SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13A-16 OR 15D-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
August 13, 2003
Commission File number: 2-6860
JUPITERS LIMITED
-----------------------------------
NAME OF YOUR COMPANY
Level 9, Niecon Tower
17 Victoria Avenue
P.O. Box 1400
Broadbeach, QLD 4218
Australia
----------------------------------------------------
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.
Form 20-F X Form 40-F
----- -----
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No
----- -----
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b):
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
JUPITERS LIMITED
By: /s/Laurence Martin Carsley
---------------------------
Laurence Martin Carsley
DATE: August 13, 2003 Company Secretary
[JUPITERS LIMITED LOGO]
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION
SCHEME BOOKLET
For the Schemes of Arrangement between
JUPITERS LIMITED
ACN 010 741 045
and
THE HOLDERS OF JUPITERS ORDINARY SHARES
AND RESET PREFERENCE SHARES
in relation to a recommended merger with
TABCORP HOLDINGS LIMITED
ACN 063 780 709
Certain graphs and charts referred to in this
document can be viewed on the
Company's web site at:
http://www.jupiters.com.au/frameset.html?merger_information/scheme_booklet.html
IMPORTANT NOTICES
READ THIS DOCUMENT
This document is important. If you are a Jupiters Ordinary Shareholder, you
should read the information in this Scheme Booklet relevant to Jupiters Ordinary
Shareholders in its entirety before deciding how to vote on the resolution to be
considered at the Ordinary Share Scheme Meeting. If you are a RPS Holder, you
should read the information in this Scheme Booklet relevant to RPS Holders in
its entirety before deciding how to vote on the resolution to be considered at
the RPS Scheme Meeting. In either case, if you are in doubt as to what you
should do, you should consult your legal, investment or other professional
adviser.
RESPONSIBILITY STATEMENT
The Jupiters Information has been prepared by Jupiters and is the responsibility
of Jupiters. TABCORP, TABCORP Investments, TABCORP Issuer and their directors,
officers and advisers, and the advisers of Jupiters, do not assume any
responsibility for the accuracy or completeness of the Jupiters Information. The
TABCORP Information has been prepared by TABCORP, TABCORP Investments and
TABCORP Issuer and is the responsibility of TABCORP, TABCORP Investments and
TABCORP Issuer. Jupiters and its directors, officers and advisers, and the
advisers of TABCORP, TABCORP Investments and TABCORP Issuer, do not assume any
responsibility for the accuracy or completeness of the TABCORP Information.
Except as set out below, Jupiters, TABCORP, TABCORP Investments, TABCORP Issuer
and their respective directors, officers and advisers do not assume any
responsibility for the accuracy or completeness of the Independent Expert's
Reports or the Ernst & Young opinions on tax consequences. Jupiters, TABCORP,
TABCORP Investments and TABCORP Issuer do, however, assume responsibility for
the accuracy and completeness of the Independent Expert's Reports and the Ernst
& Young opinions to the extent that those Reports and opinions rely upon
information given to the Independent Expert or Ernst & Young, respectively, by
Jupiters, TABCORP, TABCORP Investments or TABCORP Issuer (as the case may be).
ROLE OF ASIC AND ASX
A copy of this Scheme Booklet has been examined and registered by ASIC for the
purposes of section 412(6) of the Corporations Act. ASIC has been requested to
provide statements, in accordance with section 411(17)(b) of the Corporations
Act, that ASIC has no objection to the Schemes. If ASIC provides these
statements, then they will be produced to the Court at the time of the Court
hearing to approve the Schemes. Neither ASIC nor any of its officers takes any
responsibility for the contents of this Scheme Booklet.
A copy of this Scheme Booklet has been lodged with ASX. Neither ASX nor any of
its officers takes any responsibility for the contents of this Scheme Booklet.
COURT PROCESS
The Corporations Act and the Uniform Civil Procedure Rules of Queensland provide
a procedure for Jupiters Ordinary Shareholders and RPS Holders to oppose the
approval by the Court of the Ordinary Share Scheme and the RPS Scheme
respectively or to make representations to the Court in relation to them. If you
wish to oppose the approval by the Court of either of the Schemes at the
relevant Court hearing or to make representations to the Court in relation to
either of the Schemes you may do so by filing with the Court and serving on
Jupiters a notice of appearance in the prescribed form together with any
affidavit on which you wish to rely at the hearing. The notice of appearance and
affidavit must be served on Jupiters at least one day before the Second Court
Date. That date is currently scheduled to occur on 31 October 2003. Any change
to this date will be announced through ASX and on Jupiters' website,
www.jupiters.com.au.
NOTICE TO JUPITERS ORDINARY SHAREHOLDERS IN JURISDICTIONS OUTSIDE AUSTRALIA
This Scheme Booklet complies with Australian disclosure requirements and
Australian accounting standards. These disclosure requirements and accounting
standards may be different to those in other countries.
This Scheme Booklet does not constitute an offer to sell to you or a
solicitation of an offer to purchase from you any securities in Jupiters or
TABCORP. Shareholders who are subject to taxation outside Australia should
consult their tax advisor as to the applicable tax consequences of the Merger.
UNITED STATES OF AMERICA
The TABCORP Shares to be issued pursuant to the Ordinary Share Scheme have not
been, and will not be, registered under the US Securities Act of 1933 (as
amended) or the securities laws of any US state or other jurisdiction.
If at the time the Ordinary Share Scheme is submitted to a vote of Jupiters
Ordinary Shareholders, you are an "affiliate" of Jupiters or TABCORP, then,
pursuant to Rule 145 under the US Securities Act, you may not offer or sell or
otherwise dispose of the TABCORP Shares issued to you under the Ordinary Share
Scheme in the United States or to US persons unless that offer or sale or other
disposition is made in conformity with Rule 145 or another applicable exemption
from the registration requirements of the US Securities Act. For these purposes,
an "affiliate" includes the directors, executive officers and controlling
shareholders of Jupiters or TABCORP.
US investors should note that the Schemes and the Merger are being proposed and
will be conducted in accordance with the laws in force in Australia and with the
ASX Listing Rules. The disclosure requirements in relation to the Schemes and
the Merger applicable in Australia differ from those applying in the United
States. The financial statements included in this Scheme Booklet have been
prepared in accordance with generally accepted accounting principles in
Australia that differ from those in the United States. Because substantially all
of the directors and assets of TABCORP are located in Australia, US investors
may have difficulties in enforcing their rights and any claims they may have
arising under the United States federal securities laws against TABCORP, TABCORP
Investments and TABCORP Issuer and their respective officers and directors. It
may be difficult to compel TABCORP and its affiliates to subject themselves to a
US court's judgement.
This Scheme Booklet has been furnished to the US Securities and Exchange
Commission but has not been reviewed by it. This Scheme Booklet has not been
filed with or reviewed by any other state securities commission or US regulatory
authority and none of the foregoing authorities have passed upon or endorsed the
merits of the Schemes or the accuracy, adequacy or completeness of this Scheme
Booklet. Any representation to the contrary is a criminal offence.
FORWARD LOOKING STATEMENTS
Certain statements in this Scheme Booklet are about the future. You should be
aware that there are a number of risks (both known and unknown), uncertainties,
assumptions and other important factors that could cause the actual conduct,
results, performance or achievements of Jupiters, TABCORP, TABCORP Investments,
TABCORP Issuer and the Merged Group to be materially different from the future
conduct, results, performance or achievements expressed or implied by such
statements or that could cause the future conduct to be materially different
from the historical conduct. Deviations as to future conduct, results,
performance and achievements are both normal and to be expected. Such risks,
uncertainties, assumptions and other important factors include, amongst other
things, the risks described in Section 18.
None of Jupiters, TABCORP, TABCORP Investments, TABCORP Issuer, their respective
directors, officers and advisers, and any other person gives any representation,
assurance or guarantee that the occurrence of the events expressed or implied in
any forward looking statements in this Scheme Booklet will actually occur. You
are cautioned about relying on these forward looking statements.
The forward looking statements in this Scheme Booklet reflect views held only as
of the date of this Scheme Booklet. Subject to the Corporations Act and the ASX
Listing Rules and any other applicable laws or regulations, each of Jupiters,
TABCORP, TABCORP Investments and TABCORP Issuer disclaims any duty to update
these statements other than with respect to information Jupiters, TABCORP,
TABCORP Investments or TABCORP Issuer respectively become aware of prior to the
Scheme Meetings which is material to the making of a decision by a Jupiters
Ordinary Shareholder regarding whether or not to vote in favour of the Ordinary
Share Scheme or a RPS Holder regarding whether or not to vote in favour of the
RPS Scheme. For discussions of important risk factors, refer to Section 18.
DEFINED TERMS AND INTERPRETATION
Capitalised terms used in this Scheme Booklet are defined in the Glossary of
Terms. The Glossary of Terms also sets out some rules of interpretation which
apply to this Scheme Booklet.
DATE OF THIS SCHEME BOOKLET
This Scheme Booklet is dated 5 September 2003.
IF YOU HAVE ANY QUESTIONS IN RELATION TO THE MERGER, THE SCHEMES OR THE SCHEME
MEETINGS PLEASE CONTACT YOUR LEGAL, INVESTMENT OR OTHER PROFESSIONAL ADVISER OR
TELEPHONE THE JUPITERS INFORMATION LINE ON:
- - IF YOU ARE CALLING FROM WITHIN AUSTRALIA: 1800 65 65 06; OR
- - IF YOU ARE CALLING FROM OUTSIDE AUSTRALIA: +612 9207 3783.
TABLE OF CONTENTS
INFORMATION FOR JUPITERS ORDINARY SHAREHOLDERS
1. IMPORTANT DATES AND TIMES FOR THE ORDINARY SHARE SCHEME..............................................3
2. HOW TO VOTE AT THE ORDINARY share SCHEME MEETING.....................................................4
3. LETTER TO JUPITERS ORDINARY SHAREHOLDERS FROM THE CHAIRMAN OF JUPITERS...............................6
4. LETTER TO JUPITERS ORDINARY SHAREHOLDERS FROM THE CHAIRMAN OF TABCORP................................9
5. OVERVIEW OF THE ORDINARY SHARE SCHEME...............................................................10
6. MATTERS RELEVANT TO JUPITERS ORDINARY SHAREHOLDERS..................................................15
7. CENTREBET ARRANGEMENTS..............................................................................34
INFORMATION FOR RPS HOLDERS
8. IMPORTANT DATES AND TIMES FOR THE RPS SCHEME........................................................44
9. HOW TO VOTE AT THE RPS SCHEME MEETING...............................................................45
10. LETTER TO RPS HOLDERS FROM THE CHAIRMAN OF JUPITERS.................................................47
11. LETTER TO RPS HOLDERS FROM THE CHAIRMAN OF TABCORP..................................................49
12. OVERVIEW OF THE RPS SCHEME..........................................................................50
13. MATTERS RELEVANT TO RPS HOLDERS.....................................................................52
INFORMATION FOR JUPITERS ORDINARY SHAREHOLDERS AND RPS HOLDERS
14. INDUSTRY OVERVIEW...................................................................................67
15. INFORMATION ABOUT JUPITERS..........................................................................70
16. INFORMATION ABOUT TABCORP...........................................................................82
17. INFORMATION ABOUT THE MERGED GROUP.................................................................150
18. RISK FACTORS.......................................................................................167
19. ADDITIONAL INFORMATION.............................................................................177
20. KEY TERMS OF THE MERGER IMPLEMENTATION AGREEMENT...................................................195
21. KEY TERMS OF THE AGREEMENTS WITH JUPITERS OPTIONHOLDERS FOR THE
CANCELLATION OF JUPITERS OPTIONS ..................................................................209
GLOSSARY OF TERMS...............................................................................................210
APPENDIX A - INDEPENDENT EXPERT'S REPORT ON THE ORDINARY SHARE SCHEME
APPENDIX B - ERNST & YOUNG TAXATION OPINION FOR THE ORDINARY SHARE SCHEME
APPENDIX C - ORDINARY SHARE SCHEME
APPENDIX D - CENTREBET NOTE TERMS
APPENDIX E - CALCULATION OF NET CENTREBET PROCEEDS
APPENDIX F - INDEPENDENT EXPERT'S REPORT ON THE RPS SCHEME
APPENDIX G - ERNST & YOUNG TAXATION OPINION FOR THE RPS SCHEME
APPENDIX H - RPS SCHEME
APPENDIX I - DEED POLL
APPENDIX J - NOTICES OF SCHEME MEETINGS
IF YOU ARE A JUPITERS ORDINARY SHAREHOLDER, ENCLOSED WITH
THIS SCHEME BOOKLET ARE:
- - PERSONALISED ORDINARY SHARE SCHEME MEETING PROXY FORM
- - PREPAID ENVELOPE
- - ELECTION FORM FOR THE ORDINARY SHARE SCHEME (YELLOW)
- - PERSONALISED REGISTRATION LETTER FOR ATTENDING THE SCHEME MEETINGS (WHITE -
ONE ONLY)
IF YOU ARE A RPS HOLDER, ENCLOSED WITH THIS SCHEME
BOOKLET ARE:
- - PERSONALISED RPS SCHEME MEETING PROXY FORM
- - PREPAID ENVELOPE
2
INFORMATION FOR JUPITERS ORDINARY SHAREHOLDERS
3
SECTION 1- IMPORTANT DATES AND TIMES FOR THE ORDINARY SHARE SCHEME
Latest time and date for lodgment of completed proxy form for the
Ordinary Share Scheme Meeting with Jupiters 5.00pm on 22 October 2003
- ------------------------------------------------------------------------------------------------------------------
Time and date for determining eligibility to vote at the Ordinary Share
Scheme Meeting 7.00pm on 22 October 2003
- ------------------------------------------------------------------------------------------------------------------
Time and date of Ordinary Share Scheme Meeting 10.00am on 24 October 2003
- ------------------------------------------------------------------------------------------------------------------
Court hearing for approval of the Ordinary Share Scheme 31 October 2003
- ------------------------------------------------------------------------------------------------------------------
Suspension of trading in Jupiters Ordinary Shares 31 October 2003
- ------------------------------------------------------------------------------------------------------------------
Latest time and date for lodgment of completed Election Form with Jupiters 5.00pm on 10 November 2003
- ------------------------------------------------------------------------------------------------------------------
Implementation Record Date for determining entitlements under the
Ordinary Share Scheme 5.00pm on 10 November 2003
- ------------------------------------------------------------------------------------------------------------------
Announcement to ASX by TABCORP of details of the scale back (if any) and
allocation of the cash to be paid by, and shares to be issued by, the
TABCORP Group under the Ordinary Share Scheme 13 November 2003
- ------------------------------------------------------------------------------------------------------------------
Commencement of trading on ASX of the new TABCORP Shares issued under the
Ordinary Share Scheme on a deferred settlement basis 13 November 2003
- ------------------------------------------------------------------------------------------------------------------
Payment date for Special Dividend and Centrebet Dividend (if relevant) 13 November 2003
- ------------------------------------------------------------------------------------------------------------------
Implementation Date for the Ordinary Share Scheme 13 November 2003
- ------------------------------------------------------------------------------------------------------------------
Despatch of holding statements for TABCORP Shares and cheques for cash
consideration from the TABCORP Group by 20 November 2003
- ------------------------------------------------------------------------------------------------------------------
All dates and times are indicative only. The actual timetable will depend on
many factors outside the control of Jupiters, including the Court and Queensland
State Government approval processes. Any changes to the above timetable will be
notified on Jupiters' website, www.jupiters.com.au, and announced to ASX. All
times are referenced to the time in Brisbane, Queensland.
