Presentation to: Tatts Group Ltd

Defence of Tabcorp’s offer

15 October 2016
Confidential
Contents page

Executive summary 3

Evaluation of Tabcorp’s offer 4

Rationale for offer rejection 5

Valuation of Tatts 6

Proposed course of action 7

Option 1: Enter into scheme of arrangement with Tabcorp at a higher premium 8-9

Option 2: Divest the Wagering division 10-11

Decision tree analysis 12

Transaction risks 13

Recommended next steps 14

Appendix 15-46

2
Executive summary

Tabcorp’s offer of A$4.07 per share will generate substantial value through EPS accretion but at the
1 Evaluation of current offer
expense of Tatts’ shareholders

The offer should be declined as it grossly undervalues Tatts at the current low trading price and comprises of
2 Rationale for offer rejection
a consideration structure which exposes Tatts shareholders to significant risk

3 Valuation of TTS share Tatts has an implied share price of ~A$4.21 per share which is ~16% higher than the recent closing price

Tatts should seek to merge with Tabcorp at a higher premium to create an A$11.4b diversified gaming
4 Primary course of action
powerhouse which can mitigate the increasing domestic and foreign competition

If the Tabcorp merger fails, Tatts should sell the Wagering division to Tabcorp as it is not financially
5 Secondary course of action
sustainable and is a strategic fit with Tabcorp’s current offerings

The proposed course of action has inherent risks such as regulatory, consideration and hostile off market
6 Transaction risks
bidding risk. However, these can be mitigated by implementing various defensive strategies

3
Evaluation of Tabcorp’s offer
The deal is expected to generate substantial EPS accretion at the expense of Tatts’ shareholders

EPS accretion / dilution Pro forma financials

 There is EPS dilution in FY17 and FY18 due to the synergy  The merged entity will be an A$11.4b gaming powerhouse with
implementation cost and 2 year integration time over A$5b and A$1b in revenue and EBITDA respectively

$0.40 22.27% 24.80% FY16 Pro forma combined entity before synergies
19.62%
$0.30 (3.10%) 1.39% A$m Combined group
Market cap 4,143 5,331 9,474
$0.20
Net debt 870 1,041 1,884
$0.10 EV 5,013 6,372 11,384
$0.00 Revenue 2,193 2,925 5,119
FY17E FY18E FY19E FY20E FY21E EBITDA 508 496 1,004
Pre transaction Post transaction EBIT 329 421 750

Synergies split Synergies and premium sensitivity

 Synergies derived from the improvement in UBET’s fixed odds  At an 11.8% premium above Tatts’ recent closing price of $3.64
yield through Tabcorp’s risk management strategies; EBITDA and A$138m EBITDA of synergies in FY21, the deal is 24.80%
margin improvements via technology integration, consolidation of EPS accretive
wagering functions and corporate cost cuts
 If EBITDA synergies drop to A$98m in FY21, the deal is still
 NPV of synergies post tax of ~ A$823m based on a A$110m one ~20% EPS accretive
off integration cost, full run rate within 2 years and 3% EBITDA
growth YoY
Premium to closing price
$0.25 (20%) (10%) - 10% 20% 30%
FY16 FY17 FY18 FY19 FY20 FY21 98 44% 36% 28% 21% 15% 9%
EBITDA 118 47% 38% 31% 24% 17% 12%
Synergies 138 50% 41% 33% 26% 20% 14%
FY21E 158 53% 44% 36% 28% 22% 16%
178 56% 47% 38% 31% 24% 18%

Source: Tabcorp and Tatts FY16 Annual Report 4

Rationale for offer rejection
Tabcorp’s offer should be rejected as it is significantly below Tatts’ implied value

Offer structure Insufficient premium

 Current arrangement: Each Tatts share receives 0.80 Tabcorp  The scheme implied value of A$4.07 per share is not attractive if
shares (worth A$3.97) and A$0.10 cash per share the 3-6m VWAP is considered

 The scrip consideration exposes Tatts shareholders to greater

risk from the wagering industry and is inherently prone to value 5.71%
5.99%
fluctuations
10.60%
 Scrip could be worth ~6% lower than what was stated if 6m 4.07
11.81%
VWAP is used
3.84 3.85
 Negotiate to lower scrip consideration to reduce exposure to the 3.64 3.68
wagering business which is facing intensifying competition

 Increase cash consideration to mitigate depreciating scrip risk Offer Closing 1 m VWAP 3m VWAP 6m VWAP

 Tabcorp shareholders are benefiting more from this transaction
because they get long term access to the lotteries business as
well as the synergies from the consolidation of the wagering
businesses. Therefore, Tatts shareholders need to be further
compensated for this asymmetric benefit
Directors’ interest and future of lotteries business
 Under the scheme, Tatts’ directors will not be on the board of the
merged entity
 Tabcorp’s directors do not have the proper expertise and
experience to strategically manage the lotteries division without
the help of Tatts’ directors

TAH scheme of arrangement offer  Not in shareholders’ interests to have a board with only wagering
sector experience to run national lotteries; negatively impacting
TAH price Scrip value Cash Implied value per share financial return
Closing price 4.96 3.97 0.1 4.07
1m VWAP 5.01 4.01 0.1 4.11  Will further affect synergy integration, possibly compromising
3m VWAP 4.94 3.95 0.1 4.05 EPS accretion
6m VWAP 4.64 3.71 0.1 3.81  Aggregated, future growth and sustainability may be conceded

Source: UBS Research 5

Valuation of Tatts
Tabcorp’s offer of A$4.07 is substantially below Tatts’ implied price of A$4.21

Methodology Share price (A$) Comments

Offer: $4.07 Implied: $4.21  Low: $3.64 on 15 March 2016
 High: $4.39 on 1 Jan 2016
52-week trading range 3.64 4.39
Market valuation

 Sum of the parts approach (SOTP)

EV / FY17 EBITDA 5.44  Low: 7.33 x
1.75
 High: 18.00 x
 Included infrastructure comps
 SOTP approach
EV / FY16 EBITDA 1.77 5.39  Low: 6.85 x
 High: 17.15 x
 Included infrastructure comps
 SOTP approach (historical EBITDA)
Precedent transactions 6.90  Low: 6.26 x
Fundamental

1.41
 High: 22.45 x
valuation

 Included infrastructure transactions

 Based on WACC of 8-10% and terminal
DCF 3.73 4.77 EBITDA multiple of 11.00-13.00 x
 Implied growth rate of 2.45-3.39%


Capacity

Assumes 5 year holding period, 20-25%

to pay

LBO IRR, 58% total funding from debt and

3.64 4.26 14.00 x exit EBITDA multiple

6
Proposed course of action
Tatts should merge with Tabcorp. If this fails, divestment of the Wagering division should be considered
1 2
Merge with Tabcorp
 Tatts shareholders can get exposure to the
upside of the merged entity via scrip
 Consolidation of UBET with Tabcorp’s
Wagering businesses ensures it can compete
against well capitalised corporate
bookmakers
Intervention by regulators and the court
Tatts shareholders increase exposure to the
competitive wagering industry, resulting in “di-
worsification”
 Tatts’ shareholders own >50% of the merged
entity
 Tatts’ Board of Directors can have a position
in the new merged entity
 Can demand a higher premium through
competitive bidding process
Divest the Wagering division
Tatts shareholders lose all exposure to the
Wagering business
UBET may be unable to withstand increasing
competitive pressures without assistance
from Tabcorp
 Offload an underperforming division
 Unlikely to face intervention from regulators
and the court
 Tatts shareholders keep control of the
lucrative Lotteries division
 Tatts’ Board of Directors keep their position
 Divestment gives Tatts’ shareholders a
substantial cash dividend of A$0.75-1.02 per
share
7
Option 1: Enter into scheme of arrangement with Tabcorp at a higher premium
Tatts should first seek a 20% premium from Tabcorp. If this fails, Tatts can induce an auctioning process

Rationale of merger Strategy to induce a competitive bidding environment

 Improvement of Tatts’ underperforming wagering and gaming
services divisions via superior risk management strategies and Seek other Disclose the Put pressure on
technology potential bids highest bid Tabcorp

 Extension of geographic control of operations across Australia

and provides groundwork for international expansion
Private equity
 Economies of scale through vertically integrating systems and
horizontally extending product lines

 Unparalleled opportunity to maximize shareholder value through Infrastructure funds

combined licences and functions, greater balance sheet strength
and profitability

Financial impact of ideal transaction Canadian pension funds

 An offer price of $4.37 (20% premium) comprised of 0.70 TAH
shares and A$0.70 cash per TTS share, the deal is still EPS
accretive
Corporate bookmakers
 The arrangement involves 80% scrip and 20% debt. Leverage
ratio is 0.43 x in FY17 but falls to 0.26 x by FY21
28.91% Amendment to merger implementation deed
$0.40 25.25%
21.34%
0.33%  Change consideration structure to less scrip and more cash
$0.30 (5.46%)

