Question

In: Accounting

On 19 October 2016, Tatts Group Limited (Tatts) and Tabcorp Holdings Limited (Tabcorp) announced a Merger...

On 19 October 2016, Tatts Group Limited (Tatts) and Tabcorp Holdings Limited (Tabcorp) announced a Merger Implementation Deed to combine the two companies and create a diversified gambling entertainment group with a pro forma enterprise value of AUD11.3 billion. The share prices of Tatts and Tabcorp were $4.16 and $5.06 on 19 October 2016 respectively. The merger was via a scheme of arrangement that offered cash and scrip with Tatts shareholders receiving 0.80 New Tabcorp Shares and 42.5c cash for each Tatts share. Tabcorp, a gambling entertainment company, had an AUD4 billion market capitalisation before the scheme announcement. It operated three core businesses – Wagering and Media, Keno, and Gaming Services – employed over 3,000 people, had revenue of AUD2.15 billion in FY15, and AUD334.5 million net income. Tatts, before merging with Tabcorp, provided gambling services with an AUD5.8 billion market capitalisation. Through its lottery, wagering and gaming operations Tatts reported FY15 revenue of AUD2.9 billion and net income of AUD 233.8 million.

The Tatts shareholders received 0.80 Tabcorp Shares and 42.5c cash for each Tatts share. Is this a good deal for Tatts shareholders from EPS and share price perspectives?

Solutions

Expert Solution

Tatts Group Limited Tabcorp Holidngs
Share price 4.16 5.06
Tatts shareholder 4.048
Tatts shareholder cash 0.425
Market Cap 5.8 4
Revenue 2.9 2.15
Income 233.8 334.5
Value per share received by Tatts Shareholder
Tatts shareholder 4.048 0.80 of 1 Tabcorp holdings share @ 5.06
Tatts shareholder cash 0.425 Cash
Total Value received' 4.473
Share Price of Tatts Group 4.16
Excess received 0.313
EPS Calculation
Market Cap 5800 4000
Income 233.8 334.5
EPS                                    0.04                                                                                  0.08
EPS Computation for Tatts shareholders after merger
Shares held 1 0.8
EPS                                    0.04                                                                                  0.08
Earning for shareholder                                    0.04                                                                                  0.07

As can be seen from above the share swap ratio and cash payment to Tatts shareholders is a good deal to them from a share price and eps perspective.


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