4
SECTION 2 - HOW TO VOTE AT THE ORDINARY SHARE SCHEME MEETING
The Ordinary Share Scheme Meeting will be held at 10.00am on 24 October 2003 at
the Hotel Conrad and Jupiters Casino, Broadbeach, Gold Coast, Queensland.
For the Ordinary Share Scheme to be implemented, it must (amongst other things)
be approved by a majority in number of Jupiters Ordinary Shareholders present
and voting at the Ordinary Share Scheme Meeting and at least 75% of the total
number of votes which are cast at the Ordinary Share Scheme Meeting.
You will be entitled to vote at the Ordinary Share Scheme Meeting if you hold
Jupiters Ordinary Shares at 7.00pm on 22 October 2003. You can vote at the
Ordinary Share Scheme Meeting:
- - in person;
- - by proxy;
- - by corporate representative (if you are a corporate shareholder); or
- - by attorney.
You will be counted as being present at the Ordinary Share Scheme Meeting if you
vote in any of the ways outlined above.
If you wish to vote in person, you should attend the Ordinary Share Scheme
Meeting and bring with you a copy of the personalised registration letter
enclosed with this Scheme Booklet.
If you wish to vote by proxy, you must complete and sign the yellow Ordinary
Share Scheme Meeting proxy form accompanying this Scheme Booklet. Completed
proxy forms can be:
- - posted to Jupiters' Share Registry, Computershare Investor Services
Pty Ltd, in the envelope provided (prepaid for mailing in Australia)
or otherwise delivered to Computershare Investor Services Pty Ltd at
Level 27, 345 Queen Street, Brisbane; or
- - faxed to Jupiters' Share Registry at facsimile number (07) 3229 9860
if you are within Australia or +61 7 3229 9860 if you are outside
Australia,
and must be received by Jupiters by 5.00pm on 22 October 2003. If a proxy form
is completed by an individual or a corporation under a power of attorney, the
original or a certified copy of that power of attorney under which the form is
signed must also be received by Jupiters by 5.00pm on 22 October 2003. Powers of
attorney and certified copies of powers of attorney can be provided to Jupiters
in the same manner as proxy forms.
If you are an attorney and you wish to attend and vote at the Ordinary Share
Scheme Meeting, you must provide to Jupiters the original or a certified copy of
the power of attorney under which you have been authorised to attend and vote at
the Ordinary Share Scheme Meeting. Original or certified copies of powers of
attorney can be provided to Jupiters in the same manner as proxy forms and must
be received by Jupiters by 5.00pm on 22 October 2003.
If you are a corporate shareholder and you wish to appoint a representative to
attend the Ordinary Share Scheme Meeting, you should ensure that your
representative can provide appropriate evidence of their appointment.
Voting on the resolution to approve the Ordinary Share Scheme will be by poll.
5
If the Ordinary Share Scheme is approved at the Ordinary Share Scheme Meeting,
the Court will be asked to approve it. The Court hearing for this purpose is
expected to be held on 31 October 2003.
6
SECTION 3 - LETTER TO JUPITERS ORDINARY SHAREHOLDERS FROM THE CHAIRMAN OF
JUPITERS
[JUPITERS LETTERHEAD]
5 September 2003
Dear Shareholder,
On 12 June 2003, the Jupiters Board announced that it had signed a Merger
Implementation Agreement with TABCORP and recommended that Jupiters'
shareholders support a proposal to merge Jupiters with TABCORP. The Board
believes that the proposed Merger with TABCORP will deliver greater benefits to
Jupiters Ordinary Shareholders than any alternative available to Jupiters,
either as a stand alone entity or by merging with another party.
THE PROPOSED MERGER
The Merger is to be implemented by way of a scheme of arrangement, requiring a
meeting of Jupiters Ordinary Shareholders. The meeting is scheduled to be held
at 10.00am on 24 October 2003 at the Hotel Conrad and Jupiters Casino,
Broadbeach, Gold Coast, Queensland. A separate meeting of holders of Jupiters'
reset preference shares is also being held in relation to a separate scheme
relating to those shares.
If the Ordinary Share Scheme is implemented, Jupiters will pay a special fully
franked dividend of $0.75 per Jupiters Ordinary Share.
In addition, if the Ordinary Share Scheme is implemented, all the ordinary
shares in Jupiters will be transferred to a subsidiary of TABCORP which will pay
cash to Jupiters Ordinary Shareholders and TABCORP will issue TABCORP Shares to
Jupiters Ordinary Shareholders. For every 100 Jupiters Ordinary Shares you own
at the record date for the implementation of the Ordinary Share Scheme, you will
be entitled to receive from the TABCORP Group (subject to the effects of
rounding):
- - $285 in cash; and
- - 24 TABCORP Shares.
You can elect to maximise the cash portion of your consideration or
alternatively to maximise the share portion of your consideration. If you do so,
the actual mix of cash and shares you receive will depend on the preferences of
all Jupiters Ordinary Shareholders, as the cash and TABCORP Shares being
provided by the TABCORP Group for all Jupiters Ordinary Shares is fixed at
approximately 48.4 million TABCORP Shares and approximately $575 million in
cash.
The independent expert appointed by your Directors, PricewaterhouseCoopers
Securities Ltd, has estimated that the combined value of the special dividend
and the entitlements you will receive from the TABCORP Group under the Ordinary
Share Scheme would represent (on average) $6.34 of value per Jupiters Ordinary
Share. The assumptions underlying this determination are set out in the
Independent Expert's Report on the Ordinary Share Scheme in Appendix A of this
Scheme Booklet.
SALE OF CENTREBET
In addition to the proposed Merger, Jupiters is in the process of selling the
Centrebet Business. If a Centrebet Sale Agreement is signed and Centrebet Sale
Completion occurs prior to 31 October 2003 and the Ordinary Share Scheme is
implemented, Jupiters will distribute the net proceeds of the sale to Jupiters
Ordinary Shareholders by way of a further special fully franked dividend. If a
Centrebet
7
Sale Agreement is signed but Centrebet Sale Completion does not occur by 31
October 2003, Jupiters will terminate the Centrebet Sale Agreement (unless
TABCORP agrees otherwise). TABCORP has an obligation to use reasonable
endeavours to sign a Centrebet Sale Agreement by 30 June 2004 and complete any
such sale by 30 September 2004. In this case TABCORP will deduct a substantial
commission from the net proceeds of sale and pay the balance to Jupiters
Ordinary Shareholders. If a Centrebet Sale Agreement is not signed by 30 June
2004 or Centrebet Sale Completion does not occur by 30 September 2004, Jupiters
Ordinary Shareholders will receive nothing in respect of Centrebet.
There is no certainty that the Centrebet Business will be sold or, if it is,
what the amount of the proceeds will be. Your Directors believe that
implementation of the proposed Merger is in the best interests of Jupiters
Ordinary Shareholders whether or not the Centrebet Business is sold and
regardless of the amount of the proceeds.
DIRECTORS' RECOMMENDATION
Your Directors unanimously recommend that you vote in favour of the Ordinary
Share Scheme as they believe the proposed Merger is in the best interests of
Jupiters Ordinary Shareholders. Your Directors believe that the benefits of the
proposed Merger deliver the highest value to you compared with other
alternatives that your Directors have explored, including Jupiters continuing to
operate as a stand alone entity or merging with another entity such as UNiTAB
Limited. In addition:
- - You will receive value representing a significant premium to the
price at which Jupiters Ordinary Shares traded prior to announcement
of merger discussions with UNiTAB Limited and TABCORP.
- - The TABCORP Shares, which will be issued under the Ordinary Share
Scheme, will be shares in a larger and more diversified company than
Jupiters, and historically have provided a higher dividend yield than
Jupiters Ordinary Shares.
- - The independent expert appointed by your Directors,
PricewaterhouseCoopers Securities Ltd, has confirmed this view,
advising that the proposed Merger is in the best interests of
Jupiters Ordinary Shareholders and is fair and reasonable, and that
Jupiters Ordinary Shareholders will be better off after the Merger.
Those Directors who hold Jupiters Ordinary Shares intend to vote in favour of
the Ordinary Share Scheme.
Please read the information in this Scheme Booklet relevant to Jupiters Ordinary
Shareholders carefully, as it sets out the information which is material for you
to make a decision as to whether to approve the proposed Merger. This booklet
includes details of the proposed Merger and information about the entitlements
you will receive under the proposed Merger as well as the Independent Expert's
Report on the Ordinary Share Scheme. It also contains information such as the
conditions required for the proposed Merger to proceed, the number of
shareholder votes required for approval, and information on how to vote. Other
sections of this Scheme Booklet contain information relating specifically to the
separate scheme of arrangement relating to the reset preference shares.
8
If you have any questions, please call the Jupiters Information Line on 1 800
656 506 (if you are calling from within Australia) or +612 9207 3783 (if you are
calling from outside Australia) or consult your legal, financial or other
professional adviser.
Yours faithfully
Lawrence Willett AO
Chairman
Jupiters Limited
9
SECTION 4 - LETTER TO JUPITERS ORDINARY SHAREHOLDERS FROM THE CHAIRMAN OF
TABCORP
5 September 2003
Dear Shareholder,
The Merger of Jupiters with TABCORP provides you with an opportunity to own part
of Australia's premier gambling and entertainment company.
The merged group will operate approximately 18,000 gaming machines, with four
casino and hotel complexes in Queensland and New South Wales, off-course
wagering and sportsbetting operations in Victoria, keno operations across the
east coast of Australia, gaming machine monitoring operations in Victoria and
Queensland, the AWA technology servicing business and an international
monitoring and totalizator sales business.
The Merger between Jupiters and TABCORP is expected to:
- - provide you with a significant premium to the price at which Jupiters
Ordinary Shares traded before Jupiters announced that it was in
discussions with potential merger partners;
- - deliver substantially higher dividends compared to the dividends paid
by Jupiters, to the extent that you receive TABCORP Shares under the
Merger; and
- - allow you to benefit from factors such as the synergies, increased
scale, business diversity and enhanced financial strength that are
expected to be created by the new merged Jupiters and TABCORP.
The Merger proposal has been unanimously recommended by the Board of Jupiters.
Further, the independent expert (PricewaterhouseCoopers Securities Ltd) has
considered the proposed Merger and concluded that it is in the best interests of
Jupiters Ordinary Shareholders and is both "fair and reasonable".