$0.20  Change board and management clause in order to sustain Tatts’

board position in merged entity
$0.10
 Inadequate expertise in the field of lotteries warrants Tatts
$0.00
Directors’ management and leadership in merged entity
FY17E FY18E FY19E FY20E FY21E

Pre transaction Post transaction

8
Potential bidders that Tatts can approach
The infrastructure-like characteristics of Tatts’ Lotteries business will attract numerous investors

Strong LBO candidate Capacity to pay

 Tatts’ Lotteries business has consistent cash flows as it holds a  PE firms can pay up to $4.26 (17% premium) in order to meet
monopolised position in a mature industry and has strong support their 20% minimum IRR hurdle
from government regulators
 The ability of PE firms to offer a high premium is likely to force
 The Lottery business is profitable given its low economic Tabcorp to increase their offer to around 20%
sensitivity and high regulatory barriers
Premium
 Maintenance of the Lott requires low capital expenditure given 20% (20%) (10%) - 10% 20% 30%
the operating model of the business 6.50 x 4% 0% (3%) (7%) (10%) (14%)
Exit 11.50 x 24% 21% 18% 15% 13% 10%
 Private equity and infrastructure funds see opportunities to Multiple 14.00 x 31% 28% 25% 22% 19% 17%
improve Tatts’ underperforming wagering division
16.50 x 36% 33% 30% 27% 25% 23%
19.00 x 41% 38% 35% 32% 30% 27%

Potential bidders Rationale Company snapshot

Private equity firms  Leading global investment firm that manages private equity,
 Tatts requires low maintenance capital
energy, infrastructure, real estate and credit
expenditure and possesses improvement
opportunities in underperforming divisions
 Approximately A$4.6t AUM

Canadian pension funds
 Tatts provides access to reliable cash flows
in a stable regulatory environment to match
payment of long term liabilities
Strategic acquirers
 Tatts allows for the introduction of pari-
mutual and consolidation of fixed-odds
betting in order to increase market share
 Canadian pension funds are large shareholders in listed and
unlisted Australian infrastructure assets
 OTPP has holdings in numerous National Lotteries and was
an under bidder to Tatts for the 2010 NSW Lotteries license
 British-based betting and gambling company
 Ladbrokes entered into the Australian fixed-odds market in
2013 through the acquisition of Bookmaker.com and now
possesses 10% market share within the domestic market

Source: Company websites 9

Option 2: Divest the Wagering division
Tabcorp may want to only purchase the Wagering division as it can realise synergies at a lower cost

Valuation of the Wagering division Keeping the Lotteries business

 The wagering division is worth between A$1.3-1.6b which implies  Defensive crown jewel asset that offers consistent returns and is
a 9.46-12.89 x multiple of FY16 EBITDA strong as a standalone entity

 Divestment allows Tatts to focus on their core competency, the

Comparable companies based on EV / EBITDA multiples
Lotteries division
2,000
1,659 1,681  The Lotteries division is posed for substantial growth due to the
Enterprise value

1,500 1,284 significant increase in digital turnover

1,173
(A$m)

1,000
908 859  Long term interest in Lotteries business and corresponding
licenses provides earnings stability
500
 Lotteries is a defensive asset during economic downturns
-
Min Mean Max Min Mean Max Selling Wagering business
FY16 EBITDA FY17 EBITDA  Reduces risk to the wagering industry which is extremely
competitive and prone to unpredictable regulatory change
Precedent transactions based on EV / EBITDA multiples
 UBET’s underperformance (-8.6% CAGR) and smaller market
2,000 1,745 share is unsustainable, given competition and regulation
1,619
Enterprise value

1,500 1,296  Attractive to Tabcorp as majority of synergies are derived from

1,167
the consolidation of wagering functions
(A$m)

1,000
465
590  Also appealing due to a national combination of totes and racing
500 industry benefits

-  Divestment could result in a cash dividend of A$0.75-1.02 per

Min Mean Max Min Mean Max Tatts share
FY16 EBITDA FY17 EBITDA

Source: Tatts Annual Report; UBS Research 10

 Valuation of Lotteries and Gaming Services division
The enterprise value of Tatts will be ~A$5.6b post divestment of the underperforming Wagering division

Pro forma financial position post divestment Valuation of Lotteries division

 The divestment of the Wagering division for A$1.3-1.6b would  The Lotteries division has an EV of ~A$4.0-5.0b which implies a
result in a cash dividend to shareholders of A$0.75-1.02 per Tatts 12.17-13.39 x FY16 EBITDA multiple
share
Enterprise value based on FY16 EBITDA multiple 8,870
 Total value of the divestment is ~A$4.13 which is 13.46% above
the current share price 6,669
4,380
 The cash dividend solidifies a strong return for shareholders 3,775
whilst offloading an underperforming asset 2,294 2,234

Pre divestment Post divestment

EV EV Min Mean Max
Lotteries 5,000 5,000
Wagering 1,600 - Comparable companies Precedent transactions
Gaming Services 600 600 Valuation of Gaming Services division
Total 7,200 5,600
Net debt (1,041) (1,041)  The Gaming Services division has an EV of ~ A$500-600m which
Implied share price $4.21 $3.11 implies a 4.30-5.16 x FY16 EBITDA multiple
Cash dividend - $1.02
Total value $4.21 $4.13
Enterprise value based on FY16 EBITDA multiple

602
509 527
434 477
409

Lotteries Gaming Services

Min Mean Max

Comparable companies Precedent transactions

11
Decision tree analysis
Tatts should renegotiate the offer with Tabcorp to increase the premium and adjust the consideration
1 2
Trading Halt
 Reject proposed MID by
Tabcorp as the offer of A$4.07
(11.8% premium) heavily
undervalues Tatts and the
consideration structure is not in
the best interests of Tatts
shareholders
 Ask Tabcorp to increase
premium to at least 20% to
A$4.37
 Seek to renegotiate MID terms
to ensure Tatts’ directors have a
place in the merged entity; also
renegotiate consideration terms
to increase cash and reduce
scrip
 If the renegotiations are
successful, approve the
takeover
3a
Continuation of trading
 Lodge ASX release notice to
apply pressure to Tabcorp’s
proposal whilst garnering other
bidders’ attention
 Create a competitive bidding
environment by inviting private
equity, infrastructure funds and
strategic acquirers to place a
bid
 The capacity to pay by PE will
3b
assist in raising bids, as they
can offer up to $4.26 (17%
premium)
 Announce to market the
bidders’ statement in order to
solicit the attention of Tabcorp
 Tabcorp’s board raises offer
premium greater than 20%
 Accept newly proposed MID by
Tabcorp to fully takeover Tatts
 Indicative offer price of A$4.37
 Consideration of 0.70 TAH
shares and $0.7 cash per TTS
share
If 20% premium not attained,
seek to divest wagering division
 Divest the wagering division to
Tabcorp for ~A$1.3-$1.6b
 Issue cash dividend to Tatts
shareholders of A$0.75-1.02
per share
12
Risks
The suggested course of action faces transaction and industry risks

M&A transaction risks Description / mitigation Likelihood / impact

 The transaction is likely to face ACCC pushback in regards to the consolidation of the
companies’ Wagering and Gaming Services divisions and synergies between Tatts’ retail and
1 Failure to obtain Tabcorp’s broadcasting networks
ACCC approval
 This can be mitigated through negotiation and cooperation with Tabcorp, regulators and other
affected 3rd parties

 Fluctuations in share price after the agreed upon conversion ratio may adversely affect value to
Volatility in scrip Tatts or Tabcorp shareholders
2
value
 Collars can be used to lock the conversion ratio within a certain price range

 Upon rejection of Tabcorp’s offer, they may engage in a hostile takeover attempt to acquire Tatts
3
Hostile takeover
attempt  Defensive strategies include persuading majority shareholders and stand-still agreements

Industry risks Description / mitigation Likelihood / impact

 If the Lotteries division is retained as Tatts’ sole service, the company’s profitability becomes
highly contingent on regulatory and tax rate changes
Regulatory  This risk is unlikely to eventuate as regulators have aligned interests with Tatts
1
changes
 Tatts’ Lotteries business is also diversified through an extensive national network spanning
across numerous jurisdictions

 Tabcorp and Tatts currently enjoy an oligopoly in Queensland as the only two government-
Competition in mandated monitoring operations.
2 gaming
 This may be disrupted by the government’s provision of Licensed Gaming Monitor rights to
monitoring
competitors; e.g. Utopia Gaming, who was recently granted the license earlier this year

