The potential takeover battle for control of Tatts Group's lotteries business has gone quiet since the target knocked back the Pacific Consortium's $8.4 billion bid before Christmas.
This does not mean the consortium of infrastructure investors has given up on spoiling the agreed offer between Tabcorp and Tatts, now on the table. The consortium, which includes private equity firm KKR, Morgan Stanley's infrastructure arm and First State Super each with a 30 per cent stake, is still considering its position.
However, it is believed the group, which also includes Macquarie, has been talking to several offshore gaming companies with the view to partnering up on a joint bid. The idea is the consortium then walks away with the lotteries business while its partner gets Tatts' wagering arm.
International players such as William Hill and Paddy Power have been touted as potential partners, although it is still unclear how serious they are.
The Pacific Consortium is playing it cool, though, and a fresh offer is not believed to be imminent. The sensible option would be to wait until Tatts releases its half-year results in February when it will have a better idea of the businesses' financial health.
The company's downbeat assessment in December of its lotteries earnings was worrying. There is also the Australian Competition and Consumer Commission's ruling to come in February.
Earnings downgrade
When it rejected the consortium's offer on December 23, Tatts effectively issued an earnings downgrade for lotteries, where profits depend on luck.
Tatts said there had been only 15 jackpots at or above the $15 million market since the start of the financial year compared with 24 in the same period a year ago. Low jackpots mean less people buy lottery tickets.
Tatts said at the time it expected first-half EBITDA for lotteries to fall 13.8 per cent to $153 million.
Having said that, the consortium should not be too worried, as the whole point of buying lotteries is for the long-term cash flow it can generate for the next decade or more.
Wagering will probably be the key. Tabcorp remains confident its offer is still in pole position because it owns a potential blocking stake and gives Tatts shareholders a chance to retain a stake in the lotteries business.
But if the consortium can find a partner to acquire the wagering business and improve its offer through a joint bid, then it could be game on.