This Scheme Booklet provides details of the Merger proposal, including the
Independent Expert's Report and information on how to vote. Please read it
carefully before making your decision.
I look forward to welcoming you as a shareholder in the merged company.
Yours sincerely,
MICHAEL ROBINSON
Chairman
10
SECTION 5 - OVERVIEW OF THE ORDINARY SHARE SCHEME
Following is a summary of the key features of the Ordinary Share Scheme. This
summary should be read in conjunction with the remaining information for
Jupiters Ordinary Shareholders in this Scheme Booklet.
CONSIDERATION Jupiters Ordinary Shareholders will only be eligible to
receive entitlements under the Ordinary Share Scheme for the
Jupiters Ordinary Shares they hold at the Implementation
Record Date for the Ordinary Share Scheme, which is expected
to be 5.00pm on 10 November 2003.
Subject to the matters set out below, Jupiters Ordinary
Shareholders will receive the following under the Ordinary
Share Scheme:
- a Special Dividend from Jupiters of $0.75 per
Jupiters Ordinary Share; and
- a cash and shares component.
Jupiters Ordinary Shareholders can choose one of three
alternative mixes of entitlements for the cash and shares
component:
1 The "STANDARD CASH AND SHARES OFFER", under which
Jupiters Ordinary Shareholders will receive on
average for every 100 Jupiters Ordinary Shares held
by them at the Implementation Record Date for the
Ordinary Share Scheme (subject to the effects of
rounding referred to below):
- $285 in cash; and
- 24 TABCORP Shares.
2 The "MAXIMUM CASH ELECTION", under which Jupiters
Ordinary Shareholders will receive additional cash
consideration from the TABCORP Group in lieu of the
TABCORP Shares which would have been received under
the Standard Cash and Shares Offer to the extent cash
is available from a fixed pool.
3 The "MAXIMUM SHARES ELECTION", under which Jupiters
Ordinary Shareholders will receive additional TABCORP
Shares in lieu of cash which would have been payable
to them by the TABCORP Group under the Standard Cash
and Shares Offer to the extent that TABCORP Shares
are available from a fixed pool.
If a Jupiters Ordinary Shareholder does not make the Maximum
Cash Election or the Maximum Shares Election by returning a
completed Election Form by the Implementation Record Date for
the Ordinary Share Scheme, the Standard Cash and Shares Offer
will apply in respect of their Jupiters Ordinary Shares.
The entitlements received by any individual Jupiters Ordinary
Shareholder who makes the Maximum Cash Election or the Maximum
Shares Election will depend on the elections made by all other
Jupiters Ordinary
11
Shareholders. Details of the scale back mechanism are
contained in Section 6.2(c). Jupiters Ordinary Shareholders
who make an election will not know the precise mix of cash and
TABCORP Shares they will receive until after they are required
to vote on the Ordinary Share Scheme. Due to the fixed pools
of cash and TABCORP Shares available, it is possible that
Jupiters Ordinary Shareholders who make the Maximum Cash
Election or the Maximum Shares Election may receive a similar
(or the same) amount of cash and a similar (or the same)
number of TABCORP Shares as they would receive under the
Standard Cash and Shares Offer.
The Independent Expert has determined that the value of the
Special Dividend and the cash and shares component represent
(on average) $6.34 value for each Jupiters Ordinary Share.
This determination is subject to a number of assumptions which
are set out in detail in the Independent Expert's Report on
the Ordinary Share Scheme.
Jupiters Ordinary Shareholders will also receive a proportion
of any value received from the sale of the Centrebet Business
- the Centrebet Component.
The Centrebet Component will comprise a proportion of the Net
Centrebet Proceeds arising from any sale of the Centrebet
Business which completes before, or within a certain period
after, the implementation of the Merger. Details of the
Centrebet Sale process and the value that may be received by
Jupiters Ordinary Shareholders for the Centrebet Business are
contained in Sections 6.2(d) and 7.
DIRECTORS' The Directors unanimously recommend that Jupiters Ordinary
RECOMMENDATION Shareholders vote in favour of the Ordinary Share Scheme and
&INDEPENDENT intend to vote all Jupiters Ordinary Shares held by them
EXPERT'S REPORT (if any) in favour of the Ordinary Share Scheme.
The matters which the Directors have had regard to in making
this recommendation are set out in Section 6.4.
The implications for Jupiters Ordinary Shareholders if the
Ordinary Share Scheme does not proceed are set out in Section
6.7.
The Independent Expert was appointed to provide its opinion on
the Ordinary Share Scheme and has concluded that the Ordinary
Share Scheme is in the best interests of Jupiters Ordinary
Shareholders and is fair and reasonable and that, therefore,
Jupiters Ordinary Shareholders should approve the Ordinary
Share Scheme. The Independent Expert's Report on the Ordinary
Share Scheme is set out in full in Appendix A.
CONDITIONS Implementation of the Ordinary Share Scheme is subject
to a number of conditions, including the Ordinary Share
Scheme being approved by:
- the required majorities of Jupiters Ordinary
Shareholders; and
- the Court,
and receipt of various approvals from the Queensland State
Government. It may be a condition of the grant of the
necessary approvals by the
12
Queensland State Government that amendments are made to
TABCORP's constitution. The meeting at which any such
amendments would be considered by TABCORP's shareholders is
scheduled for 30 October 2003. Further details are set out in
Section 16.10(i).
The conditions are set out in detail in Section 20.3. The
Ordinary Share Scheme is not conditional on the implementation
of the RPS Scheme.
PAYMENT DATE Any dividends payable pursuant to the Ordinary Share Scheme
will be provided to Jupiters Ordinary Shareholders by way of
cheques despatched or electronic transfers initiated on the
Implementation Date for the Ordinary Share Scheme (which is
expected to be 13 November 2003).
All other entitlements under the Ordinary Share Scheme will be
provided to Jupiters Ordinary Shareholders by way of cheques
being distributed to them within five Business Days after the
Implementation Date for the Ordinary Share Scheme. TABCORP
Shares and Centrebet Notes (if any) to be issued under the
Ordinary Share Scheme will be issued on the Implementation
Date and issuer sponsored holdings statements for TABCORP
Shares (as applicable) will be issued within five Business
Days afterwards. It is currently anticipated that the process
will be completed by 20 November 2003.
VOTING The Ordinary Share Scheme must be approved by:
THRESHOLDS
- a majority in number of Jupiters Ordinary
Shareholders present and voting at the Ordinary Share
Scheme Meeting (in person or by proxy, attorney or
corporate representative); and
- at least 75% of the total number of votes which are
cast at the Ordinary Share Scheme Meeting.
ORDINARY SHARE The Ordinary Share Scheme Meeting will be held at 10.00am on
SCHEME MEETING 24 October 2003 at the Hotel Conrad and Jupiters Casino,
Broadbeach, Gold Coast, Queensland.
Only Jupiters Ordinary Shareholders who hold Jupiters Ordinary
Shares at 7.00pm on 22 October 2003 will be entitled to vote
at the Ordinary Share Scheme Meeting.
Further details of the Ordinary Share Scheme Meeting,
including how to vote, are contained in Section 2.
TAX A summary of the Australian tax consequences of the
Ordinary Share Scheme for certain Jupiters Ordinary
Shareholders is set out in Appendix B.
INELIGIBLE Jupiters Ordinary Shareholders whose address in Jupiters'
OVERSEAS Share Register as at the Implementation Record Date for the
SHAREHOLDERS Ordinary Share Scheme is in a jurisdiction other than
Australia or its external territories, Hong Kong, the United
Kingdom or the United States of America may be treated as
Ineligible Overseas Shareholders under the Ordinary Share
Scheme.
Neither TABCORP Shares nor Centrebet Notes will be issued to
Ineligible
13
Overseas Shareholders. Instead such securities which would
otherwise have been issued to the Ineligible Overseas
Shareholders will be issued, in each case, to a nominee
appointed by TABCORP. That nominee will sell the TABCORP
Shares on such terms as it determines in good faith and will
hold the Centrebet Notes until they are redeemed or lapse. The
net cash proceeds received by the nominee pursuant to such a
sale and the cash proceeds of such redemption will be remitted
to Ineligible Overseas Shareholders as soon as practicable
after the last sale of TABCORP Shares by that nominee or the
redemption of the Centrebet Notes (as applicable). The nominee
will be instructed that sales of TABCORP Shares must take
place within 15 Business Days after the Implementation Date
for the Ordinary Share Scheme.
Dividend entitlements will be provided to Ineligible Overseas
Shareholders as set out in the section above entitled "Payment
Date". The cash entitlements to be provided to Ineligible
Overseas Shareholders under the Ordinary Share Scheme will be
provided by way of cheques distributed to them promptly after
the last sale of TABCORP Shares by the nominee. As noted
above, Centrebet Notes that would otherwise have been issued
to the Ineligible Overseas Shareholders will be issued to and
held by a nominee.
EFFECTS OF For all three alternative mixes of entitlements under the cash
ROUNDING and shares component, the consideration to be received by a
Jupiters Ordinary Shareholder under the Ordinary Share Scheme
is calculated on the basis that the Jupiters Ordinary
Shareholder will receive $5.25 cash per share in respect of a
certain proportion of their Jupiters Ordinary Shares (being
54.286% of their shareholding parcel in the case of the
Standard Cash and Shares Offer), and 0.525 TABCORP Shares per
share in respect of the balance of their shareholding parcel.
The number of Jupiters Ordinary Shares in respect of which
Jupiters Ordinary Shareholders will receive cash and the
number of Jupiters Ordinary Shares in respect of which they
will receive TABCORP Shares will each be rounded to the
nearest whole number (with fractions of 0.5 or more being
rounded up).
In addition, fractional entitlements to TABCORP Shares which
arise from the calculation of the number of TABCORP Shares to
be provided to a Jupiters Ordinary Shareholder under the
Ordinary Share Scheme will be rounded up or down to the
nearest whole number of such shares (with fractional
entitlements of 0.5 or more being rounded up).
Worked examples showing the effects of rounding in sample
cases are set out in Section 19.7.
The Ordinary Share Scheme contains provisions to address any
attempts by Jupiters Ordinary Shareholders to seek to take
unfair advantage of the above treatment of fractions (for
example, by splitting their ordinary shareholding).
TRADING OF It is expected that the TABCORP Shares issued under the
TABCORP SHARES Ordinary Share Scheme will commence trading on ASX, initially
on a deferred settlement basis, on 13 November 2003.
It is the responsibility of each Jupiters Ordinary Shareholder
to determine their entitlement to TABCORP Shares before
trading those shares to avoid
14
the risk of selling shares that they do not own. To that end,
TABCORP will make an announcement to ASX before deferred
settlement trading commences as to the calculation of
entitlements under the Maximum Cash Election and the Maximum
Shares Election.
Normal trading of TABCORP Shares is expected to commence on 21
November 2003.
If Jupiters Ordinary Shareholders have any questions in relation to the Merger,
the Ordinary Share Scheme or the Ordinary Share Scheme Meeting, they should
contact their legal, investment or other adviser or telephone the Jupiters
Information Line on:
- - if calling from within Australia: 1800 65 65 06; and
- - if calling from outside Australia: +612 9207 3783.
15
SECTION 6 - MATTERS RELEVANT TO JUPITERS ORDINARY SHAREHOLDERS
Following is a summary of the key features of the Ordinary Share Scheme. This
Section should be read in conjunction with the remaining information for
Jupiters Ordinary Shareholders in this Scheme Booklet.
6.1 OVERVIEW OF THE MERGER
On 5 March 2003, Jupiters and TABCORP announced a proposal to merge and
to divest the Centrebet Business.
On 12 June 2003, Jupiters and TABCORP entered into a Merger
Implementation Agreement following the completion by each party of
detailed due diligence on the other party. A summary of the key terms
of the Merger Implementation Agreement is set out in Section 20.
If the Merger proceeds, the Merged Group will be the largest gambling
company in Australia with substantial earnings and an investment grade
credit rating, and will be well-positioned to pursue strategic
opportunities in Australia and abroad. The Merged Group will operate
approximately 18,000 gaming machines, with four casino and hotel
facilities in Queensland and New South Wales, off-course wagering and
sportsbetting operations in Victoria, Keno operations on the east coast
of Australia, gaming machine monitoring operations in Victoria and
Queensland, the AWA technology servicing business and an international
monitoring, gaming and totalizator sales business.
The Ordinary Share Scheme is subject to a number of conditions
including approval of the Ordinary Share Scheme by:
- Jupiters Ordinary Shareholders; and
- the Court,
and receipt of various approvals from the Queensland State Government.
It may be a condition of the grant of the necessary approvals by the
Queensland State Government that amendments are made to TABCORP's
constitution. The meeting at which any such amendments would be
considered by TABCORP's shareholders is scheduled for 30 October 2003.