Source: Competition and Consumer Act 2010 (Cth); Tabcorp Annual Report; Tatts Annual Report 13
Recommended next steps
Tatts should begin my trying to renegotiate the scheme of arrangement terms with Tabcorp
1 2
Negotiate initial offer
 Seek to renegotiate scheme
terms to increase premium from
11.8% to at least 20%
 Seek to change the
consideration structure to
increase cash and reduce scrip.
Recommended structure
involveschange agreement
0.70 TAH shares and A$0.70
cash per TTS share
 Seek to terms to enable Tatts’
directors to be on the board of
merged entity
Create a competitive bidding
environment
 If Tabcorp does not agree to
renegotiations, proceed to
create competitive auction
environment
 Lodge the ASX release to the
market once trading begins
again
 Begin talks with other interested
bidders such as PE and
disclose if any superior
proposals are offered
 The aim is to coerce Tabcorp to
improve their offer
3a
Merge with Tabcorp
 Recommended approach if
Tabcorp accepts amendments
to initial offer
 Transaction worth A$4.37 per
share for Tatts shareholders
3b
Divest Wagering division
 Supplementary approach if
Tabcorp does not raise their
new offer premium >20%
 Transaction worth A$4.13 per
share for Tatts shareholders
14
Appendix table of contents

Appendix I – Industry & company analysis Appendix II – Valuation

Gambling industry 17 Basic assumptions and WACC 31

Demand drivers of gambling industry 18 Tatts financial statement projection assumptions 32

Executive team of TattsGroup 19 Tatts income statement 33

Tatts’ Lotteries business 20 Tatts balance sheet 34

Tatts’ Wagering business 21 Tatts cash flow statement 35

Tatts’ Gaming Services business 22 Discounted cash flow analysis 36

Shareholder analysis 23 Comparable company analysis 37

Full overview of the decision tree 24 Precedent transactions 38

In-depth bidding scenario analysis 25 Merger model assumptions 39

ACCC regulatory concerns 26 Merger model 42

Precedent ACCC Review results 27 Debt pay down schedule and key ratios 43

Combined group - Geographical reach 28 Leveraged buyout assumptions 44

Combined group – License expiry dates 29 Leverage buyout model 45

15
Industry & Company

Appendix I
Gambling industry
The Australian gambling industry is mature, highly regulated and has substantial barriers to entry

Wagering Lotteries
 Consistent growth has spurred the entry and consolidation of  The main driver of this industry is the increased utilisation of
international and domestic corporate bookmakers technology to facilitate online ticket purchases

4,000 15% 13.50%

Revenue (A$m)

3,875
3,778 11.10%

Digital turnover
3,800 9.40%
10% 8.20%
3,600 3,528 6.60%

3,371 3,406 5%
3,400

3,200 0%
FY12 FY13 FY14 FY15 FY16 FY12 FY13 FY14 FY15 FY16
Gaming services Keno
 This segment has experienced substantial growth due to high  Keno’s low growth due to small prize pools is being revitalised
barriers to entry and heavy regulation thus accentuating the value through brand transformation programs and the interstate pooling
of licences of jackpots

400
1,400
359
Revenue (A$m)

1,322
350 Revenue (A$m) 1,296
1,300
1,233
296 1,199 1,198
300
1,200
263
250
227 1,100
213
200 1,000
FY12 FY13 FY14 FY15 FY16 FY12 FY13 FY14 FY15 FY16
Source: IBISWorld 17
Demand drivers of gambling industry
The key drivers of the gambling industry are population and income growth and digital integration

Australian population growth Australian household disposable income

30 5.0 1200
1029
24 24 24 994 1009

Mean weekly disposable

982

Population Growth (%)

968
21 21 22 22 23 23 23 4.0
21 843
Population (m)

20

income (A$)
800

household
3.0
2.2
1.9 1.8 1.8 1.7
1.6 1.6 1.5 1.4 1.6 2.0
1.4
10 400
1.0

0 0.0 0
2006 2008 2010 2012 2014 2016 2006 2008 2010 2012 2014 2016
Advancement of digital platforms Changing age demographics

25 15 300,000 29.3% 30.0%

25.4%

Change in number of people

20 21
19 20
Internet Usage Growth (%)
250,000 25.0%
20 18 18 20.9%
19.7%
Internet Usage (m)

16 17 200,000 20.0%
15 15 10 17.2%

% Change
15 14
150,000 12.1% 15.0%
7.1 11.2%
6.5 6.4 6.7 10.0%
10 100,000 7.7% 10.0%
5.1 5.5 7.3%
5 5.3%
5.2% 5.4%
4.2
5 3.4 50,000 3.1%1.9% 2.7%
2.6% 5.0%
1.7 1.1%
1 1.8 0 0.0%
0 0 0 to 10 20 30 40 50 60 70 80
2006 2008 2010 2012 2014 2016 4 to to to to to to to to
14 24 34 44 54 64 74 84

Source: ABS 18
Executive team of TattsGroup
The Executive team of Tatts possesses extensive operational expertise and should be retained
Andrew Collins HEAD OF CORPORATE DEVELOPMENT
 Newly appointed head of domestic and
international corporate activities
 Responsible for leading the Group’s acquisition
and licensing, along with involvement in
subsequent integration actions
Brendan Parnell CHIEF OPERATING OFFICER - WAGERING
 Recently appointed COO of Wagering in 2016
 Previously led Tabcorp’s Media business Sky
Racing and MD of Tabcorp International
 Possesses almost three decades’ experience in
broadcast media, sports, betting and
international trade
Frank Makryllos CHIEF OPERATING OFFICER – GAMING
 Re-joined Tatts in 2013 as COO of Gaming
 Previously CEO of Intralot Australia, Chief
Executive of Tatts Pokies
 Frank has a Masters of Business Administration
and has completed several courses through
Harvard and London Business Schools
Sue Van Der Merwe CHIEF OPERATING OFFICER - LOTTERIES
 Has served as COO of Lotteries since 2014
 Possesses over 25 years’ experience in the
lottery industry
 Started her career in marketing lotto games in
1990 and progressed through various
management roles
Source: Tatts FY16 Annual Report
Neale O’Connell CHIEF FINANCIAL OFFICER
 Served as Chief Financial Officer since 2012
 Previously lead the Group as the General
Manager of Finance throughout key events
including the UNiTAB merger, acquisition of Qld,
NSW and SA Lotteries and Tas Tote, and
acquisition and divestment of Tatts UK
Anne Tucker GENERAL COUNSEL & COMPANY SECRETARY
 Served as General Counsel and Company
Secretary since 2013
 Previously part of the UNiTAB team in 2005, and
lawyer at Clayton Utz
 Possesses experience and knowledge within the
gaming industry as well as merger, acquisition
and integration activities
Ashleigh Loughnan PEOPLE, PROPERTY & PROCUREMENT MANAGER
 Served as Executive General Manger of People,
Property & Procurement since 2013
 Has undertaken numerous projects including
implementation of technology and process
improvements, and rollout of new HR
information systems
Mandy Ross CHIEF INFORMATION OFFICER
 Served as Chief Information Officer since 2014
 Previously CTO of start-up Literary Planet and
CIO of Wotif Group and possesses 15 years
industry experience
 Awarded Boss Young Executive of the year, and
CEO Magazine runner-up CIO of the year
19
Tatts’ Lotteries business
The lottery industry in Australia is highly dominated by Tatts’ lotto division

Overview Demand Drivers

 Tatts is the only non-government owned Australian lottery
operator with licenses allowing it to conduct business in all states
& territories except for WA
 Operates the entirety of the lottery business under ”The Lott”
umbrella brand
 2 million registered card players
 2.5 million registered online players
 Distributes lottery products at 3,900 agencies
 Has distribution agreements with Jumbo Interactive to provide a
digital channel for consumers to purchase its lottery tickets online
 An increase in per capita gambling expenditure generally
translates to greater expenditure on lotteries
 Consumers that belong in the older age brackets tend to
represent a large market for the industry
 Customer base predominantly located on the 45+ age groups
 Increases for a household’s disposable income typically allows
them to spend more money on non-essential items or activities,
such as gambling and lottery tickets

Licenses Real per capita total gambling turnover

 The average length of lottery licenses is 25 years 11,500 5.0%
 Near-term expiry of the Victorian lotteries license

Real per capita total gambling

3.0%
 Renewal of license is presently under discussion between Tatts
and the Victorian Government 11,000

turnover ($)
2072

1.0%

Change
2052
2050

-1.0%
10,500
2032

-3.0%
2020
2018

10,000 -5.0%
VIC TAS NT NSW SA QLD 2010 2011 2012 2013 2014 2015 2016

Source: IBISWorld; Tatts Annual Report 20

Tatts’ Wagering business
Wagering operates under Tatts’ UBET brand and it accounts for 21% of the company’s revenue

UBET Overview Competition and Operation Threats

 UBET was launched in April 2015 to consolidate and streamline
its Tattsbet, Tatts.com, TAB and Tote divisions
 UBET possesses exclusive licenses to offer totalisator and fixed
odds wagering through its retail channels on-course, off-course,
and online in QLD, SA, TAS and NT.
 UBET’s pari-mutuel focused wagering service faces strong direct
and indirect competitions from other totalisators and corporate
bookmakers
 A trend of deregulation of the wagering industry has prompted a
significant influx of foreign corporate bookmakers
 The digitalisation of the gambling industry raises redundancy
risks for UBET’s heavy retail network

