As reported by: Reuters
Tabcorp Holdings Ltd, Australia's largest gaming group, increased its offer for rival Tab Ltd to A$2.03 billion ($1.56 billion) on Monday, but failed to top a competing bid that has hit a regulatory hurdle.

Queensland-based UNiTAB Ltd's rival bid is worth A$2.1 billion, but Tabcorp's offer has won crucial backing from the New South Wales racing administrator and has a richer cash component. The administrator has rejected the UNiTAB offer, saying it was less favorable.

Tabcorp, which owns 18,000 gaming machines and four of Australia's 13 casinos, raised its bid from an initial offer of A$1.9 billion, but the new bid was less than investors had expected.

"It is not a knock-out bid," said John Sevior, a fund manager with Perpetual Investments. "We probably haven't seen the end of this."

The stakes are high because Australians are the world's biggest gamblers, spending more per head than any other nationality.

Tabcorp is offering A$4.50 in cash and shares for each share of Sydney-based Tab. UNiTAB's offer, which is also cash and shares, was worth A$4.65 a share based on Monday's closing price.

Tab's shares closed down 2.2 percent at A$4.52.

"I don't accept at all that our offer is less superior," Tabcorp Chief Executive Matthew Slatter told reporters, adding that the deal offered certainty, more cash and less risk.

UNiTAB Managing Director Dick Mcilwain refused to back down, saying he planned to lobby the New South Wales government to accept its bid.

'POORLY TREATED'

"New South Wales Racing and Tabcorp have attempted to sideline us and clearly they have treated Tab shareholders poorly in their latest offer," he said.

The racing administrator, which is entirely funded by Tab, would get A$12 million a year in fees over four years from Tabcorp.

Tab advised shareholders to take no action while it evaluated the two offers.

Australia's A$15 billion gambling industry has seen numerous takeover deals in the past year as growth in the sector has been curbed by state quotas on gaming machines, cuts in playing hours and smoking bans.

A Tabcorp takeover of Tab would create a company that would dominate gaming and wagering in Victoria and New South Wales, Australia's two most populous states.

Tabcorp's offer comprises A$2.00 a share cash and between 0.20 and 0.22 Tabcorp shares for each Tab share, for a total value of A$4.50. Tabcorp shares rose 1.2 percent to A$11.99.

Tab shareholders would also be entitled to receive Tab's fully franked 2004 interim dividend of nine cents per Tab share.

UNiTAB's deal offered 0.47 of its shares plus A$1.45 in cash for Tab shares. UNiTAB shares fell 0.2 percent to A$6.80.

Tabcorp, which recently took over Queensland-based Jupiters Ltd, said it expected to derive at least A$63 million in cost savings in a Tab deal, but the merger would not be earnings accretive until the third year.

The risks for the losing bidder are significant. Tabcorp is concerned that a combined Tab/UNiTAB could potentially bid for Tabcorp's lucrative Victorian gaming license.

UNiTAB is worried that a Tabcorp and Tab alliance, creating Australia's largest wagering pool, would take away its big bettors.

Tabcorp is being advised by UBS. Macquarie Bank and ABN AMRO are advising Tab. UNiTAB is being advised by Investec Wentworth. ($1=A$1.30)