Spurned Tatts suitor Pacific Consortium is reviewing its position after lotteries and wagering firm Tatts Group rejected its takeover proposal, deeming it inferior to a merger with Tabcorp.
Tatts has also warned that half year earnings from its lotteries business are expected to fall by almost 14 per cent from the previous year, because of a drop in the number of big jackpots.
The Pacific Consortium - made up of four investors including Macquarie Capital - made a cash-and-scrip takeover proposal that valued Tatts at between $6.4 billion and $7.3 billion.
The target's board has concluded that the consortium's bid was not superior to the proposed merger with Tabcorp, in which Tabcorp has offered $6.4 billion to create a $11.3 billion gambling behemoth.
"The Pacific Consortium is reviewing its position and absorbing the details of the material profit downgrade announced by Tatts Group today," a Pacific Consortium spokesperson said in response.
Tatts said it has denied the Pacific Consortium access to its books for due diligence, and will not engage in talks regarding the consortium's proposal.
"The Tatts board has now assessed the indicative proposal and determined it is not a superior proposal, and cannot reasonably be expected to result in a superior proposal," Tatts said.
The consortium had made some key assumptions that were either incorrect, inconsistent with Tatts' current assumptions, or unknown, Tatts said.
The lotteries business had been undervalued by the consortium, and overly optimistic trading and control price estimates had been assumed for the wagering and gaming operations, Tatts said.
Even if these assumptions were updated, Tatts would still conclude that the value offered by the consortium was inferior to the proposed Tabcorp merger, it said.
Meanwhile, Tatts said the trading performance of its lotteries business had been negatively affected by an unfavourable jackpot sequence, with only 15 jackpots at or above $15 million in the six months to December, compared to 24 in the same period in 2015.
Earnings before interest, tax, depreciation and amortisation (EBITDA) from lotteries are expected to be about $153 million, down about 13.8 per cent from the prior year.
The Pacific Consortium was planning to split Tatts' lotteries business from wagering and gaming, and spin-off or sell the wagering business.
Tatts shares dropped 13 cents, or 2.9 per cent, to $4.42, while Tabcorp shares gained one cent to $4.76.