 The potential grant of retail licenses to other entities will direct

significant competitive pressures upon UBET’s exclusive retail
haven

Operation highlights Performance faces downward pressures from competition

 The opening of 162 new retail stores has generated a 8.4%
turnover growth compared to existing wagering retail stores in the 30
same geographic areas 200

EBITDA/EBIT Margin (%)

174 25 2.8
180 161
 Strong growth in UBET’s online platform is evidenced by a 22.5% 153
2.6
2.8
160
uplift in digital sales from FY15 133 20 2.9
140
EBITDA A$M
 UBET’s exclusive retail license renewal in the NT for 20 years 120
15
will offer strong local presence 100
23.7 22.4
80 10 21.5
 Fixed-price sales on racing and sports saw an increase of 24.1% 19.0
60
40 5
20
0 0
FY13 FY14 FY15 FY16
EBIT EBITDA

Source: Tatts FY16 Annual Report 21

Tatts’ Gaming Services business
Tatts operates in this industry through Maxgaming and Bytecraft

Overview Demand Drivers

 Maxgaming - intended to create additional valued-added
services in contracted venues as well as fulfilling the
government-mandated monitoring across NSW, QLD and
the NT to approximately 136,000 gaming machines.
Furthermore, it is able to provide workflow management
products
 Bytecraft – provider of a fully-managed gaming
maintenance, logistics and technology support service
business to a vast number of ASX top-50 companies, and
other brands as well. The relating services include,
warehousing, installation, relocation, repair and
maintenance
 A greater number of poker and gaming machines installed in
Australia influences operators to demand gaming services
 Casinos are the largest purchasers and operators of gaming
machines in most Australian states. The gambling demand initiated
from casinos will drive up the need of value-added gaming services
and monitoring
 There exists correlation between real household discretionary
income and gambling expenditure. Consumers are more likely to
increase gambling expenditure as discretionary income increases

Licenses Forecasted casino revenue

 Won the exclusive right to monitor all hotel- and club-based
gaming machines in NSW until 2032. Additionally, extended its
current monitoring arrangements for one-year until 2017 6500 20.0
15.8

Casino Revenue ($m)

6200
2032

10.0

Change (%)
5900
2.7 2.7
2027

3.3
5600 0.3
0.0
2021

5300
-8.8
5000 -10.0
NT QLD NSW 2014 2015 2016 2017 2018 2019

Source: IBISWorld 22
 Shareholder analysis
Tatts has a relatively high concentration of retail investors, owning ~40% of total shares outstanding

Top 5 substantial shareholders hold 20.6% of Tatts Retail shareholder distribution

Perpetual 6.7%
JCP Investment Partners 4.9%
8%
AustralianSuper 4.7% 10% 19%

The Vanguard Group 2.5% 1 - 1,000 shares held

1,001 - 5,000 shares held

BlackRock
1.8%
Others 5,001 - 10,000 shares held
79.4%
10,001 - 100,000 shares held
63%

Institutional shareholder analysis Distribution of all shareholders

Recent
Shareholder % # shares (m) transaction Shareholder distribution % # of shareholders # of shares
Sold – March
Perpetual Ltd 6.7% 98.1. 1 – 1,000 0.52% 13,515 7,680,884
2016
Sold –
1,001 – 5,000 8.51% 44,257 124,094,022
JCP Investment Partners 4.9% 72.2 November
2014
5,001 – 10,000 3.58% 7,061 52,267,219
Australian Super 4.7% 68.9 n.a.
10,001 - 100,000 8.81% 5,638 128,612,863
The Vanguard Group 2.5% 36.6 n.a.

Blackrock 1.8% 26.0 n.a. 100,001 and over 78.58% 374 1,147,929,714

Source: DatAnalysis 23
Full overview of the decision tree
Considering every possible outcome in order to reach a favorable conclusion for Tatts

Merge whole Premium

business >20%

Current Position Accept

Trading Halt Negotiations Accept

Blocking Stake

Reject

Approach
Premium Re-negotiate Standstill
Divest UBET Accept Tabcorp
<20% with Tabcorp agreement
(White Knight)

Tabcorp (Hostile)

Release ASX Persuade

Hostile off-
statement + Disclose shareholders
market Others
seek other highest bid against
takeover
bidders takeover

24
In-depth bidding scenario analysis
Analysis of unfavorable bidding scenarios and what appropriate defense methods Tatts should consider

Hostile off-market takeovers by interlopers Hostile off-market takeover by Tabcorp

 Announcement of unsolicited takeover bids will prompt Tabcorp’s  Most likely that Tabcorp will pursue a pre-bid stake before
board of directors to take action against these bidders conducting further acquisitions

 Tabcorp will most likely pursue a pre-bid stake / blocking stake in  Announcement of pre-bid stake will undoubtedly pressure Tatts’
order to prevent these bidders from achieving compulsory shareholders to give up their shareholdings due to ‘bandwagon
acquisition (90% shares attained) effect’ and tempting offer value

Defensive Strategies Defensive Strategies

Logical attack on the bid White Knight Standstill Agreement Golden Parachute
Crown Jewels Defense Crown Jewels Defense

 Persuading Tatts’
substantial shareholders
that the bids proposed by
companies other than
Tabcorp will not be in their
best interest
 Unable to justify a premium
offer as high as Tabcorps
due to low-no synergies
realized and inadequate
management expertise to
operate Tatts’ business lines
 Reach out to Tabcorp for
them to make a friendly
takeover offer
 Bid implementation
agreement will contain ‘deal
protection mechanisms’ that
will prevent interlopers from
continuing their off-market
takeover
• Enter into a standstill
agreement with Tabcorp to
stall or prevent the process
of a hostile takeover
• Favourable for Tabcorp as it
solidifies an enclosed
bidding environment with
Tatts
• Only enact takeover if Tatts’
board of directors and
management are included in
the process, or in other
words, re-negotiate into a
scheme of arrangement
 Substantial remuneration
benefits given to board of
directors if Tatts is taken
over by Tabcorp and the
executives are terminated
as a result of the merger
 Implement golden parachute
clauses within the employee
contract which sets out a
generous severance pay

25
ACCC regulatory concerns
The overlap of game monitoring services in Queensland is likely to raise concerns for the ACCC
Likelihood of
Sector Potential complication Our view ACCC intervention

Wagering  Tabcorp and Tatts are the only 2 non-
government totalisator operators in Australia
 The acquisition may remove Tatts as a
competing supplier of totalisator pooling
services
Broadcasting
 Combination of Tabcorp’s Sky Racing
broadcasting service with Tatts’ retail network
may increase its license bidding power against
broadcasting competitors
Gaming  Tabcorps’ and Tatts’ subsidiaries operate the
Services only two government-mandated monitoring
operations in Qld
 The merger of the parent companies will likely
create a monopoly in the Qld monitoring sector
 The merger will be pro-competitive as it
creates strong competition against corporate
bookmakers
 The companies’ wagering services do not
geographically overlap and are separated by
government-issued operating licenses
 Tatts’ retail businesses do not distribute
visual racing broadcasts
 The bargaining power of other broadcasters
is not subdued as they hold exclusive
licenses in other jurisdictions and race types
 The acquisition is likely to substantially
lessen competition in the monitoring sector
 A divestment of one of the subsidiaries may
be necessary to satisfy regulatory
requirements

The acquisition may be authorised where the net public benefit outweighs the anti-competitive detriment

1 The acquisition will greatly strengthen the racing industry through its funding arrangements; and

2 The merged entity’s ability to compete with international bookmakers will enrich the Australian economy

Source: Competition and Consumer Act 2010 (Cth); Tabcorp & Tatts Annual Report 26
Precedent ACCC Review results
Review of past ACCC anti-competitive assessments reveal this acquisition is likely to be approved
Tabcorp/UNiTAB August 2006
Facts: Tabcorp proposed a takeover of UNiTAB
Tabcorp holds totalisator wagering licenses in VIC
and NSW; UNiTAB holds totalisator wagering
licenses in Qld, NT and SA
Decision: Rejected
Reasoning:  Competition for future wagering licenses would
be substantially lessened
 The potential for new entrants to the wagering
markets will significantly decrease
Federation Centres/Novion Property Group May 2015
Facts: Federation proposed a merger with Novion
Both organisations are Real Estate Investment
Trusts that invest in shopping centres across
Australia
Decision: Accepted pursuant to shopping centre divesture
Reasoning:  The two companies respectively own the only
two large multi-purpose shopping centres within
a 20km radius in Melbourne
 There are sufficient alternative shopping centre
managers in other regions where the two
organisations operate
Source: Australian Competition and Consumer Commission
Expedia/Wotif October 2014
Facts: Expedia proposed to acquire Wotif.
Both companies are global online travel agencies
(OTA) that assist in booking accommodation, flights,
vacation packages
Decision: Accepted
Reasoning:  There has been an influx of new competitors and
business models, e.g. Trivago and TripAdvisor
 The ability of the merged body to increase
commission is restricted by strong direct and
indirect market substitutes
GrainCorp/Cargill storage & handling facility March 2016
Facts: GrainCorp proposed to acquire one of Cargill’s bulk
grain storage and handing facility in NSW
GrainCorp is an integrated grain handling and
processing business; Cargill operates a bulk storage
and handling facility
Decision: Accepted
Reasoning:  Despite the removal of a close competitor at the
existing site, there will be effective competition
from other suppliers in the region
 Graincorp’s storage and handling fees is fixed
 Graincorp has an incentive to deliver efficient
services to growers to maximise facility usage
27
Combined group - Geographical reach
An acquisition of Tatts would provide a unique diversification opportunity, both in product and geography

