A future merger between Tabcorp and Tatts Group to form a $9.4 billion gaming giant may be plausible even though the first exploration of marriage has failed.
Wagering firm Tabcorp and wagering and lotteries operator Tatts confirmed speculation on Monday that confidential merger talks had taken place, but the pair couldn't agree on terms.
"There are no further discussions taking place between the parties relating to a merger or any other form of corporate transaction," Tabcorp said.
"Tatts confirms the parties have been unable to reach agreement on key transaction terms, in particular as it relates to a nil-premium exchange ratio," Tatts said.
IG market strategist Evan Lucas said the merger proposal was over before it started because some major shareholders in Tatts see more benefit in Tatts separating its wagering and lotteries businesses and forming two companies.
The combination of the wagering operations of both Tabcorp and Tatts would give them more muscle in taking on foreign online wagering firms that are coming into Australia, such as William Hill, Ladbrokes and bet365, he said.
"Seeing a $9.4 billion company that can take them on is probably not a bad idea, so it's definitely not off the cards," Mr Lucas said.
Mr Lucas said a proposed merger of two large wagering businesses would likely attract the attention of the Australian Competition and Consumer Commission.
"But if they (Tabcorp and Tatts) argue that they are trying to take on the competition in the online gaming space, they could get away with it," he said.
"The entry of Ladbrokes, William Hill and bet365 clearly shows that the wagering business is very, very competitive."
Tabcorp operates TAB outlets in Victoria, NSW and the ACT, and online betting platform Luxbet.
Tatts Group has wagering operations in Queensland, South Australia, Tasmania and the Northern Territory.
OptionsXpress market analyst Ben Le Brun said it wasn't a huge shock to the market that the merger proposal didn't proceed.
Tatts shareholders weren't offered any cash incentives or shares as enticements to merge with Tabcorp.
"It's back to the boards of each to see if they can come up with something sweeter, or they'll have to go it alone or look for other merger and acquisition opportunities," Mr Le Brun said.
He said one of Tatts' largest shareholders, Sandon Capital, has been pushing for Tatts to split its wagering and lotteries businesses.
"So there's the potential there for another buyer in that area of the business," he said.
"That's what's keeping the (Tatts) share price relatively buoyant."
In August 2006, Tabcorp had to withdraw a $1.9 billion takeover offer for Queensland-based wagering operator Unitab, enabling Tatts to merge with Unitab instead.
Tabcorp withdrew its bid after the ACCC rejected its proposed takeover because it would make Tabcorp the owner of all the major totalisators in Australia.
Shares in Tabcorp closed three cents lower at $4.39 while Tatts rose 13 cents to $4.05.
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