Further details are set out in Section 16.10(i). The approvals from the
Queensland State Government may not be obtained before the Ordinary
Share Scheme Meeting.
The conditions to the Ordinary Share Scheme are described in detail in
Section 20.3.
Pursuant to the Merger Implementation Agreement, Jupiters has agreed to
propose the Merger with TABCORP to Jupiters Ordinary Shareholders.
Specifically, Jupiters has agreed to propose a scheme of arrangement
with Jupiters Ordinary Shareholders which, if implemented, would result
in all Jupiters Ordinary Shares being acquired by TABCORP Investments,
a wholly owned subsidiary of TABCORP. If the Ordinary Share Scheme is
implemented, Jupiters will become a subsidiary of TABCORP and TABCORP
intends to procure that Jupiters will apply to be removed from the
official list of ASX.
In conjunction with the Merger, Jupiters has agreed to propose a
separate scheme of arrangement with RPS Holders which, if implemented,
would result in all RPS being
16
acquired by TABCORP Investments. TABCORP Investments has also agreed
with Jupiters Optionholders, through individual agreements with them,
that, if the Ordinary Share Scheme is implemented, all Jupiters Options
on issue as at the Implementation Date for the Ordinary Share Scheme
will be cancelled. The Ordinary Share Scheme is not conditional upon
the RPS Scheme becoming effective, or upon cancellation of the Jupiters
Options. Implementation of the RPS Scheme and the cancellation of the
Jupiters Options are conditional on the Ordinary Share Scheme becoming
effective. In certain circumstances in connection with the Merger,
TABCORP Investments may acquire RPS even if the Ordinary Share Scheme
does not become effective. Those circumstances are described in Section
19.2.
6.2 ENTITLEMENTS THAT JUPITERS ORDINARY SHAREHOLDERS WILL RECEIVE
(a) SUMMARY
Jupiters Ordinary Shareholders will only be eligible to
receive entitlements under the Ordinary Share Scheme for the
Jupiters Ordinary Shares they hold at the Implementation
Record Date for the Ordinary Share Scheme, which is expected
to be 5.00pm on 10 November 2003. Certain Jupiters Ordinary
Shareholders will be treated as Ineligible Overseas
Shareholders and will not be eligible to receive TABCORP
Shares or Centrebet Notes. Further details of the entitlements
Ineligible Overseas Shareholders will receive are set out in
Section 6.2(e).
The precise form and source of entitlements that each Jupiters
Ordinary Shareholder will receive pursuant to the Ordinary
Share Scheme depends on whether:
- a Centrebet Sale Completion occurs by 31 October
2003;
- the Jupiters Ordinary Shareholder lodges a completed
Election Form by the required time and, if so, the
nature of that Jupiters Ordinary Shareholder's
election and all other Jupiters Ordinary
Shareholders' elections; and
- the Jupiters Ordinary Shareholder is an Ineligible
Overseas Shareholder.
The entitlements each Jupiters Ordinary Shareholder will
receive will comprise three parts:
- a Special Dividend;
- a cash and shares component; and
- a Centrebet Component.
Each of these is discussed separately below.
Jupiters Ordinary Shareholders will not receive any of the
above components if the Ordinary Share Scheme is not approved
and implemented.
The amount of cash and the number of TABCORP Shares a Jupiters
Ordinary Shareholder will receive as part of the cash and
shares component will depend on whether they elect to receive
an increased proportion of cash or an increased
17
proportion of TABCORP Shares by lodging a completed Election
Form and the extent to which cash and shares are available
from fixed pools (discussed in Section 6.2(c)) to satisfy that
election. If a Jupiters Ordinary Shareholder does not make
such an election, they will receive from the TABCORP Group the
"STANDARD CASH AND SHARES OFFER", which (subject to the
effects of rounding) is $285 cash and 24 TABCORP Shares for
every 100 Jupiters Ordinary Shares they hold.
Due to the fixed pools, Jupiters Ordinary Shareholders who
make an election will not know the precise mix of cash and
TABCORP Shares they will receive until after they are required
to vote on the Ordinary Share Scheme.
(b) PAYMENT OF SPECIAL DIVIDEND BY JUPITERS TO JUPITERS ORDINARY
SHAREHOLDERS
If the Ordinary Share Scheme is implemented, Jupiters will pay
the Special Dividend to Jupiters Ordinary Shareholders, being
a fully franked dividend of $0.75 cash per Jupiters Ordinary
Share.
(c) PAYMENT OF THE CASH AND SHARES COMPONENT BY THE TABCORP GROUP
TO JUPITERS ORDINARY SHAREHOLDERS
If the Ordinary Share Scheme is implemented, each Jupiters
Ordinary Shareholder will be entitled to receive from the
TABCORP Group the STANDARD CASH AND SHARES OFFER, which
(subject to the effects of rounding referred to below) is $285
in cash and 24 TABCORP Shares for every 100 Jupiters Ordinary
Shares held by them.
Each Jupiters Ordinary Shareholder will have the option to
maximise the amount of cash or the number of TABCORP Shares
they receive, by choosing:
- the "Maximum Cash Election"; or
- the "Maximum Shares Election",
using the yellow Election Form accompanying this Scheme
Booklet. The Standard Cash and Shares Offer will apply to each
Jupiters Ordinary Shareholder who does not make a valid
election.
To be valid, Election Forms must be completed and received by
Jupiters in accordance with the instructions on the Election
Form by the Implementation Record Date for the Ordinary Share
Scheme, which is expected to be 5.00pm on 10 November 2003.
Under the "MAXIMUM CASH ELECTION", Jupiters Ordinary
Shareholders will receive from the TABCORP Group, in respect
of every 100 Jupiters Ordinary Shares which they hold (subject
to the effects of rounding referred to below):
- $285 in cash;
- up to an additional $240 in cash in lieu of the
TABCORP Shares which would have been received under
the Standard Cash and Shares Offer, to the extent
that cash is available from a pool of approximately
$575 million ("CASH CONSIDERATION CAP"); and
18
- TABCORP Shares to the extent that cash is not
received in lieu of TABCORP Shares due to the Cash
Consideration Cap.
Under the "MAXIMUM SHARES ELECTION", Jupiters Ordinary
Shareholders will receive from the TABCORP Group, in respect
of every 100 Jupiters Ordinary Shares which they hold (subject
to the effects of rounding referred to below):
- 24 TABCORP Shares;
- up to an additional 28.5 TABCORP Shares in lieu of
the cash which would have been received under the
Standard Cash and Shares Offer, to the extent that
TABCORP Shares are available from a pool of
approximately 48.4 million TABCORP Shares ("SHARE
CONSIDERATION CAP"); and
- cash to the extent that TABCORP Shares are not
received in lieu of cash due to the Share
Consideration Cap.
If any Jupiters Options are exercised before the
Implementation Record Date for the Ordinary Share Scheme, the
Cash Consideration Cap will be increased by $2.85 for every
new Jupiters Ordinary Share issued and the Share Consideration
Cap will be increased by 0.24 TABCORP Shares for every new
Jupiters Ordinary Share issued.
Due to the Cash Consideration Cap and the Share Consideration
Cap, it is possible that Jupiters Ordinary Shareholders who
make the Maximum Cash Election or the Maximum Shares Election
may receive a similar (or the same) amount of cash and a
similar (or the same) number of TABCORP Shares as they would
receive under the Standard Cash and Shares Offer.
VALUE OF CASH AND SHARES COMPONENT
TABCORP Shares of the same class as those to be provided as
consideration under the Ordinary Share Scheme are quoted by
ASX. The value of the consideration that Jupiters Ordinary
Shareholders will receive under the Ordinary Share Scheme will
depend on the election that each Jupiters Ordinary Shareholder
makes and, if part or all of the consideration to be provided
for their Jupiters Ordinary Shares is TABCORP Shares, the
market price of TABCORP Shares on ASX after the new TABCORP
Shares commence trading. Figure 6.2.1 outlines a range of
possible market prices of TABCORP Shares and the implied value
of the Standard Cash and Shares Offer to be provided by the
TABCORP Group corresponding to each such price. Figure 6.2.1
also sets out the implied value of the consideration to be
provided by the TABCORP Group pursuant to the Maximum Shares
Election, and pursuant to the Maximum Cash Election, on the
assumption that the scale backs described in Sections 6.2(c)
and 19.7 do not come into operation.
Figure 6.2.1 does not include the value of the Special
Dividend or any value for the Centrebet Component.
Figure 6.2.1 is for illustrative purposes only, and the
TABCORP Share prices stated should not be taken as an
indication of the likely TABCORP Share prices
19
following the Merger. No assurance can be, or is, given as to
the prices at which TABCORP Shares will trade following the
Merger.
FIGURE 6.2.1: EFFECT OF TABCORP SHARE PRICE ON THE IMPLIED
VALUE OF THE CASH AND SHARE COMPONENT OF THE ORDINARY SHARE
SCHEME ENTITLEMENTS
CASH AND SHARE COMPONENT ALTERNATIVES
PER 100 JUPITERS ORDINARY SHARES(2)
-----------------------------------------------
STANDARD CASH MAXIMUM MAXIMUM
AND SHARES CASH (1) SHARES (1)
OFFER ELECTION ELECTION
- -------------------------------------------------------------------------------
Cash $285 $525 $0
TABCORP Shares 24 TABCORP 0 TABCORP 52.5
Shares Shares TABCORP
Shares
- -------------------------------------------------------------------------------
IMPLIED VALUE OF CASH AND SHARE COMPONENT
PER 100 JUPITERS ORDINARY SHARES
- -------------------------------------------------------------------------------
TABCORP $ $ $ $
SHARE PRICE
9.00 501 525 473
9.50 513 525 499
10.00 525 525 525
10.50 537 525 551
11.00 549 525 578
11.50 561 525 604
12.00 573 525 630
- -------------------------------------------------------------------------------
Note: Values exclude any effects of tax. The implied value of the cash and share
component received under the three alternatives would be the same if TABCORP
Shares trade at $10.00 on ASX.
(1) Maximum Cash Election and Maximum Shares Election will be subject to any
necessary scale backs as described in Sections 6.2(c) and 19.7.
(2) Subject to the effects of rounding.
Figure 6.2.2 shows the historical price of TABCORP Shares
since January 2003 to the end of August 2003.
FIGURE 6.2.2: HISTORICAL PRICE OF TABCORP SHARES SINCE JANUARY
2003
[LINE GRAPH]
Source: Iress Market Technology Limited
20
The latest recorded sale price for TABCORP Shares on ASX
before the date on which this Scheme Booklet was lodged for
registration with ASIC was $11.23 (on 4 September 2003).
During the three months ended on the day immediately before
the date on which this Scheme Booklet was lodged for
registration with ASIC:
- the highest recorded sale price for TABCORP Shares on
ASX was $11.64, which was recorded on 28 August 2003;
and
- the lowest recorded sale price for TABCORP Shares on
ASX was $10.03, which was recorded on 5 June 2003.
The latest recorded sale price for TABCORP Shares on ASX
before the public announcement of the Merger was $9.59 (on 4
March 2003).
Some historical trading prices of TABCORP Shares may reflect a
$0.34 dividend declared by TABCORP in respect of the half year
ended 30 June 2003. The record date for that dividend was 5
September 2003.
HOW THE SCALE BACK WORKS
If the total amount of cash consideration or share
consideration which the TABCORP Group would otherwise have
been required to pay or issue to satisfy elections made by
Jupiters Ordinary Shareholders exceeds the Cash Consideration
Cap or the Share Consideration Cap, the amount of cash or the
number of TABCORP Shares to be provided in respect of those
shareholders who have made the relevant elections will be
scaled back on a pro rata basis.
The consideration received by any individual Jupiters Ordinary
Shareholder who makes the Maximum Cash Election or the Maximum
Shares Election will depend on the elections made by each
other Jupiters Ordinary Shareholder. Jupiters Ordinary
Shareholders who make an election will not know the precise
mix of cash and TABCORP Shares to be provided to them under
the Ordinary Share Scheme until on or about the Implementation
Date for the Ordinary Share Scheme. Due to the Cash
Consideration Cap and the Share Consideration Cap, it is
possible that Jupiters Ordinary Shareholders who make the
Maximum Cash Election or the Maximum Shares Election may
receive a similar (or the same) amount of cash and a similar
(or the same) number of TABCORP Shares as they would receive
under the Standard Cash and Shares Offer.
Figure 6.2.3 shows the results of "scaling back" in various
scenarios (rounded to the nearest dollar and TABCORP Share).
By way of example, the scenario in the second row of figure
6.2.3 (shaded) demonstrates the position if Jupiters Ordinary
Shareholders who hold 80% of Jupiters Ordinary Shares make the
Maximum Cash Election, Jupiters Ordinary Shareholders who hold
10% of the Jupiters Ordinary Shares do not make an election
and the remaining Jupiters Ordinary Shareholders make the
Maximum Shares Election. In that case, Jupiters Ordinary
Shareholders will receive from the TABCORP Group (subject to
the effects of rounding):
21
- if they have made the Maximum Cash Election:
- $321 and 20 TABCORP Shares for every 100
Jupiters Ordinary Shares held;
- if they have not made an election:
- $285 and 24 TABCORP Shares for every 100
Jupiters Ordinary Shares held; and
- if they have made the Maximum Shares Election:
- 52.5 TABCORP Shares for every 100 Jupiters
Ordinary Shares held and no cash.