Geographical Reach

Key brands: Key brands: NS

Business VIC ACT QLD SA TAS NT WA Intl.
TAB Tatts W

Wagering

Lotteries

Keno

Gaming and
Gaming Services

Media

Source: UBS research; Tabcorp and Tatts Annual Reports 28

Combined group – License expiry dates
An acquisition of Tatts would provide vital license holdings ensuring long-term sustainability and a
diversified portfolio in times of rapid change

Wagering Lotteries Keno Gaming Services

21002098
2097

2072
20642062 2064

2052 2050 2050

2047

2035
2032 2032
2028 2027
2024 2022
2020

Tabcorp Licenses Tatts Licenses

Source: Tabcorp and Tatts Annual Reports 29

Valuation

Appendix II
Basic assumptions and WACC
Tatts is larger than Tabcorp in terms of market capitalisation and has a WACC of ~9%

Basic acquisition assumptions

Buyer Seller
Name: Tabcorp Holdings Ltd Name: Tatts Group Ltd
Ticker: TAH Ticker: TTS
Tax rate: 30.00% Tax rate: 30.00%
Recent closing price $4.96 Closing price: $3.64
DSO (m): 835.30 DSO (m): 1,464.50
Market cap (m) $4,143.09 Market cap (m): $5,330.78
Enterprise value (m) $5,012.69 Enterprise value (m) $6,371.78

Seller valuation assumptions

Discount rate calculation

Cost of equity Cost of debt
Risk free rate: 4.00% Risk free rate: 4.00%
ERP: 6.00% Credit spread: 1.50%
Beta: 1 Cost of debt: 5.50%
Cost of equity: 10.0%

Total equity: 5,331 Total debt: 1,124

% equity: 82.59% % debt: 17.41%

WACC: 8.93%

Terminal value
Gordon growth method Terminal EBITDA method
Growth rate: 2.96% Terminal EBITDA x 12.00 x
Terminal value: 8,479 Terminal value: 8,476
Implied EBITDA x: 12.00 x Implied growth rate: 2.96%

Implied share price $4.17

31
Tatts financial statement projection assumptions
Income statement, balance sheet and cash flow statement key driver assumptions
Seller financial projection assumptions

P&L drivers FY12A FY13A FY14A FY15A FY16A FY17E FY18E FY19E FY20E FY21E
Revenue 3,896 2,944 2,864 2,916 2,925 3,127 3,359 3,612 3,874 4,127
Revenue - sensitivity - - - - -
Lotteries 1,767 2,009 1,923 1,977 2,139 2,332 2,553 2,796 3,047 3,291
% growth 13.64% (4.27%) 2.80% 8.22% 9.00% 9.50% 9.50% 9.00% 8.00%
Wagering 623 656 642 633 610 607 604 601 598 595
% growth 5.19% (2.05%) (1.46%) (3.63%) (0.49%) (0.49%) (0.49%) (0.49%) (0.49%)
Gaming services 250 280 299 307 176 189 202 215 228 241
% growth 11.71% 6.74% 2.76% (42.50%) 7.07% 7.00% 6.50% 6.00% 5.50%
Pokies 1,255

OpEx % revenue 82.97% 83.05% 82.71% 82.66% 83.04% 82.89% 82.89% 82.89% 82.89% 82.89%
Margin toggle - - - - -

D&A % revenue 2.58% 2.86% 2.93% 2.99% 2.57% 2.50% 2.50% 2.50% 2.50% 2.50%

Balance sheet drivers FY12A FY13A FY14A FY15A FY16A FY17E FY18E FY19E FY20E FY21E
Receivables % revenue 4.29% 4.86% 4.00% 2.19% 2.10% 2.10% 2.10% 2.10% 2.00% 2.00%

Prepaid expenses % opex 0.48% 0.62% 0.76% 0.69% 0.85% 0.85% 0.85% 0.85% 1.00% 1.00%

Inventory % opex 0.50% 0.58% 0.34% 0.15% 0.10% 0.10% 0.10% 0.10% 0.05% 0.05%

Current payables % opex 17.88% 25.89% 24.95% 24.83% 24.45% 23.60% 23.60% 23.60% 23.60% 23.60%

NC payables % opex 2.26% 3.04% 3.87% 7.42% 7.71% 7.71% 7.71% 7.71% 8.00% 8.00%

NC provisions % revenue 6.13% 9.26% 7.67% 7.72% 9.84% 8.12% 8.12% 8.12% 8.12% 8.12%

Debt schedule
Average interest rate 5.65%
Beginning balance 1,124 1,289 985 670 475
Debt drawn 165 70 - - -
Debt repayment - 374 315 195 228
Ending balance 1,289 985 670 475 247
Interest expense 68 64 47 32 20

CFS drivers FY12A FY13A FY14A FY15A FY16A FY17E FY18E FY19E FY20E FY21E

Cap Ex % revenue 1.69% 2.10% 1.55% 1.23% 2.75% 2.75% 2.75% 2.75% 2.75%

Intangibles % revenue 0.65% 0.53% 1.93% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90%

Investment % revenue 1.47% 1.19% 3.27% 5.18% 2.78% 2.78% 2.78% 2.78% 2.78%

Dividends pay out ratio 87.40% 95.90% 95.00% 109.60% - - - - -

FX effects % revenue 0.28% (0.04%) (0.04%) 0.27% 0.12% 0.12% 0.12% 0.12% 0.12%

32
 Tatts income statement
Revenue growth primarily driven by growth in the Lotteries division

Income statement

A$m; Jun ye FY12A FY13A FY14A FY15A FY16A FY17E FY18E FY19E FY20E FY21E
Revenue 3,896 2,944 2,864 2,916 2,925 3,127 3,359 3,612 3,874 4,127
Growth rate % (24%) (3%) 2% 0% 7% 7% 8% 7% 7%
Operating expenses (3,233) (2,445) (2,368) (2,411) (2,429) (2,592) (2,784) (2,994) (3,211) (3,421)
EBITDA 663 499 495 506 496 535 575 618 663 706
Margin % 17% 17% 17% 17% 17% 17% 17% 17% 17% 17%
D&A (100) (84) (84) (87) (75) (78) (84) (90) (97) (103)
EBIT 563 415 411 419 421 457 491 528 566 603
EBIT margin 14% 14% 14% 14% 14% 15% 15% 15% 15% 15%
Net interest expenses (94) (97) (83) (51) (38) (68) (64) (47) (32) (20)
PBT 469 318 328 368 383 389 427 481 534 583
Tax (131) (76) (100) (110) (115) (117) (128) (144) (160) (175)
Net abnormals (19) (15) (1) (2) (4) - - - - -
NPAT 319 227 227 256 263 272 299 337 374 408

Source: DatAnalysis Premium; Tatts Annual Reports 33

 Tatts balance sheet
Intangibles such as licences form an important part of Tatts’ financial position

