Plans for an $11 billion mega-merger of the nation's two biggest gambling companies have been dealt a devastating blow, with the Federal Court quashing the approval of the ambitious proposal.
The tie-up of the ASX-listed Tabcorp and Tatts Group was thrown into uncertainty on Wednesday when the court found in favour of legal arguments filed by the competition watchdog about why the deal's approval should be set aside.
"The court orders that the decision of the tribunal be set aside," Justice Nye Perram said, "and the matter be referred back to the [Australian Competition Tribunal] for consideration."
Justice Perram ruled that the reasons for the order would not be made public for at least five days.
It comes after Tabcorp and Tatts earlier this year took the unusual step of bypassing the Australian Competition and Consumer Commission's (ACCC) approval process and instead making their case for a merger directly to the Australian Competition Tribunal.
The tribunal granted approval with a single minor condition, and dismissed a litany of concerns raised by the ACCC and other wagering operators about the immense market power that the merged Tabcorp-Tatts behemoth would command.
The ACCC then applied for the Federal Court to undertake a "judicial review" of the approval, alleging the competition tribunal made "reviewable errors" in its assessment of the detriments the merger would cause.
"The ACCC is pleased that the Full Federal Court has set aside the decision," ACCC chairman Rod Sims said after the verdict on Wednesday. "However, the reasons for the decision are not yet public."
Fairfax Media understands that competition tribunal president Justice John Middleton on Wednesday afternoon wrote to all the parties involved in the hearing to advise that he intended to decide on the matter by Thursday next week.
CrownBet, which also applied for a review of the merger's proposal, welcomed the court's ruling. "The merger is bad for competition, bad for punters and not in the public interest," CrownBet chief executive Matt Trip said.
The Tabcorp-Tatts merger has been under a could ever since the two appeals were lodged in July, but Tabcorp has consistently told shareholders it was "committed to the transaction" and confident of delivering the deal.
Scheme booklets have already been sent to Tatts shareholders, and a vote on the proposed merger was scheduled to run on October 18.
Industry sources called the court's decision a "huge setback" for the two gaming giants.
Tabcorp and Tatts went into a trading halt minutes before the Federal Court delivered its judgement on Wednesday afternoon, at $4.30 and $4.08 respectively.
It was announced in August that Tabcorp had been dragged into a net loss, partly due to the $54 million it had spent chasing its proposed merger with Tatts.
Tabcorp chief executive David Attenborough told investors the year had been "strategically important" for the company, and the hefty investment in its campaign to take over Tatts was worth any risk the regulators might knock the deal back.
"The combination is expected to deliver at least $130 million per annum ... from synergies and business improvements," he said.
Tatts and Tabcorp have hoped a merger, which they first proposed a year ago, would make them strong enough to expand globally, compete with international bookmakers and bid for wagering and lotteries licences overseas.
Except for Racing Victoria, every racing state in Australia have supported the merger, saying it could lead to a national TAB, turn Australia into one of the most profitable racing jurisdictions in the world and realise an extra $50 million a year for the racing industry.
