Tabcorp now needs to secure approval from the ACCC and Intecq’s shareholders, but that shouldn’t pose much of a hurdle.
Intecq should strengthen Tabcorp’s gaming services business, adding around 55% to the division’s revenue, and also expands its product line-up. What’s more, around half of Intecq’s revenue is recurring thanks to the maintenance work involved after selling its systems to clubs and pubs, which ticks another box (see Intecq powers along). This is a business where size matters, and Tabcorp should benefit from the extra scale by cutting out duplicate costs.
However, there’s no need to act now. When you receive the takeover documentation, keep it in a safe place but don’t accept the offer just yet. The offer is expected to close in late October, although the date could be pushed back. A lot can happen between now and then, so it’s best to keep your options open.
If, for example, Tabcorp’s bid is trumped by a higher one from, say, Spainish group WIN Systems – which already showed interest in March with a $100m offer – you wouldn’t be able to accept the better deal if you had already accepted this one. We certainly wouldn’t count on a higher offer from WIN but, with the share price hovering around 13% below our Sell price and a couple of per cent below the offer price, we recommend you HOLD.
As for Tabcorp, its share price is edging closer to our recommended Sell price of $5.00 but we’re not there yet. We intend to review the company and price guide at the full-year result later this month, but for now we continue to recommend you HOLD.