Balance sheet

A$m; Jun ye FY12A FY13A FY14A FY15A FY16A FY17E FY18E FY19E FY20E FY21E
Current assets
Cash 290 356 687 422 194 503 442 405 527 629
Receivables 167 143 114 64 61 66 71 76 77 83
Prepaid expenses 15 15 18 17 21 22 24 25 32 34
Inventories 16 14 8 4 2 2 3 3 2 2
Other 39 85 83 50 114 114 114 114 114 114
Total current assets: 528 613 911 556 393 707 653 623 753 862
Non-current assets
PP&E 187 186 206 210 157 165 173 182 192 202
Intangibles 4,098 4,553 4,540 4,653 4,462 4,490 4,520 4,553 4,588 4,625
Investments 75 43 34 95 152 87 93 100 108 115
Other 56 49 10 11 71 71 71 71 71 71
Total non-current assets 4,416 4,832 4,789 4,969 4,841 4,841 4,841 4,841 4,841 4,841
Total assets 4,944 5,445 5,700 5,525 5,233 5,548 5,494 5,464 5,593 5,703
Current liabilities
Payables 578 633 591 599 594 612 657 707 758 807
Short term debt 447 343 - 333 - - - - - -
Other 65 83 611 633 68 68 68 68 68 68
Total current liabilties 1,091 1,060 1,202 1,565 662 662 662 662 662 662
Non-current liabilities
Payables 73 74 92 179 187 200 215 231 257 274
Long term debt 860 1,278 1,351 585 1,124 1,289 985 670 475 247
Provisions 239 273 220 225 288 254 273 293 315 335
Other 18 - - - - - - - - -
Total non-current liabilities 1,189 1,625 1,662 989 1,599 1,743 1,473 1,194 1,047 856
Total liabilities 2,280 2,685 2,864 2,554 2,261 2,405 2,134 1,856 1,709 1,518
Equity
Share capital 2,543 2,655 2,748 2,841 2,854 2,854 2,854 2,854 2,854 2,854
Reserves (16) (8) (9) (10) (2) 1 5 10 14 19
Retained earnings 137 113 96 140 120 393 691 1,028 1,402 1,810
Total equity 2,664 2,760 2,836 2,971 2,973 3,249 3,551 3,892 4,270 4,683

Source: DatAnalysis Premium; Tatts Annual Reports 34

 Tatts cash flow statement
Abnormal cash flows in FY15 and FY16 due repayment of damages from legal proceedings in prior years

Cash flow statement

A$m; Jun ye FY12A FY13A FY14A FY15A FY16A FY17E FY18E FY19E FY20E FY21E
Cash flow from operations
Net income 227 227 256 263 272 299 337 374 408
D&A 84 84 87 75 78 84 90 97 103
NWC 78 523 211 (623) (9) 72 79 91 80
Total cash flow from operations 389 834 553 (284) 341 455 506 562 591
Cash flow from investing
Capital expenditure (83) (103) (92) (22) (86) (92) (99) (107) (113)
Intangibles (455) 13 (113) 191 (28) (30) (33) (35) (37)
Investment 31 9 (61) (56) (87) (93) (100) (108) (115)
Total cash flow from investing (507) (81) (266) 113 (201) (216) (232) (249) (265)
Cash from financing
Debt issue / repayment 314 (270) (432) 205 165 (304) (315) (195) (228)
Dividends (251) (243) (212) (283) - - - - -
Share issue 112 94 93 13 - - - - -
Total cash flow from financing 175 (420) (552) (64) 165 (304) (315) (195) (228)
FX effects 8 (1) (1) 8 4 4 4 5 5
Total change in cash 66 331 (265) (228) 309 (61) (37) 122 102
Beginning cash 290 356 687 422 194 503 442 405 527
Ending cash 356 687 422 194 503 442 405 527 629

Source: DatAnalysis Premium; Tatts Annual Reports 35

 Discounted cash flow analysis
Tatts has an implied share price of ~A$4.17 which is 15% above the most recent closing price

Discounted cash flow analysis

A$m 0 1 2 3 4 5
Unlevered FCF projection FY12A FY13A FY14A FY15A FY16A FY17E FY18E FY19E FY20E FY21E

Revenue: 2,944 2,864 2,916 2,925 3,127 3,359 3,612 3,874 4,127
Growth rate: (2.73%) 1.84% 0.31% 6.91% 7.41% 7.52% 7.24% 6.54%
EBITDA: 499 495 506 496 535 575 618 663 706
EBITDA margin: 17.29% 17.34% 16.96% 17.11% 17.11% 17.11% 17.11% 17.11%
EBIT: 415 411 419 421 457 491 528 566 603
Operating margin: 14.36% 14.35% 14.39% 14.61% 14.61% 14.61% 14.61% 14.61%

Less: Taxes: (124) (123) (126) (126) (137) (147) (158) (170) (181)

NOPAT: 290 288 293 295 320 344 370 396 422

D&A: 84 84 87 75 78 84 90 97 103

Less: Change in WC: 78 523 211 (623) (9) 72 79 91 80

Less: Capital expenditures: (83) (103) (92) (22) (86) (92) (99) (107) (113)

Unlevered free cash flow: 369 792 499 (274) 303 408 439 478 492
Growth rate: 115% (37%) (155%) (210%) 34% 8% 9% 3%

Output

Terminal EBITDA method

NPV of FCF: 1,622
PV of TV: 5,527
Implied enterprise value: 7,148
% of EV from TV: 77.32%

Less: Net debt (1,041)

Implied equity value: 6,107

Implied share price: $4.17

Premium / (discount): 14.56%

36
Comparable company analysis
A sum of the parts approach was employed. Infrastructure companies were also included
Comparable company analysis
Revenue EBITDA EBIT NPAT
Company Market cap Enterprise value FY16A FY17F FY16A FY17F FY16A FY17F FY16A FY17E
Tabcorp 4,143 5,013 2,193 2,245 508 525 329 347 170 196
Tatts 5,331 6,372 2,925 3,127 496 535 421 457 263 272

International wagering
Paddy Power Betfair 12,497 12,335 3,127 3,281 865 921 718 808 629 656
William Hill 4,443 5,161 2,996 3,093 661 663 520 495 439 355
Ladbrokes Coral 3,798 5,524 4,452 807 583 413
International lotteries / Infrastructure
IGT 6,482 16,854 6,314 7,301 2,138 2,506
Scientific Games 1,336 11,733 4,160 3,990 1,680 1,567
Intralot 240 1,032 2,071 2,320 268 314
Transurban 21,789 34,142 1,371 1,581 764 938 320 406
Sydney Airport 14,224 21,557 1,062 1,147 746 820 256 293
Macquarie Atlas 2,163 5,693 527 575 459 508 161 147
Gaming
Ainsworth 745 786 282 344 82 122 55 97 48 70
Aristocrat 10,095 11,100 2,372 2,465 943 929 811 770 507 493
Konami 6,797 5,739 5,739 3,217 676 812 507 563 384 333

EBITDA Historical EBITDA multiple (x) Forecasted EBITDA mutliple (x)

FY16 FY17 Min Mean Max Min Mean Max
Lotteries 329 355 6.98 11.49 20.30 6.73 10.73 18.80
Wagering 116 126 7.81 11.03 14.26 6.85 9.34 13.39
Gaming 51 55 8.49 9.95 11.77 6.44 8.49 11.95
Implied EV lotteries 2,294 3,775 6,669 2,384 3,804 6,665
Implied EV wagering 908 1,284 1,659 859 1,173 1,681
Imlied EV gaming 434 509 602 355 468 659
Total implied EV 3,637 5,568 8,930 3,599 5,444 9,006
Less: Net debt (1,041) (1,041) (1,041) (1,041) (1,041) (1,041)
Implied share price $1.77 $3.09 $5.39 $1.75 $3.01 $5.44
Implied EV / EBITDA 7.33 x 11.22 x 18.00 x 6.85 x 10.37 x 17.15 x

Source: UBS Research 37

Precedent transactions
A sum of the parts approach was used. Infrastructure transactions were also included
Precedent transactions

EBITDA multiple
Target Acquirer Date Region Consideration (m) Historical Forecast
Lotteries / Infrastructure
SA Lotteries Management rights Tatts Nov-12 Australia $427 12.50 x 10.50 x
NSW Lotteries Corporation Tatts Mar-10 Australia $850 14.10 x 14.00 x
Golden Casket Lottery Corporation Tatts Apr-07 Australia $530 10.50 x 9.70 x
OPAP Emma Delta May-13 Europe € 2,158 6.80 x 8.00 x
Hellenic State Lotteries Hellenic Lotteries S.A. Dec-12 Europe € 190 9.10 x 8.80 x
Botany & Newcastle Ports Hastings / China Merchants Apr-13 Australia $1,750 27.00 x
Min: 6.80 x 8.00 x
Mean: 13.33 x 10.20 x
Max: 27.00 x 14.00 x
Wagering
UNiTAB Tattersall's Mar-06 Australia $1,900 12.70 x 11.40 x
TAB Tabcorp Nov-03 Australia $2,150 12.30 x 10.30 x
Centrebet Sportingbet May-11 Australia $185 12.00 x 7.50 x
Sportsbet Paddy Power Dec-10 Australia $370 11.35 x 8.00 x
International All Sports Sportsbet Jun-09 Australia $40 4.00 x 4.70 x
Coral Group Ladbrokes Jul-15 Europe € 1,112 9.60 x 8.90 x
bwin GVC Sep-15 Europe € 1,497 13.20 x 12.50 x
Sky Bet CVC Capital Partners Dec-14 Europe € 800 15.00 x 12.90 x
Sportingbet GVC and William Hill Oct-12 Europe € 491 10.10 x 7.50 x
Min: 4.00 x 4.70 x
Mean: 11.14 x 9.30 x
Max: 15.00 x 12.90 x
Gaming services
Intecq Tabcorp Aug-16 Australia $128 9.70 x 8.30 x
International Game Technology GTECH Jul-14 USA $4,626 8.00 x 9.00 x
Oldford Group Amaya Jun-14 USA $4,900 10.30 x 8.30 x
Min: 8.00 x 8.30 x
Mean: 9.33 x 8.53 x
Max: 10.30 x 9.00 x