Figure 6.2.3 does not include the value of entitlements to the
Special Dividend or the Centrebet Component.
FIGURE 6.2.3: EXAMPLES OF HOW THE SCALE BACK WORKS
- ------------------------------------------------------------------------------------------------------------------------
ELECTION AS A % OF TOTAL JUPITERS ORDINARY CASH AND SHARE COMPONENT PER 100 JUPITERS ORDINARY SHARES(1)
SHARES ON ISSUE RECEIVED BY JUPITERS ORDINARY SHAREHOLDERS CHOOSING:
- ------------------------------------------------------------------------------------------------------------------------
MAXIMUM CASH STANDARD MAXIMUM
ELECTION CASH AND SHARES MAXIMUM CASH STANDARD CASH AND MAXIMUM SHARES
SHARES OFFER ELECTION ELECTION SHARES OFFER ELECTION
- ------------------------------------------------------------------------------------------------------------------------
100% 0% 0% $285 / 24 TABCORP NA NA
Shares
80% 10% 10% $321 / 20 TABCORP $285 / 24 TABCORP - / 53 TABCORP Shares
Shares Shares
60% 20% 20% $380 / 15 TABCORP $285 / 24 TABCORP - / 53 TABCORP Shares
Shares Shares
33% 33% 33% $525 / - TABCORP $285 / 24 TABCORP $45 / 48 TABCORP
Shares Shares Shares
20% 20% 60% $525 / - TABCORP $285 / 24 TABCORP $205 / 32 TABCORP
Shares Shares Shares
10% 10% 80% $525 / - TABCORP $285 / 24 TABCORP $255 /27 TABCORP
Shares Shares Shares
0% 0% 100% NA NA $285 / 24 TABCORP
Shares
- ------------------------------------------------------------------------------------------------------------------------
(1) Subject to the effects of rounding.
The results of the scale back will be announced by TABCORP as
soon as possible after the Implementation Record Date for the
Ordinary Share Scheme - most likely on the Implementation Date
for the Ordinary Share Scheme, which is expected to be 13
November 2003.
Section 19.7 details the precise operation of the scale backs
and examples of how the formula in the Ordinary Share Scheme
are applied.
EFFECTS OF ROUNDING
For all three alternative mixes of entitlements under the cash
and shares component, the consideration to be received by a
Jupiters Ordinary Shareholder under the Ordinary Share Scheme
is calculated on the basis that the Jupiters Ordinary
Shareholder will receive $5.25 cash per share in respect of a
certain proportion of their Jupiters Ordinary Shares (being
54.286% of their shareholding parcel in the case of the
Standard Cash and Shares Offer), and 0.525 TABCORP
22
Shares per share in respect of the balance of their
shareholding parcel. The number of Jupiters Ordinary Shares in
respect of which Jupiters Ordinary Shareholders will receive
cash and the number of Jupiters Ordinary Shares in respect of
which they will receive TABCORP Shares will be rounded to the
nearest whole number (with fractions of 0.5 or more being
rounded up).
In addition, fractional entitlements to TABCORP Shares which
arise from the calculation of the number of TABCORP Shares to
be provided by the TABCORP Group to a Jupiters Ordinary
Shareholder under the Ordinary Share Scheme will be rounded up
or down to the nearest whole number of such shares (with
fractional entitlements of 0.5 or more being rounded up).
Worked examples showing the effects of rounding in sample
cases are set out in Section 19.7.
The Ordinary Share Scheme contains provisions to address any
attempts by Jupiters Ordinary Shareholders to seek to take
unfair advantage of the above treatment of fractions (for
example, by splitting their holding of Jupiters Ordinary
Shares).
(d) CENTREBET COMPONENT
(i) ENTITLEMENT IF CENTREBET SALE COMPLETION OCCURS BY 31
OCTOBER 2003
If the Ordinary Share Scheme is implemented and a
Centrebet Sale Agreement is signed and Centrebet Sale
Completion occurs by 31 October 2003, Jupiters
Ordinary Shareholders will receive from Jupiters a
fully franked dividend per Jupiters Ordinary Share
equal to the Net Centrebet Proceeds divided by the
number of Jupiters Ordinary Shares on issue at the
Implementation Record Date for the Ordinary Share
Scheme (the "CENTREBET DIVIDEND"). The Centrebet
Dividend will be in addition to the Special Dividend
and cash and shares component described in Sections
6.2(b) and 6.2(c).
If Centrebet Sale Completion does not occur by 31
October 2003, Jupiters Ordinary Shareholders are
likely to receive less value for the Centrebet
Business and may receive no value, for the reasons
set out in Section 6.2(d)(ii) that follow. Details of
the Centrebet Sale process are contained in Section
7.1.
(ii) ENTITLEMENT IF CENTREBET SALE COMPLETION DOES NOT
OCCUR BY 31 OCTOBER 2003
If the Ordinary Share Scheme is implemented but
Centrebet Sale Completion does not occur by 31
October 2003, a wholly owned subsidiary of TABCORP,
TABCORP Issuer, will issue one Centrebet Note to each
Jupiters Ordinary Shareholder for each Jupiters
Ordinary Share held.
Under the terms of each Centrebet Note, if a
Centrebet Sale Agreement is signed by 30 June 2004
and Centrebet Sale Completion occurs by 30 September
2004, a proportion of any Net Centrebet Proceeds will
be distributed to each Centrebet Noteholder by way of
redemption of the
23
Centrebet Notes. To this end, after the Ordinary
Share Scheme is implemented, TABCORP and TABCORP
Issuer are obliged to use reasonable endeavours to
continue to pursue a Centrebet Sale.
Jupiters has conducted an international tender
process designed to extract maximum value from the
sale of the Centrebet Business and is currently
negotiating sale terms with preferred bidders. The
Jupiters Board is actively pursuing an agreement for
the sale of the Centrebet Business and is
endeavouring to ensure that Centrebet Sale Completion
occurs by 31 October 2003, however no assurances can
be given that this will occur. If Jupiters is unable
to sign a Centrebet Sale Agreement or if Centrebet
Sale Completion does not occur by 31 October 2003, it
is possible that TABCORP will be unable to sell the
Centrebet Business before 30 June 2004, in which case
Jupiters Ordinary Shareholders will receive no value
for the Centrebet Business.
Any amount received under a Centrebet Note is likely
to be less than the amount Jupiters Ordinary
Shareholders would have received if Centrebet Sale
Completion had occurred by 31 October 2003 due to the
payment of a commission to the TABCORP Group for
effecting the sale. That commission is equal to $10
million plus 12% of the Net Centrebet Proceeds
(before taking into account the commission) in excess
of $30 million.
Any amount received under a Centrebet Note is also
likely to be less as material changes are likely to
be made by TABCORP to the Centrebet Business. While
legal in the Northern Territory and the United
Kingdom, where Centrebet's licences were granted,
certain jurisdictions, such as Denmark, have passed
legislation to prevent certain persons targeting
their residents with offers of gambling services over
the internet. TABCORP is entitled, after the Ordinary
Share Scheme becomes effective, to make changes to
the Centrebet Business if it receives legal advice to
the effect that the changes are necessary for probity
or licensing purposes or to comply with any law or
regulation in any jurisdiction in which the Merged
Group (including Centrebet) operates or proposes to
operate. The TABCORP Group has current operations in,
or plans to expand its operations into, Denmark,
Norway and the United States of America (as set out
in Section 16.7(c)). At or about the time at which
the Merger is implemented TABCORP intends to seek
legal advice in relation to those jurisdictions and
Centrebet's then current operations. TABCORP will
implement any changes it considers necessary based on
that legal advice. Centrebet does not currently
accept bets from residents of the United States of
America. In the financial year ended 30 June 2003,
approximately 59% of Centrebet's turnover was derived
from residents of Denmark, Norway, Finland and
Sweden.
If, after using reasonable endeavours, TABCORP is
unable to enter into a Centrebet Sale Agreement by 30
June 2004 or it does so but Centrebet Sale Completion
does not occur by 30 September 2004, the Centrebet
Notes will lapse and Jupiters Ordinary Shareholders
will not receive any cash or other consideration for
the Centrebet Business.
24
(e) PAYMENT TO INELIGIBLE OVERSEAS SHAREHOLDERS
A Jupiters Ordinary Shareholder whose address as shown in
Jupiters' Share Register on the Implementation Record Date for
the Ordinary Share Scheme is in a jurisdiction other than
Australia or its external territories, Hong Kong, the United
Kingdom or the United States of America, will be an Ineligible
Overseas Shareholder, unless TABCORP is reasonably satisfied
that the issue of TABCORP Shares or Centrebet Notes to the
Jupiters Ordinary Shareholder is not prohibited, not unduly
onerous and not unduly impracticable in that jurisdiction.
Ineligible Overseas Shareholders will receive the same
entitlements under the Ordinary Share Scheme as they would
receive if they were eligible Jupiters Ordinary Shareholders,
except that TABCORP is not obliged to issue TABCORP Shares and
TABCORP Issuer is not obliged to issue Centrebet Notes to any
Ineligible Overseas Shareholder. If TABCORP does not issue
TABCORP Shares, or TABCORP Issuer does not issue Centrebet
Notes, to a Jupiters Ordinary Shareholder because they are an
Ineligible Overseas Shareholder, the TABCORP Shares or
Centrebet Notes that would have been issued to that shareholder
will be issued to a nominee of TABCORP. The nominee will sell
the TABCORP Shares as soon as practicable (and, in any event,
within 15 Business Days after the Implementation Date for the
Ordinary Share Scheme) and the net proceeds of sale (averaged
for all TABCORP Shares sold by the nominee) will be paid to the
Ineligible Overseas Shareholder. The nominee will hold the
Centrebet Notes until they are redeemed or lapse. In the case
of redemption, the nominee will then remit any amounts paid to
it on redemption of the Centrebet Notes to Ineligible Overseas
Shareholders.
6.3 DIRECTORS' RECOMMENDATION ON ORDINARY SHARE SCHEME
The Directors unanimously recommend that Jupiters Ordinary Shareholders
vote in favour of the Ordinary Share Scheme. The Directors have formed
their conclusion and made their recommendation based on the reasons
outlined in Section 6.4 below.
The Directors who hold Jupiters Ordinary Shares intend to vote in
favour of the Ordinary Share Scheme.
6.4 WHY JUPITERS ORDINARY SHAREHOLDERS SHOULD VOTE IN FAVOUR OF THE MERGER
(a) THE JUPITERS BOARD HAS FOUND THAT THE MERGER IS CURRENTLY THE
MOST ATTRACTIVE ALTERNATIVE AVAILABLE
- The Merger delivers greater benefits to Jupiters
Ordinary Shareholders than Jupiters would as a stand
alone entity.
- In the absence of the Merger, the trading price of
Jupiters Ordinary Shares on ASX (assuming that the
Centrebet Business has been sold and the net proceeds
of sale distributed) in the medium term is likely to be
substantially lower than $6.34 per share, the midpoint
of the valuation range determined by the Independent
Expert for the entitlements to be received (excluding
the Centrebet Component) under the Ordinary Share
Scheme.
25
- The terms of the Merger are more attractive than the
terms outlined in previous discussions regarding a
proposed merger with UNiTAB Limited.
- Despite the public nature of the Merger proposal,
Jupiters has not received any alternative merger
proposals from any other parties.
- Jupiters Ordinary Shareholders will realise, on
average, a substantial portion of their holdings in
cash, without incurring any brokerage costs or
transaction fees.
(b) THE ENTITLEMENTS TO BE RECEIVED BY JUPITERS ORDINARY
SHAREHOLDERS REPRESENT A SUBSTANTIAL PREMIUM TO JUPITERS'
HISTORICAL TRADING PRICE
The Independent Expert has determined that the value of the
Special Dividend and the cash and shares component which
Jupiters Ordinary Shareholders would receive under the Merger
represent (on average) $6.34 per Jupiters Ordinary Share
consisting of the following components.
FIGURE 6.4.1: VALUE OF SPECIAL DIVIDEND AND CASH AND SHARES
COMPONENT
ENTITLEMENTS PER AVERAGE VALUE OF ENTITLEMENTS PER
100 JUPITERS ORDINARY SHARES JUPITERS ORDINARY SHARE(1)
---------------------------- --------------------------
CASH AND SHARES COMPONENT(2)
24 TABCORP Shares $2.58
$285 cash $2.85
-----
$5.43
SPECIAL DIVIDEND
$75 by way of Special Dividend $0.75
Value of franking credits $0.16
-----
SUB TOTAL $0.91
VALUE OF ENTITLEMENTS (EXCLUDING THE $6.34
CENTREBET COMPONENT)
This determination is based on a number of assumptions which
are set out in detail in the Independent Expert's Report.
