Tatts set to buy New South Wales lottery

Australian lottery and gambling group Tatts Group Limited is set to purchase the lottery operation for the state of New South Wales for around $766 million in cash, which will be its largest acquisition in over three years.

The purchase of New South Wales Lotteries Corporation will include a 40-year exclusive license to sell tickets throughout Australia’s most populated state with Tatts stating that the deal will help it to add approximately $108.6 million in annual earnings before interest, tax, depreciation and amortisation by 2014.

Tatts is already Australia’s largest lottery operator with licenses in three states and two territories and initially saw its shares drop over seven percent due to worries that it may be overpaying. According to a report from The Wall Street Journal, the market had expected a deal of between $543 million to $633 million but Eric Roozendaal, Treasurer for New South Wales, stated that the winning bid will be ‘by far’ the strongest for the business.

If successful, this will be the largest purchase for Tatts since it bought Unitab Limited in 2006 for $1.8 billion with the Melbourne-based firm revealing that it will fund the acquisition with debt and existing cash reserves. It stated that the standing of any existing debt covenants would be unaffected by the purchase and that it will be able to maintain its current dividend policy.

“The consolidation of state-owned and Tatts lottery operations will drive significant operating efficiencies and offers considerable benefits from moving to a single operating system,” read a statement from Tatts.

Tatts is building up its lotteries business to compensate for a hole that will emerge in its balance sheet after 2012 when the company loses its Victorian license, which was one of its most profitable last year. The firm also operates lotteries in Tasmania and Queensland along with in the Northern Territory and the Australian Capital Territory and revealed that the sale will also see New South Wales Lotteries Corporation transfer roughly $144 million in cash and other assets to the state.