Tatts and Tabcorp get ACCC preliminary view

The Australian Competition and Consumer Commission (ACCC) has released its preliminary view on the proposed merger of Tatts and Tabcorp, and cited several concerns that the merger would reduce competition.

The only substantial issue was that the merger would lessen competition in the supply of monitoring and repair services to gaming venues in Queensland. However, Tabcorp has committed to selling its Odyssey Gaming Services business, which should ease the ACCC's fears. A few other minor issues were raised, and Tabcorp and Tatts have made various proposals to the ACCC as ways to address its concerns.

The ACCC noted that there is little competitive overlap when it comes to the companies' main bricks and mortar wagering operations due to exclusive licences being held state by state.

‘It is our view that strong competition between online corporate bookmakers will mean recreational customers will continue to have choice about where to place their bets,' said ACCC chairman Rod Sims.

Both companies' boards of directors support the merger but it still needs to pass various regulatory conditions, as well as get approval from the courts and each state's wagering and lottery regulator. The ACCC has invited further submissions and will announce its final decision on 4 May 2017.

Tabcorp and Tatts currently sport forward price-earnings ratios of around 20 and 25 respectively. We'll keep you posted as things develop. For both companies, we're sticking with HOLD.