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SYDNEY - Australian gambling giants Tabcorp and Tatts on Wednesday announced a merger to create an Aus$8.6 billion (R9.2-billion) powerhouse taking bets on horse racing and sports events across the country.
The listed firms, who have pursued the idea of closer ties for years, said the move would significantly cut costs and allow them to chase opportunities globally.
"Combining our two complementary businesses will give us a national footprint and could create a pathway to larger wagering pools," Tabcorp chairman Paula Dwyer said in a statement.
"In today's rapidly changing landscape, bringing together our businesses will create a strong and diversified business that is well placed to invest, innovate and compete, both in Australia and globally."
Investors welcomed the move with Tatts shares soaring 57 cents, or 15.9 percent, to close at Aus$4.16, while Tabcorp jumped 17 cents, or 3.5 percent, to Aus$5.06.
Tatts Group has a betting shop network in the states of Queensland, South Australia and Tasmania and also operates a lotteries business.
Tabcorp Holdings runs similar operations in Victoria and New South Wales, and has a broadcasting and media arm built around Sky Racing.
Both companies also compete in online wagering.
Under the deal, Tatts shareholders will receive 0.80 Tabcorp shares plus 42.5 cents cash for each share they hold, giving Tatts an implied value of Aus$4.34 per share -- a 20.8 percent premium on its share price before the announcement.
The new entity will then launch a Aus$500 million share buyback on completion of the merger, which is expected by the middle of 2017 and subject to regulatory and shareholder approval.
Once done, Tabcorp investors will own 42 percent and Tatts investors 58 percent of a combined group with a market capitalisation of Aus$8.6 billion and an enterprise value of Aus$11.3 billion.
"The combination of Tabcorp and Tatts is based on clear industrial logic and a strong and tangible synergy proposition," said Tatts chairman Harry Boon.
"It comes at a time of escalating competition from new business models and rapid consolidation of gaming and wagering companies globally.
"The scale and efficiency benefits from this combination will provide a stronger platform in this dynamic environment."
Tabcorp chief executive David Attenborough will run the new company, with Dwyer as chair.