- ---------------------
(1) Based on Independent Expert valuation of the consideration
(2) Subject to the effects of rounding
\
26
- The value of $6.34 referred to above is:
- 27% higher than the three month daily volume
weighted average sale price of Jupiters Ordinary
Shares on ASX preceding 16 December 2002, the
day Jupiters announced that it was in merger
discussions with UNiTAB Limited; and
- 27% higher than the three month daily volume
weighted average sale price of Jupiters Ordinary
Shares on ASX preceding 10 January 2003, the day
Jupiters announced that it was in merger
discussions with TABCORP.
FIGURE 6.4.2: TRANSACTION PREMIUM TO THE HISTORICAL TRADING
PRICE OF JUPITERS ORDINARY SHARES
[LINE GRAPH]
- - 3-mth Rolling VWAP
- - Independent Expert's Determination as to the value of the aggregate
entitlements under the Ordinary Share Scheme (excluding Centrebet
Component)
Source: Iress Market Technology Limited
Any additional value received by Jupiters Ordinary
Shareholders from the Centrebet Component would increase the
transaction premium (relative to the volume weighted average
sale prices referred to above) that Jupiters Ordinary
Shareholders would receive under the Ordinary Share Scheme.
(c) THE VALUE WHICH JUPITERS ORDINARY SHAREHOLDERS WILL RECEIVE AS
PART OF THE ORDINARY SHARE SCHEME COMPARES FAVOURABLY WITH
PREVIOUS CASINO ACQUISITIONS
Jupiters' operations mainly comprise land based casino
operations, wide area operations (including Keno and gaming
machine monitoring), technology services and the Centrebet
Business. As set out elsewhere in this Scheme Booklet, it is
intended that the Centrebet Business will be divested and
that, if the Merger proceeds, any net proceeds of that sale
will be distributed to Jupiters Ordinary Shareholders.
Jupiters Ordinary Shareholders will participate in three types
of entitlements: the Special Dividend, a cash and shares
component and a Centrebet Component. The
27
Special Dividend and cash and shares component can be viewed
as reflecting the value of Jupiters and its operations, other
than the Centrebet Business.
The values (as determined by the Independent Expert based on
the assumptions set out in its report in Appendix A) of the
Special Dividend and the cash and shares component represent
the following multiples.
Value per Valuation Multiple
Jupiters ------------------------------------
Ordinary Enterprise Price/
Share(1) Value/EBITDA(2) Earnings(3)
-------- --------------- -----------
Special Dividend and cash $6.34 9.3x 20.5x
and shares component
Note: All figures above exclude the value of any entitlements relating to the
Centrebet Business and any earnings contribution of the Centrebet Business.
(1) Based on valuation of Independent Expert.
(2) Enterprise value defined as equity value (the value of entitlements per
Jupiters Ordinary Share x number of Jupiters Ordinary Shares outstanding), plus
the book value of net debt, less the value of surplus assets. EBITDA is
maintainable EBITDA as determined by the Independent Expert.
(3) Price is the value of entitlements per Jupiters Ordinary Share and earnings
is for the year ended 30 June 2003 normalised earnings per share (excluding
non-recurring costs).
Given the profile of the operations of Jupiters, these
valuation multiples compare favourably with the transaction
multiples reflected in precedent casino acquisitions in
Australia, as demonstrated in the following graph.
FIGURE 6.4.3: ACQUISITION MULTIPLES IN PRECEDENT CASINO
TRANSACTIONS
[BAR CHART]
Enterprise Value/EBITDA(1)(x)
Star City (1999) 10.3x
Jupiters (2003)(Proposed) 9.3x
Crown (1999) 8.7x
Adelaide Casino (2000) 8.3x
BreakWater Island Trust (2002) 7.1x
Note: Years in brackets indicate effective year of the acquisition.
(1) Enterprise value excludes the value of surplus assets, including the
Centrebet Business for Jupiters. EBITDA is maintainable EBITDA
(excluding the Centrebet Business for Jupiters) as determined by an
independent expert, with the exception of Adelaide Casino which is
based on historical EBITDA.
Source: Independent expert reports, company filings
28
(d) THE INDEPENDENT EXPERT HAS FOUND THAT THE MERGER IS IN THE
BEST INTERESTS OF JUPITERS ORDINARY SHAREHOLDERS AND IS FAIR
AND REASONABLE AND THAT THEREFORE JUPITERS ORDINARY
SHAREHOLDERS SHOULD APPROVE THE ORDINARY SHARE SCHEME
The Independent Expert has reached this conclusion due to a
number of reasons, including:
- The total entitlements offered are fair and reflect
an appropriate control value for Jupiters Ordinary
Shares. The following table shows that the
Independent Expert's valuation of the Special
Dividend and the cash and shares component to be
provided to Jupiters Ordinary Shareholders under the
Ordinary Share Scheme is higher than the valuation of
Jupiters Ordinary Shares (excluding the estimated
value of the Centrebet Business).
FIGURE 6.4.4: INDEPENDENT EXPERT VALUATION RANGE
LOW HIGH
--- ----
Valuation of Jupiters Ordinary Shares(1) $5.81 $6.48
Valuation of entitlements under Ordinary Share $6.16 $6.52
Scheme(2)
(1) Excludes the estimated value of the Centrebet Business.
(2) Excludes the estimated value of the Centrebet Component.
This view of fairness applies regardless of the form
of the cash and shares component which Jupiters
Ordinary Shareholders elect to receive.
- Jupiters Ordinary Shareholders will be better off
after the Merger, as they will (on average) realise a
significant portion of their holdings in cash at a
full control value, while (generally) retaining an
interest in the Merged Group going forward.
- The value that Jupiters Ordinary Shareholders will
receive under the Ordinary Share Scheme is higher
than the value that would be achieved through an
orderly realisation of Jupiters' assets.
- The Merger is the best alternative available as it
delivers greater value and benefits to Jupiters
Ordinary Shareholders than other alternatives
available to Jupiters.
Jupiters recommends that Jupiters Ordinary Shareholders read
the Independent Expert's Report on the Ordinary Share Scheme
in full (see Appendix A).
29
(e) JUPITERS ORDINARY SHAREHOLDERS HAVE THE OPPORTUNITY TO RECEIVE
SHARES IN A LARGER, MORE DIVERSIFIED COMPANY WITH AN ENHANCED
ABILITY TO PURSUE STRATEGIC OPPORTUNITIES
- The Merged Group will have a stronger financial
position than Jupiters, with greater access to
capital markets providing it with greater financial
capacity to pursue strategic opportunities.
- The Merged Group will have a higher market
capitalisation, providing increased liquidity to
Jupiters Ordinary Shareholders who are issued TABCORP
Shares.
- The Merged Group will have greater operational scale
with improved product diversification.
- The Merged Group will have greater geographic breadth
and more diversified regulatory risk.
- TABCORP Shares historically have provided a higher
dividend yield than Jupiters Ordinary Shares.
FIGURE 6.4.5: MARKET CAPITALISATION OF MERGED GROUP
[BAR CHART]
MARKET CAPITALISATION ($ BILLIONS)
Jupiter $ 1.3
Merged Entity $ 4.7
Source: Iress Market Technology Limited, market
capitalisation as at 4 September 2003 based on a
closing price on ASX for a Jupiters Ordinary Share of
$6.59 and a closing price on ASX for a TABCORP Share
of $11.23.
6.5 CHOICE OF CONSIDERATION FOR THE CASH AND SHARES COMPONENT
In making an election on the mix of consideration that Jupiters
Ordinary Shareholders should elect to receive in respect of the cash
and shares component, Jupiters Ordinary Shareholders need to consider
their personal tax position and other circumstances and seek advice
from their legal, investment or other professional adviser. The
Independent Expert has found the entitlements to be provided under the
Ordinary Share Scheme to be fair regardless of whether a Jupiters
Ordinary Shareholder receives the Standard Cash and Shares Offer, or
makes the Maximum Cash Election or Maximum Shares Election. Given the
operation of the "scale backs" described in Sections 6.2(c) and 19.7,
the precise mix of cash and shares to be provided in respect of any
given Jupiters Ordinary Shareholder will
30
be determined by the election decisions made by all other Jupiters
Ordinary Shareholders. Accordingly, a Jupiters Ordinary Shareholder who
makes the Maximum Cash Election or the Maximum Shares Election will not
know the precise mix of cash and shares to be provided until after
elections are due, which is expected to be 5.00pm on 10 November 2003.
This date occurs after the date of the Ordinary Share Scheme Meeting.
The following factors should also be considered when making an
election:
(a) FACTORS TO CONSIDER RELATING TO CASH CONSIDERATION
- Cash consideration provides certainty of value as to
the consideration received.
- Cash consideration may trigger an immediate capital
gains tax liability for some Jupiters Ordinary
Shareholders.
(b) FACTORS TO CONSIDER RELATING TO SHARE CONSIDERATION
- Share consideration allows the participation of
Jupiters Ordinary Shareholders in the growth
prospects and other benefits of the Merged Group.
- Share consideration may have capital gains tax scrip
for scrip rollover advantages for many shareholders.
Jupiters Ordinary Shareholders should refer to the
tax opinion of Ernst & Young in Appendix B for an
explanation of this.
- Share consideration increases the uncertainty of the
value of the consideration received and exposes
Jupiters Ordinary Shareholders to fluctuations in the
price of TABCORP Shares prior to and after
implementation of the Merger.
- There are general risks associated with holding
shares, such as fluctuations in the value of the
shares, as well as specific risks associated with
holding TABCORP Shares and the performance of the
Merged Group. These specific risks include regulatory
risks, the uncertainty surrounding the renewal of
TABCORP's Wagering and Gaming Licences in 2012 and
the impact of SARS on the casino businesses as well
as risks associated with the Merger, such as
integration risks, and the increased leverage of
TABCORP. Further details of the risks are set out in
Section 18.
After consideration by the Directors of their personal circumstances
(which may be different to the circumstances of other Jupiters Ordinary
Shareholders), the Directors intend to make the following elections:
- the Chairman, Mr Lawrence Willett AO, intends to make the
Maximum Shares Election;
- the Managing Director, Mr Rob Hines, intends to make the
Maximum Shares Election if TABCORP Shares have been trading at
$10.20 or more when he makes his election;
31
- Sir Frank Moore AO intends to make the Maximum Shares Election;
and
- Mr John Story intends to make the Maximum Shares Election.
Ms Penny Morris AM does not hold Jupiters Ordinary Shares.
Each Jupiters Ordinary Shareholder needs to consider their own
circumstances and the factors set out above. Jupiters Ordinary
Shareholders are urged to consider figure 6.2.1 and take into account
their marginal tax rate when making an election.
Jupiters Ordinary Shareholders who want to make an election to receive
the Maximum Cash Election or the Maximum Shares Election should
complete and send the yellow Election Form enclosed with this Scheme
Booklet to Jupiters' Share Registry. The election which a Jupiters
Ordinary Shareholder makes will apply to all their Jupiters Ordinary
Shares, regardless of whether those Jupiters Ordinary Shares are
acquired before or after the election is made. The Election Form must
be received by Jupiters' Share Registry by the Implementation Record
Date for the Ordinary Share Scheme (which is expected to be 5.00pm on
10 November 2003). Once an Election Form has been received by Jupiters'
Share Registry, it cannot be withdrawn or replaced.
Dividends payable pursuant to the Ordinary Share Scheme will be
provided to Jupiters Ordinary Shareholders by way of cheques despatched
or electronic transfers initiated on the Implementation Date for the
Ordinary Share Scheme (which is expected to be 13 November 2003).
All other cash entitlements under the Ordinary Share Scheme will be
provided to Jupiters Ordinary Shareholders by way of cheques being
distributed to them within five Business Days after the Implementation
Date for the Ordinary Share Scheme. TABCORP Shares and Centrebet Notes
(if any) to be issued under the Ordinary Share Scheme will be issued on
the Implementation Date and issuer sponsored holdings statements for
TABCORP Shares (as applicable) will be issued within five Business Days
afterwards. It is currently anticipated that the process will be
completed by 20 November 2003. Ineligible Overseas Shareholders will be
sent their entitlements under the Ordinary Share Scheme (other than the
benefits under the Centrebet Note (if any)) as soon as possible after
that.
6.6 RELEVANT CONSIDERATIONS AGAINST THE MERGER
The reasons why Jupiters Ordinary Shareholders may consider voting
against the Ordinary Share Scheme include the following:
(a) JUPITERS ORDINARY SHAREHOLDERS WILL NO LONGER CONTROL JUPITERS
Jupiters Ordinary Shareholders will no longer be able to hold a
direct interest in Jupiters and will no longer collectively
control Jupiters.
