Tatts loses pokie compensation case
Recommendation
The High Court today ruled that neither Tabcorp nor Tatts are entitled to compensation from the state of Victoria for losing their licences to operate the state's pokies (excluding those housed in Crown Resorts' Melbourne casino). The Victorian government stripped both companies of their licences in 2012 – with management of the state's pokies reverting to pubs and clubs – and refused to pay them compensation after doing so.
Both companies then commenced legal proceedings against Victoria. Tabcorp has consistently failed to persuade lower courts that its argument has any merit and so the High Court's decision isn't surprising. HOLD.
For its part, Tatts was awarded $540m in compensation by the Supreme Court of Victoria in June 2014. Victoria duly appealed this decision and the High Court found in its favour today. As a result, Tatts will repay the monies received plus interest and, as it had used the proceeds to pay down debt in the interim, will utilise existing debt facilities to do so.
As followers of that fine legal theorist Pierpont could attest, High Court decisions are hard to predict at the best of times so, despite it being potentially worth around 37c per share, we assumed no value for this compensation in our recent review of Tatts (see Tatts: Interim result 2016). Moreover, its increased debt remains manageable given its predictable cash flows. As such, we're not making any changes to our price guide or our recommendation. HOLD.