The brakes are on at Tatts Group.
While the late arrival of Macquarie and its mates promised a busy start to the new year, details in Tatts' swift and comprehensive rejection of the Pacific Consortium's proposal have given the bidder plenty to mull over.
Firstly, Tatts' 2017 financial year is travelling materially worse than the market was expecting. But it was also significantly worse than what Pacific Consortium had assumed, and no doubt has the number-crunchers back at the drawing board wondering where their diligence went wrong.
It's understood the consortium - put together by Macquarie and featuring KKR & Co, Morgan Stanley Infrastructure and First State Super as the three joint biggest shareholders - is trying to re-cut the numbers and re-do the work.
And from what Tatts revealed in its pre-Christmas rejection, the group does not have a lot of good news to go on. Everything else - such as finding a bid partner to take the wagering unit - is expected to be secondary to them working out what's going on in lotteries.
In that context, it is hard to see how the group could confidently put a solid number forward before Tatts' half-year results in February.
And around the same time - February 23 - the Australian Competition and Consumer Commission is due to make its thoughts on the merger known.
Broker CLSA came out in support of Tatts' rejection of Pacific Consortium's bid, saying it was about $750 million or 51ยข a share short of the mark once synergies were taken into account.
And when combined with earnings downgrades in the lotteries unit, CLSA analyst Sacha Krien told fund managers this could make it hard for the financial investors to come forward for a superior bid.
The analyst reckons Pacific Consortium may need to increase its cash bid for Tatts' lotteries business to $3.81 a share, which would be a 15 per cent jump, to match Tabcorp's offer.
The other option would be to find a strategic partner to take the wagering unit.