(b) JUPITERS ORDINARY SHAREHOLDERS WILL HOLD A MINORITY INTEREST IN
TABCORP
Collectively, and based on the number of TABCORP Shares on
issue at the date of this Scheme Booklet, Jupiters Ordinary
Shareholders will hold 11.7% of TABCORP Shares after the Merger
and will not collectively control TABCORP.
32
(c) TABCORP SHARE AND CENTREBET NOTE ENTITLEMENTS MAY NOT BE
ATTRACTIVE
Some Jupiters Ordinary Shareholders may not consider that the
possible receipt of TABCORP Shares and Centrebet Notes under
the Ordinary Share Scheme is attractive to them as a result of
the risks and other considerations set out in Sections 7 and
18. Jupiters Ordinary Shareholders should read those Sections
in their entirety.
(d) TAX CONSEQUENCES
A full summary of the Australian tax consequences for certain
Jupiters Ordinary Shareholders is contained in Appendix B.
Jupiters Ordinary Shareholders should consider the precise tax
consequences of the Ordinary Share Scheme in their own
particular circumstances and seek advice from their
professional adviser. However, as an example only, and in
summary, the Australian tax consequences that are expected to
arise for many Australian resident Jupiters Ordinary
Shareholders (in circumstances where a Centrebet Note is not
issued), are:
- the Special Dividend and Centrebet Dividend will be
taxable and a franking credit will be available to
reduce the tax payable;
- a capital gain or loss will arise in respect of
Jupiters Ordinary Shares exchanged for cash; and
- capital gains tax rollover relief will be available for
any capital gain arising on Jupiters Ordinary Shares
exchanged for TABCORP Shares.
This example relates to an Australian resident Jupiters
Ordinary Shareholder who did not acquire their shares from
participation in the Jupiters Option Plan or Exempt Employee
Share Plan, and whose shares are held on capital account and at
risk for at least 45 days and are not deemed to have been
acquired before 20 September 1985.
6.7 EFFECT OF THE MERGER NOT PROCEEDING
If the Ordinary Share Scheme is not implemented, Jupiters Ordinary
Shareholders will not receive the entitlements offered under the
Ordinary Share Scheme and will retain their holding of Jupiters
Ordinary Shares. Jupiters will continue to operate as a stand alone
company.
In some circumstances, Jupiters will be required to reimburse costs to
TABCORP of $12.2 million (see Section 20.11 for details of when such
reimbursement must be made by Jupiters).
Jupiters intends to continue to pursue a Centrebet Sale if the Ordinary
Share Scheme is not implemented. Jupiters' intentions in relation to
the use of any proceeds from a Centrebet Sale will be determined at the
time the proceeds from any such sale are received.
Jupiters will continue to be listed on ASX. However, it is likely that
the price of Jupiters Ordinary Shares will decline from its current
levels as the share price incorporates a control premium in recognition
of the proposed Merger.
33
6.8 EXEMPT EMPLOYEE SHARE PLAN
The Exempt Employee Share Plan was established by Jupiters in 2000 to
facilitate the investment in Jupiters Ordinary Shares by employees of
the Jupiters Group. Under the EESP, the Plan Trustee holds Jupiters
Ordinary Shares on trust for employees who have chosen to participate
in the EESP.
The Plan Trustee, as the registered holder of the Jupiters Ordinary
Shares held under the EESP, is entitled to attend and vote at the
Ordinary Share Scheme Meeting in respect of those Jupiters Ordinary
Shares. The Plan Trustee is required by the terms of the EESP to seek
voting instructions from Participating Employees in relation to the
Jupiters Ordinary Shares held on their behalf.
If the Ordinary Share Scheme is approved by Jupiters Ordinary
Shareholders and by the Court, the EESP will be terminated by the
Jupiters Board on or about the Second Court Date. As a result of the
termination of the EESP, each Participating Employee will be entitled
to have the Jupiters Ordinary Shares which are held on their behalf by
the Plan Trustee transferred to them and registered in their name. The
Jupiters Board will direct the Plan Trustee to transfer the Jupiters
Ordinary Shares held under the EESP to the Participating Employees and
no action will be required by the Participating Employees to enable the
registration of the Jupiters Ordinary Shares in their names.
If, as is expected, the registration occurs prior to the Implementation
Record Date for the Ordinary Share Scheme, each Participating Employee,
as a Jupiters Ordinary Shareholder, will be bound by the Ordinary Share
Scheme on the same basis as other Jupiters Ordinary Shareholders, and
will receive the Special Dividend, the cash and shares component and
the Centrebet Component on the same basis as all other Jupiters
Ordinary Shareholders.
If for any reason the Jupiters Ordinary Shares held by the Plan Trustee
on behalf of a Participating Employee under the EESP are not registered
in the name of the Participating Employee on the Implementation Record
Date for the Ordinary Share Scheme, the Plan Trustee, as the registered
holder of those Jupiters Ordinary Shares, will be bound by the Ordinary
Share Scheme in respect of those Jupiters Ordinary Shares. As a result,
those Jupiters Ordinary Shares will be transferred from the Plan
Trustee to TABCORP Investments and the Plan Trustee will receive, on
behalf of the Participating Employees for whom those Jupiters Ordinary
Shares are held, the Special Dividend, the cash and shares component
and the Centrebet Component relating to those Jupiters Ordinary Shares.
The entitlements will be distributed by the Plan Trustee to the
Participating Employees who are entitled to them.
Because the Participating Employees will not be entitled to become
Jupiters Ordinary Shareholders until after the Second Court Date, they
will be invited by the Plan Trustee to lodge a completed Election Form
with the Plan Trustee in relation to the consideration which they wish
to receive (or wish the Plan Trustee to receive on their behalf) under
the Ordinary Share Scheme. The Plan Trustee will ensure that Election
Forms reflecting the elections of Participating Employees which are
received by the Plan Trustee on or before the Second Court Date are
lodged with Jupiters before the Implementation Record Date for the
Ordinary Share Scheme.
34
SECTION 7 - CENTREBET ARRANGEMENTS
7.1 OVERVIEW OF CENTREBET SALE
As announced in the 5 March 2003 Merger announcement, Jupiters has
commenced a process to sell the Centrebet Business. Jupiters has
conducted an international tender process designed to extract maximum
value from the sale of the Centrebet Business. As at the date of this
Scheme Booklet, no Centrebet Sale Agreement has been signed however,
Jupiters is negotiating the terms of a sale with preferred bidders. The
Jupiters Board is actively pursuing an agreement for the sale of the
Centrebet Business and is endeavouring to ensure that Centrebet Sale
Completion occurs by 31 October 2003, however no assurances can be
given that this will occur.
Jupiters will announce to ASX by 20 October 2003 whether a Centrebet
Sale Agreement has been signed and, if so, the material terms of the
agreement, including the sale price and the likely timing of Centrebet
Sale Completion, and will publish this information on Jupiters'
website, www.jupiters.com.au.
Under the Merger Implementation Agreement, Jupiters has agreed with
TABCORP certain parameters in respect of the terms of any Centrebet
Sale that cannot be changed without TABCORP's agreement. Within those
parameters, the terms of the Centrebet Sale Agreement are at Jupiters'
discretion, subject to the constraints of its negotiations with the
relevant purchaser.
The Merger Implementation Agreement provides that Jupiters has until 31
October 2003 to complete a Centrebet Sale. If that deadline is not met,
any Centrebet Sale Agreement which has already been entered into must
automatically terminate, unless TABCORP agrees otherwise.
In those circumstances, or in the case where no Centrebet Sale
Agreement has been entered into by Jupiters by 31 October 2003, the
Merger Implementation Agreement requires TABCORP (once the Ordinary
Share Scheme becomes effective) to use reasonable endeavours to effect
a Centrebet Sale, by entering into a Centrebet Sale Agreement by 30
June 2004 and completing that sale by 30 September 2004.
If a Centrebet Sale Agreement is signed and Centrebet Sale Completion
occurs by 31 October 2003, Jupiters Ordinary Shareholders will receive
the Centrebet Dividend from Jupiters. The Centrebet Dividend will
represent a pro rata proportion of the Net Centrebet Proceeds paid for
each Jupiters Ordinary Share on issue at the Implementation Record Date
for the Ordinary Share Scheme.
If Centrebet Sale Completion does not occur by 31 October 2003,
Jupiters Ordinary Shareholders will receive a Centrebet Note if the
Ordinary Share Scheme is implemented. The Centrebet Notes will be
issued under the terms of the Centrebet Note Deed. Further details are
contained in Sections 7.4 and 7.5. If Jupiters is unable to sign a
Centrebet Sale Agreement and if Centrebet Sale Completion does not
occur by 31 October 2003, it is possible that TABCORP will be unable to
sell the Centrebet Business before 30 June 2004, in which case Jupiters
Ordinary Shareholders will receive no value for the Centrebet Business.
Any amount received under a Centrebet Note is likely to be less than
the amount Jupiters Ordinary Shareholders would have received if
Centrebet Sale Completion had occurred by 31 October 2003, due to the
payment of a commission to the TABCORP Group for
35
effecting the sale. That commission is equal to $10 million plus 12% of
the Net Centrebet Proceeds (before taking into account the commission)
in excess of $30 million.
Any amount received under a Centrebet Note is also likely to be less as
material changes are likely to be made by TABCORP to the Centrebet
Business. While legal in the Northern Territory and the United Kingdom,
where Centrebet's licences were granted, certain jurisdictions, such as
Denmark, have passed legislation to prevent certain persons targeting
their residents with offers of gambling services over the internet.
TABCORP is entitled, after the Ordinary Share Scheme becomes effective,
to make changes to the Centrebet Business if it receives legal advice
to the effect that the changes are necessary for probity or licensing
purposes or to comply with any law or regulation in any jurisdiction in
which the Merged Group (including Centrebet) operates or proposes to
operate. The TABCORP Group has current operations in, or plans to
expand its operations into, Denmark, Norway and the United States of
America (as set out in Section 16.7(c)). At or about the time at which
the Merger is implemented TABCORP intends to seek legal advice in
relation to those jurisdictions and Centrebet's then current
operations. TABCORP will implement any changes it considers necessary
based on that legal advice. Centrebet does not currently accept bets
from residents of the United States of America. In the financial year
ended 30 June 2003, approximately 59% of Centrebet's turnover was
derived from residents of Denmark, Norway, Finland and Sweden.
Jupiters Ordinary Shareholders may receive no value for the Centrebet
Business if Centrebet Sale Completion does not occur by 31 October
2003.
If, after using reasonable endeavours, TABCORP is unable to enter into
a Centrebet Sale Agreement by 30 June 2004 or Centrebet Sale Completion
does not occur by 30 September 2004, the Centrebet Notes will lapse and
Jupiters Ordinary Shareholders will not receive any cash or other
consideration for the Centrebet Business.
7.2 NET CENTREBET PROCEEDS
The manner in which the Net Centrebet Proceeds is calculated is
detailed in Appendix E.
In summary, the Net Centrebet Proceeds will comprise the net amount
received from the Centrebet Sale after deducting:
- all costs and taxes incurred or payable or that will be charged
back to Jupiters and its subsidiaries in connection with the
sale, including Jupiters' financial, accounting and legal
costs;
- the costs associated with the redundancy of any Centrebet
employee;
- $500,000, in recognition of certain costs of the TABCORP Group
in facilitating the distribution of the Net Centrebet Proceeds
to Jupiters Ordinary Shareholders; and
- if the sale completes after 31 October 2003, the aggregate of
$10 million and 12% of the amount by which the Net Centrebet
Proceeds (before taking into account this aggregate amount)
exceeds $30 million.
36
7.3 TRADING OF CENTREBET NOTES
As at the date of this Scheme Booklet, no Centrebet Notes have been
issued. Accordingly, no Centrebet Notes have been traded before the
date of this Scheme Booklet.
7.4 RIGHTS AND LIABILITIES ATTACHING TO THE CENTREBET NOTES
The rights and liabilities attaching to the Centrebet Notes are
governed by:
- the provisions of the Centrebet Note Deed, which are summarised
in Section 7.5; and
- the terms and conditions of the Centrebet Notes set out in
schedules 1 and 3 to the Centrebet Note Deed. Schedule 1 to the
Centrebet Note Deed is set out in full in Appendix D. Schedule
3 to the Centrebet Note Deed is summarised in Appendix E.
7.5 SUMMARY OF CENTREBET NOTE DEED
TABCORP Issuer has entered into a Centrebet Note Deed dated 3 September
2003 with TABCORP and the Note Trustee in connection with the issue of
the Centrebet Notes. The Centrebet Note Deed outlines the basis upon
which the Centrebet Notes will be issued under the Ordinary Share
Scheme, should that be required.
Centrebet Notes will only be issued if Centrebet Sale Completion does
not occur by 31 October 2003.
(a) GENERAL
The Centrebet Note Deed provides that the Centrebet Notes will
rank equally in all respects (including payment) between
themselves and are to be issued, if required, in accordance
with the Ordinary Share Scheme. TABCORP Issuer's obligations in
relation to the Centrebet Notes, as constituted by and
specified in the Centrebet Note Deed, are to the Note Trustee
and to those persons who may become registered Centrebet
Noteholders.
