Tatts Group shareholder Sandon Capital voiced disapproval over a potential $9 billion merger between Tatts and wagering company Tabcorp, and suggested that Tatts should look at separating its wagering and lotteries businesses, The Sydney Morning Herald reported.
Sandon Capital portfolio manager Gabriel Radzyminski said that Tatts could be worth more than $5.50 a share if its businesses were broken up, and has highlighted the lotteries business as having particular value because of the infrastructure-like earnings stream that requires minimal capital investment.
"Lotteries are one of the rare businesses that grow earnings without the need for substantial additional capital expenditure to fund that growth," Radzyminski was quoted as saying.
Meanwhile, Radzyminski said that he is against any deal between Tabcorp and Tatts that does not deliver Tatts Group shareholders a premium.
Tabcorp could see a full merger as a more attractive proposition because it would allow the Melbourne-based group to diversify its earnings base through the inclusion of Tatts' lotteries division, which accounts for 62 per cent of its earnings.
Paul Skamvougeras, head of equities at Tatts Group's largest shareholder, Perpetual, said he was not opposed to a deal.
"As a major shareholder of Tatts we would be supportive of the company pursuing a sale of the wagering division or considering a merger of equals with Tabcorp," he told Fairfax Media.
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