This morning Australian gaming businesses Tabcorp Holdings Limited (ASX: TAH) and Intecq Ltd (ASX: ITQ) announced that the two companies have entered into a binding scheme implementation agreement under which Tabcorp has agreed to acquire all Intecq shares via a scheme of arrangement.
Intecq's board has unanimously recommended that its shareholders vote in favour of the $7.15 per share cash offer from Tabcorp, which represents a 31% premium on last Friday's closing price of $5.44.
Should the $128 million deal complete, it will see Tabcorp acquire a network of over 70,000 electronic gaming machines across over 1,200 licensed venues throughout Australia.
According to the release Tabcorp's management expects the acquisition will generate EBITDA of approximately $20 million in the year following completion of integration of the business. The acquisition is expected to be accretive to earnings from the first year.
Shortly after opening Tabcorp's shares dropped around 1%. This indicates that the market is not seeing a great deal of value in this acquisition and that Intecq's shareholders are the real winners.
Although this acquisition looks set to be accretive to earnings, I'm not sure it will be enough to stop earnings declining as a result of the increasing level of online competition from overseas bookmakers.
Ladbrokes, William Hill, Betfair and Bet 365 are just four of a number of bookmakers trying to get a slice of the Australian market and putting pressure on Tabcorp's top line. In the last five years its revenue has almost halved from $4.2 billion in 2010, to $2.2 billion in 2015.
For this reason I would suggest avoiding Tabcorp and looking at investments in growing companies such as Crown Resorts Ltd (ASX: CWN) and SKYCITY Entertainment Group Limited-Ord (ASX: SKC) instead.