EBITDA Historical EBITDA multiple Forecasted EBITDA mutliple

FY16 FY17 Min Mean Max Min Mean Max
Lotteries 329 355 6.80 x 13.33 x 27.00 x 8.00 x 10.20 x 14.00 x
Wagering 116 126 4.00 x 11.14 x 15.00 x 4.70 x 9.30 x 12.90 x
Gaming 51 55 8.00 x 9.33 x 10.30 x 8.30 x 8.53 x 9.00 x
Implied EV lotteries 2,234 4,380 8,870 2,836 3,616 4,963
Implied EV wagering 465 1,296 1,745 590 1,167 1,619
Imlied EV gaming 409 477 527 458 471 497
Total implied EV 3,108 6,153 11,142 3,884 5,255 7,079
Less: Net debt (1,041) (1,041) (1,041) (1,041) (1,041) (1,041)
Implied share price $1.41 $3.49 $6.90 $1.94 $2.88 $4.12
6.26 x 12.40 x 22.45 x 7.26 x 9.82 x 13.23 x

Source: UBS Research 38

Merger model assumptions
Offer, funding and transaction fee assumptions

Merger model assumptions

Offer assumptions
TTS closing price $3.64 Total shares in mergered entity 2,007
Offer price per share $4.07 Shares held by Tabcorp 835 41.61%
Premium paid 11.80% Shares held by Tatts 1,172 58.39%

Purchase equity value (m) $5,960

Implied enterprise value $7,001
Implied EV / FY16 EBITDA 14.11 x
Implied EV / FY16 Revenue 2.39 x
Implied P / FY16 Earnings 22.63 x

Funding assumptions
% cash : 0.00%
% debt: 2.46% Amount: Pre-tax cost:After-tax cost:
% scrip: 97.54% Cash used: - 1.95% 1.37%
Debt issued: 147 5.50% 3.85%
Scrip ratio 0.80 Scrip value: 5,813 4.10%
Shares issued: 1,172
Weighted average cost: 4.09%
Target's yield: 4.94%

Fees assumptions
Advisory fee (%): 1.50%
Debt issuance (%): 2.00%
Amortisation period: 10
Legal & other fees: 0.50%

39
Merger model assumptions
Debt schedule, sources and uses schedule, purchase price allocation

Debt assumptions
Debt to purchase equity 147 Debt to refinance 1,246
Security Unsecured Security Secured
Interest rate 5.50% Interest rate 5.50%
Term 10 Term 10

Year Principal Interest Total Year Principal Interest Total

1 (11) (8) (19) 1 (97) (69) (165)
2 (12) (7) (19) 2 (102) (63) (165)
3 (13) (7) (19) 3 (108) (58) (165)
4 (13) (6) (19) 4 (114) (52) (165)
5 (14) (5) (19) 5 (120) (45) (165)
6 (15) (5) (19) 6 (126) (39) (165)
7 (16) (4) (19) 7 (133) (32) (165)
8 (17) (3) (19) 8 (141) (25) (165)
9 (17) (2) (19) 9 (149) (17) (165)
10 (18) (1) (19) 10 (157) (9) (165)

Sources and uses

Sources Uses
Cash: - Equity purchase price: 5,960
Debt: 147 Debt refinance: 1,124
Scrip: 5,813 One-time deal fee: 119
Debt for refinancing + fees: 1,246 Capitalised financing fee: 3
Total sources: 7,206 Total uses 7,206

Purchase price allocation

Goodwill calculation
Equity purchase price: 5,960
Less: Target book value: (2,973)
Total allocable premium: 2,987

40
Merger model assumptions
Synergies assumptions and timeline

Synergies
EBITDA synergies p.a. 130
EBIT / EBITDA 70.00%
Implementation cost 110
Growth rate 3.00%

Synergies timeline FY12A FY13A FY14A FY15A FY16A FY17E FY18E FY19E FY20E FY21E

Implementation cost (110)

EBITDA synergies 130 134 138
EBIT synergies 91 94 97
Taxes (77) - - 64 66 68
NPV of synergies 58
TV of synergies 765
Total PV of synergies 823
Value per TTS DSO $0.56

41
Merger model
Tabcorp’s offer arrangement is forecasted to be significantly EPS accretive
Merger model

A$m 1 2 3 4 5
Combined income statement FY12A FY13A FY14A FY15A FY16A FY17E FY18E FY19E FY20E FY21E

TTS - revenue 3,896 2,944 2,864 2,916 2,925 3,127 3,359 3,612 3,874 4,127
TAH - revenue 3,049 2,007 2,038 2,158 2,193 2,252 2,310 2,367 2,413 2,455
Total revenue 6,945 4,951 4,901 5,074 5,119 5,379 5,669 5,979 6,286 6,582

TTS - operating expenses (3,233) (2,445) (2,368) (2,411) (2,429) (2,592) (2,784) (2,994) (3,211) (3,421)
TAH - operating expenses (2,328) (1,547) (1,554) (1,650) (1,686) (1,725) (1,770) (1,813) (1,848) (1,881)
Total operating expenses (5,561) (3,992) (3,923) (4,060) (4,115) (4,317) (4,554) (4,807) (5,059) (5,301)

EBITDA 1,384 959 978 1,014 1,004 1,062 1,115 1,172 1,227 1,281
Synergy EBITDA - - - - - - - 130 134 138
Total EBITDA 1,384 959 978 1,014 1,004 1,062 1,115 1,302 1,361 1,418

TTS - D&A (100) (84) (84) (87) (75) (78) (84) (90) (97) (103)
TAH - D&A (134) (151) (164) (174) (179) (163) (167) (171) (174) (178)
Total D&A (234) (235) (248) (261) (254) (241) (251) (261) (271) (281)

EBIT 1,150 724 730 753 750 821 864 1,040 1,090 1,138

Synergy implementation cost (110) - - - - -

TTS - Interest expense (94) (97) (83) (51) (38) - - - - -
TAH - Interest expense (90) (99) (94) (76) (70) (77) (80) (66) (58) (54)
Foregone interest on cash - - - - - - - - - -
Interest on new debt - - - - - (77) (71) (64) (58) (57)
Amortisation of financing fees - - - - - 0 0 0 0 0
Net interest (184) (196) (177) (127) (108) (154) (151) (130) (116) (111)

Pre-tax income 966 528 553 627 642 667 713 911 974 1,027

Income tax (288) (146) (175) (35) (188) (200) (214) (273) (292) (308)

NPAT 678 382 377 592 453 467 499 637 682 719

TAH shares 835 835 835 835 835 835 835 835 835 835
Shares issued - - - - - 1,172 1,172 1,172 1,172 1,172
Total TAH shares 835 835 835 835 835 2,007 2,007 2,007 2,007 2,007
New equity value 4,143 4,143 4,143 4,143 4,143 9,956 9,956 9,956 9,956 9,956

TAH standalone EPS ($/share) 0.41 0.18 0.18 0.40 0.20 0.24 0.25 0.27 0.28 0.29
Pro-forma EPS ($/share) 0.23 0.25 0.32 0.34 0.36
Accretion/dilution (3.09%) 1.39% 19.63% 22.27% 24.81%

42
Debt pay down schedule and key ratios
The merged entity has sufficient cash flow to service the debt and the leverage ratios remain strong
A$m
Debt paydown schedule FY12A FY13A FY14A FY15A FY16A FY17E FY18E FY19E FY20E FY21E

Net income 467 499 637 682 719

D&A 241 251 261 271 281
Changes in WC (5) 79 86 97 85
Cash flow from operations 703 829 984 1,050 1,084

Capital expenditures (266) (277) (289) (300) (310)

Existing principal debt repayment - (390) (117) (138) -

Cash flow available for debt repayment 437 162 579 612 774

Beginning transaction debt balance 1,392 1,284 1,170 1,050 923

Additional borrowing / (paydown) (108) (114) (120) (127) (134)
Ending transaction debt balance 1,284 1,170 1,050 923 789

Beginning existing debt balance 1,080 1,580 1,191 1,074 936

Additional borrowing / (paydown) 500 (390) (117) (138) -
Ending existing debt balance 1,580 1,191 1,074 936 936

Total debt balance 2,865 2,361 2,124 1,859 1,725

Total cash balance 1,015 1,015 1,015 1,015 1,015

Key ratios FY12A FY13A FY14A FY15A FY16A FY17E FY18E FY19E FY20E FY21E

Revenue growth 5.09% 5.39% 5.47% 5.14% 4.70%

EBITDA margin 19.74% 19.67% 21.77% 21.65% 21.55%
EBIT margin 15.26% 15.24% 17.40% 17.34% 17.29%

Total Debt / EBITDA: 2.70 x 2.12 x 1.63 x 1.37 x 1.22 x

Net Debt / EBITDA: 1.74 x 1.21 x 0.85 x 0.62 x 0.50 x
EBITDA / Net Interest Expense: 6.91 x 7.39 x 10.03 x 11.75 x 12.77 x
Post deal Total Debt / Equity: 0.29 x 0.24 x 0.21 x 0.19 x 0.17 x
Total Debt / Capital: 0.22 x 0.19 x 0.18 x 0.16 x 0.15 x
Net Debt / Equity: 0.19 x 0.14 x 0.11 x 0.08 x 0.07 x

43
Leveraged buyout assumptions
Basic assumptions, debt assumptions and sources and uses schedule
Leveraged buyout assumptions

Basic assumptions

EBITDA exit multiple (x) 14.00 x EBITDA Margin 20.00%

Target share price $3.64
Premium paid 17.00%
Offer share price $4.26

Current valuation Purchase valuation of target

Equity value 5,331 Equity value 6,237
Enterprise value 6,372 Enterprise value 7,278

EV / Revenue (FY16A) 2.18 x EV / Revenue (FY16A) 2.49 x

EV / EBITDA (FY16A) 12.84 x EV / EBITDA (FY16A) 14.67 x
EV / Revenue (FY17E) 2.04 x EV / Revenue (FY17E) 2.33 x
EV / EBITDA (FY17E) 11.90 x EV / EBITDA (FY17E) 13.60 x

Fees & other assumptions Transaction funding Funds required

Advisory fees 1.50% Debt 58.00% Equity purchase price 6,237
Debt issuance fees 2.00% Equity 42.00% Plus: debt refinanced 1,124
Legal & other fees 0.50% Less: excess cash (111)
Minimum cash balance 83 Total (excl. fees) 7,250
Maximum cash available 111

Debt assumptions

Debt assumptions % $m Other debt assumptions Interest Principal Term

Total debt used 58.00% 4,205 Senior notes 3.60% 10.00% 10
Senior notes 20.00% 841 Subordinated notes 5.50% - 10
Subordinated notes 80.00% 3,364

Initial 3m BBSW 2.10%

Annual step up 0.15%

Sources and uses

Sources Uses
Senior notes 841 Equity purchase price: 6,237
Subordinated notes 3,364 Debt refinance: 1,124
Investor equity 3,274 One-time deal fee: 145
Excess cash from target 111 Capitalised financing fee: 84
Total sources: 7,590 Total uses 7,590

44
Leveraged buyout model
Debt pay down schedule and cash flow forecasts
Leveraged buyout

A$m
Debt paydown schedule FY12A FY13A FY14A FY15A FY16A FY17E FY18E FY19E FY20E FY21E

BBSW 2.10% 2.25% 2.40% 2.55% 2.70%

Senior note interest rate 3.60% 3.75% 3.90% 4.05% 4.20%
Subordinated note intererest rate 5.50% 5.50% 5.50% 5.50% 5.50%

Beginning senior note 841 735 534 302 31

Mandatory repayment (84) (74) (53) (30) (3)
Optional repayment (21) (128) (178) (241) (28)
Ending senior note 735 534 302 31 -

Beginning subordianted note 3,364 3,364 3,364 3,364 3,364

Mandatory repayment - - - - -
Optional repayment - - - - -
Ending subordinated note 3,364 3,364 3,364 3,364 3,364

Interest paid on new debt (215) (213) (206) (197) (186)

Interest income on cash (2) (2) (2) (2) (2)
Total interest expense (217) (215) (208) (199) (188)

A$m
Cash flow statement FY12A FY13A FY14A FY15A FY16A FY17E FY18E FY19E FY20E FY21E

Revenue 3,127 3,359 3,612 3,874 4,127

EBITDA 625 672 722 775 825
D&A (100) (84) (84) (87) (75)
Interest (217) (215) (208) (199) (188)
NPAT 215 261 301 342 393
Plus: D&A 100 84 84 87 75
Less: NWC (9) 72 79 91 80
Cash flow from operations 307 418 464 520 548

Cash flow from investing (201) (216) (232) (249) (265)

Free cash flow 106 201 232 271 283

Beginning cash 83 83 83 83 83
Plus: FCF 106 201 232 271 283
Less: Minimum cash balance (83) (83) (83) (83) (83)

Mandatory debt repayment (84) (74) (53) (30) (3)

Cash available for new debt repayment 106 201 232 271 283
Cash used for new debt repayment (106) (201) (232) (271) (31)

Beginning cash balance 83 83 83 83 83

Net change in cash - - - - -
Ending cash balance 83 83 83 83 83

Total debt ending balance 4,099 3,898 3,666 3,395 3,364

Net debt 4,016 3,815 3,583 3,312 3,281

Beginning shareholders' equity 3,129 3,344 3,605 3,907 4,248

Plus: net income 215 261 301 342 393
Ending shareholders' equity 3,344 3,605 3,907 4,248 4,642

45
Leveraged buyout model
Key transactions metrics and returns calculations

Key metrics FY12A FY13A FY14A FY15A FY16A FY17E FY18E FY19E FY20E FY21E

Revenue growth 6.91% 7.41% 7.52% 7.24% 6.54%

Operating margin 16.79% 17.50% 17.68% 17.75% 18.18%
EBITDA margin 20.00% 20.00% 20.00% 20.00% 20.00%

Total debt / EBITDA 6.55 x 5.80 x 5.07 x 4.38 x 4.08 x

Net debt / EBITDA 6.42 x 5.68 x 4.96 x 4.27 x 3.97 x
EBITDA / net interest expense 2.88 x 3.13 x 3.47 x 3.89 x 4.38 x

Total debt / Equity: 1.23 x 1.08 x 0.94 x 0.80 x 0.72 x

Total debt / Capital: 0.55 x 0.52 x 0.48 x 0.44 x 0.42 x
Net debt / Equity: 1.20 x 1.06 x 0.92 x 0.78 x 0.71 x
Net debt / Net capital: 0.55 x 0.51 x 0.48 x 0.44 x 0.41 x

Debt service coverage ratio: 0.35 x 0.70 x 0.89 x 1.18 x 1.48 x

Returns FY12A FY13A FY14A FY15A FY16A FY17E FY18E FY19E FY20E FY21E

Investor equity (3,274) - - - -

Exit price - - - - - 11,556
Debt - - - - - (3,364)
Total cash flow (3,274) - - - - 8,192

IRR 20.13%
Money on money multiple 2.50 x

46
This page is intentionally left blank
© 2018 Renaissance Advisory. Authorised and regulated by the Australian Prudential Regulatory Authority. All rights reserved. Renaissance Advisory is a trademark and service mark of Renaissance Advisory Inc. or its affiliates and are
used and registered throughout the world.

Renaissance Advisory and its affiliates do not provide tax or legal advice. Any discussion of tax matters in these materials (i) is not intended or written to be used, and cannot be used or relied upon, by you for the purpose of
avoiding any tax penalties and (ii) may have been written in connection with the “promoting marketing” or any transaction contemplated hereby (“Transaction”). Accordingly, you should seek advice based on your particular
circumstances from an independent tax advisor.
Any terms set forth herein are intended for discussion purposes only and are subject to the final terms set forth in separate definitive written agreements. This presentation is not a commitment to lend, syndicate a financing,
underwrite or purchase securities, or commit capital nor does it obligate us to enter into such a commitment. Nor are we acting in any other capacity as fiduciary to you. By accepting this presentation, subject to applicable law or
regulation, you agree to keep confidential the existence of an proposed terms for any Transaction.
Prior to entering into any Transaction, you should determine, without reliance upon us or our affiliates, the economic risks and merits (and independently determine that you are able to assume these risks) as well as the legal, tax
and accounting characterisations and consequences of any such Transaction. In this regard, by accepting this presentation, you acknowledge that (a) we are not in the business of providing (and you are not relying on us for) legal, tax
or accounting advice, (b) there may be legal, tax or accounting risks associated with any Transaction, (c) you should receive (and rely on) separate and qualified legal, tax and accounting advice and (d) you should apprise senior
management in your organisation as to such legal, tax and accounting advice (and any risks associated with any Transaction) and our disclaimer as to these matters.
Any prices or levels contained herein are preliminary and indicative only and do not represent bids or offers. These indications are provided solely for your information and consideration, are subject to change at any time without
notice and are not intended as a solicitation with respect to the purchase of any instrument. The information contained in this presentation may include results of analyses from a quantitative model which represent potential future
events that may or may not be realised, and is not a complete analysis of every material fact representing any product. Any estimates included herein constitute our judgment as of the date hereof and are subject to change without
notice.

48