In accordance with its obligations under the Corporations Act,
TABCORP Issuer will provide a copy of the Centrebet Note Deed
to a Centrebet Noteholder upon request.
(b) REDEMPTION
As described in Section 6.2(d)(ii), Centrebet Noteholders will
only be entitled to receive a payment in respect of the
Centrebet Notes if a Centrebet Sale Agreement is entered into
by 30 June 2004 and Centrebet Sale Completion occurs by 30
September 2004. If either of those conditions is not satisfied,
the Centrebet Notes will automatically lapse on 30 September
2004 (or earlier on 30 June 2004, if no Centrebet Sale
Agreement is entered into by that date).
If both of those conditions are satisfied, TABCORP Issuer will
redeem the Centrebet Notes by paying to each Centrebet
Noteholder an amount equal to the Net Centrebet Proceeds
divided by the total number of Jupiters Ordinary Shares on
issue at the Implementation Record Date for the Ordinary Share
Scheme.
37
No interest is payable on the Centrebet Notes.
(c) GUARANTEE AND INDEMNITY
Under the Centrebet Note Deed, TABCORP has provided an
unconditional and irrevocable guarantee to the Note Trustee and
the Centrebet Noteholders in relation to all the obligations of
TABCORP Issuer under the Centrebet Note Deed and in respect of
the Centrebet Notes. TABCORP also separately indemnifies the
Note Trustee and the Centrebet Noteholders against any loss,
liability or expense that they may incur or suffer as a result
of any default or delay by TABCORP Issuer in relation to those
obligations.
(d) UNDERTAKINGS
Under the Centrebet Note Deed, TABCORP Issuer covenants that it
will, amongst other things:
- use its best endeavours to carry on and conduct its
business (if any) in a proper and efficient manner;
- keep proper books of account into which it will enter
full particulars of all dealings and transactions;
- make available for inspection by the Note Trustee, its
authorised officers and the auditor of TABCORP Issuer
during normal business hours the whole of the financial
or other records of TABCORP Issuer and give to the Note
Trustee such information, explanation or other
assistance as the Note Trustee requires with respect to
all matters relating to the financial and other records
of TABCORP Issuer;
- provide to the Note Trustee copies of its full year and
half-yearly accounts, quarterly reports as required by
the Corporations Act, and other information reasonably
considered necessary by the Note Trustee for the
purpose of the discharge of its duties in respect of
the Centrebet Notes;
- notify the Note Trustee as soon as it becomes aware of
any Event of Default (see paragraph (e) below)), or
that any provision of the Centrebet Note Deed or a
Centrebet Note is not or cannot be complied with,
together with details of the breach. It must also
notify the Note Trustee as soon as reasonably
practicable if it intends to redeem or acquire any
Centrebet Note;
- use reasonable endeavours (after the Effective Date for
the Ordinary Share Scheme) to procure that a Centrebet
Sale Agreement is entered into by 30 June 2004, and
that Centrebet Sale Completion occurs by 30 September
2004;
- after the Effective Date for the Ordinary Share Scheme,
procure that the Centrebet Business is conducted in a
manner that has regard in good faith to the potential
economic interests of Centrebet Noteholders under the
Centrebet Notes. It must also procure that until 30
September 2004 (or 30 June 2004 if a Centrebet Sale
Agreement has not been entered into by that date) any
change made to the Centrebet Business by TABCORP or
38
its Related Entities that is reasonably likely to have
a material adverse effect on the financial performance
or the value of the Centrebet Business is based on
legal advice to the effect that the change is necessary
for probity or licensing purposes or to comply with any
law or regulation in a jurisdiction in which the Merged
Group operates or proposes to operate; and
- comply with its other duties under the Corporations Act
in relation to the Centrebet Notes.
Under the Centrebet Note Deed, TABCORP covenants that it will:
- use its best endeavours to carry on and conduct its
business in a proper and efficient manner;
- keep proper books of account into which it will enter
full particulars of all dealings and transactions;
- make available for inspection by the Note Trustee, its
authorised officers and the auditor of TABCORP during
normal business hours the whole of the financial or
other records of TABCORP and give to the Note Trustee
such information, explanation or other assistance as
the Note Trustee requires with respect to all matters
relating to the financial and other records of TABCORP;
- not take any steps to commence a voluntary liquidation;
- ensure that TABCORP Issuer is a wholly-owned subsidiary
of TABCORP for so long as any amounts are actually or
contingently owed by TABCORP Issuer under the Centrebet
Note Deed or in connection with the Centrebet Notes;
and
- comply with its other duties under the Corporations Act
in relation to the Centrebet Notes.
Under the Centrebet Note Deed, the Note Trustee makes certain
covenants, including that it will:
- act honestly and in good faith and comply with all
relevant material laws in the performance of its duties
and the exercise of its discretions under the Centrebet
Note Deed;
- subject to the terms of the Centrebet Note Deed,
exercise such diligence and prudence as a prudent
person of business in the position of the Note Trustee
would exercise in the exercise of its discretions and
powers under the Centrebet Note Deed;
- properly perform the functions that are required of it;
and
- do everything and take all such actions which are
necessary to ensure that it is able to exercise all its
powers and remedies and perform all its obligations
under the Centrebet Note Deed and all other deeds and
agreements entered under the Centrebet Note Deed.
39
(e) EVENTS OF DEFAULT
An Event of Default occurs under the Centrebet Note Deed in
various circumstances, including where TABCORP Issuer:
- fails to redeem the Centrebet Notes when they become
due for redemption and such failure is unremedied for
seven days;
- is wound up, enters into an arrangement with its
creditors, or ceases or suspends the conduct of all or
a substantial part of its business, or disposes or
threatens the disposal of a substantial part of its
assets;
- is, or is presumed to be, insolvent;
- stops or threatens to stop or suspend payment of all or
a class of its debts (other than in relation to a bona
fide dispute);
- has a receiver or administrator appointed over any of
its assets which is not removed within 20 days;
- is in breach of any material undertaking in the
Centrebet Note Deed or the terms of the Centrebet
Notes, which breach is not rectified to the reasonable
satisfaction of the Note Trustee within seven days
after notice to rectify.
(f) ACTION AGAINST TABCORP ISSUER OR TABCORP
The Note Trustee has an absolute and unfettered discretion, to
the exclusion of Centrebet Noteholders, to decide whether or
not to take any action or proceedings against TABCORP Issuer or
TABCORP to enforce any provision of the Centrebet Note Deed.
However, the Note Trustee must take action to enforce the
Centrebet Note Deed in circumstances where, subject to certain
conditions being met, the Note Trustee is requested by
Centrebet Noteholders by special resolution, either in writing
or at a duly convened meeting of Centrebet Noteholders, to take
such action.
(g) NOTE TRUSTEE'S POWERS
There are certain powers that the Note Trustee may exercise
under the Centrebet Note Deed in addition to those powers of
trustees arising under law. These additional powers include the
power to waive any breach by TABCORP Issuer or TABCORP of any
of the provisions binding on them under the Centrebet Note
Deed, either on the instructions of Centrebet Noteholders by
special resolution or otherwise where the breach is of a
formal, technical or administrative nature, provided that the
Note Trustee reasonably believes Centrebet Noteholders will not
be materially prejudiced as a result.
(h) LIMITATION OF NOTE TRUSTEE'S LIABILITY AND INDEMNITY
The Note Trustee will not be under any liability under the
Centrebet Note Deed, except for any liability arising from
negligence, fraud, dishonesty or any other wilful breach of
trust. In addition, without prejudice to any indemnity allowed
by law, TABCORP Issuer has agreed to indemnify the Note Trustee
for all costs,
40
charges, expenses and liabilities incurred and payments made in
or about the execution, administration or enforcement of the
Centrebet Note Deed, and for the remuneration payable by
TABCORP Issuer to the Note Trustee.
(i) REMUNERATION AND PRIORITY OF PAYMENTS
TABCORP Issuer has agreed to remunerate the Note Trustee for
its services as trustee. The Note Trustee is entitled to
payment of its remuneration and all costs, expenses and
liabilities which are reasonably and properly incurred or
payable by the Note Trustee in connection with the Centrebet
Note Deed in priority to any claim by a Centrebet Noteholder.
(j) APPOINTMENT OF A NEW TRUSTEE
TABCORP Issuer may remove the Note Trustee in certain
circumstances, such as where the Note Trustee is insolvent or
in material and unremedied breach of the Centrebet Note Deed,
and appoint a new Note Trustee.
Centrebet Noteholders also have the right to remove the Note
Trustee, and to appoint a new Note Trustee, by ordinary
resolution. In addition, the Note Trustee may retire on two
months' notice to TABCORP Issuer.
However, the removal or retirement of the Note Trustee will not
be effective until a new Note Trustee has been appointed. If a
new Note Trustee has not been appointed at the end of the two
month's notice period in the case of retirement, or within 14
days after the Note Trustee is removed by TABCORP Issuer or the
Centrebet Noteholders, the Note Trustee has the power to
appoint a new Note Trustee.
(k) CENTREBET NOTEHOLDER MEETINGS
Under the Centrebet Note Deed, the Note Trustee or TABCORP
Issuer may convene a meeting of Centrebet Noteholders for any
purpose by giving not less than 21 days' prior notice to
Centrebet Noteholders. In addition, the Note Trustee or TABCORP
Issuer may, at its discretion, refer any question arising out
of, or in connection with, the Centrebet Note Deed to a meeting
of Centrebet Noteholders and, if they think fit, act in
accordance with any resolution passed in relation to such a
question.
Centrebet Noteholders who own not less than 10% of the
Centrebet Notes on issue may direct TABCORP Issuer to convene a
meeting of Centrebet Noteholders and TABCORP Issuer must
convene such a meeting by providing the requisite notice.
A Centrebet Noteholder may appoint a proxy, attorney or (if
relevant) corporate representative to attend and vote on its
behalf at a meeting of Centrebet Noteholders.
There will be a quorum for a meeting of Centrebet Noteholders
if two or more Centrebet Noteholders are present (in person or
by proxy, attorney or corporate representative) and the
Centrebet Noteholders who are present hold not less than 10% of
the Centrebet Notes on issue.
41
Every question submitted to a meeting of Centrebet Noteholders
must be decided in the first instance by a show of hands. At
every meeting of Centrebet Noteholders each voter is entitled
on a show of hands to one vote. On a poll, each voter is
entitled to one vote in respect of each Centrebet Note held by
the Centrebet Noteholder or by the person for whom they are
proxy, attorney or corporate representative.
At any meeting of Centrebet Noteholders a poll may be demanded
by the chair, TABCORP, TABCORP Issuer or the Note Trustee, or
by at least five Centrebet Noteholders, or Centrebet
Noteholders who together hold at least 5% of the Centrebet
Notes on issue, present in person or by proxy, attorney or
corporate representative.
A special resolution of Centrebet Noteholders will be passed
if it is approved either:
- by written resolution signed by Centrebet Noteholders
who together hold at least 75% of the Centrebet Notes
on issue; or
- at a meeting of Centrebet Noteholders by not less than
75% of the votes cast.
Any other resolution of Centrebet Noteholders will be passed if
it is approved either:
- by written resolution signed by Centrebet Noteholders
who hold at least 50% of the Centrebet Notes on issue;
or
- at a meeting of Centrebet Noteholders by not less than
50% of the votes cast.
A resolution passed at a meeting of Centrebet Noteholders is
binding on all the Centrebet Noteholders, whether present or
not, and whether or not they are in favour of the resolution.
(l) AMENDING THE CENTREBET NOTE DEED
The Centrebet Note Deed may be amended by agreement between
TABCORP Issuer, TABCORP and the Note Trustee in various
circumstances, namely where the amendment is:
- of a formal or technical nature;
- made to correct a manifest error;
- necessary to comply with the provisions of any law or
regulation or the requirements of any governmental
agency;
- in the opinion of the Note Trustee, not likely to be
materially prejudicial to the interests of the
Centrebet Noteholders; or
- assented to by the Centrebet Noteholders by special
resolution.
42
(m) TERMINATION AND RELEASE
The trust established under the Centrebet Note Deed will
terminate, and each of TABCORP Issuer and TABCORP will be
released from its obligations under the Centrebet Note Deed, on
the earlier of:
- ten business days after the Effective Date for the
Ordinary Share Scheme, if completion of a Centrebet
Sale Agreement has occurred prior to 31 October 2003;
- 31 December 2003 if the Effective Date for the Ordinary
Share Scheme has not occurred by that date;
- the day after 30 June 2004 if a Centrebet Sale
Agreement has not been entered into by that date;
- the day after 30 September 2004 if Centrebet Sale
Completion has not occurred by that date; and
- the day after the last to occur of:
- redemption of all Centrebet Notes;
- payment of all amounts actually or contingently
owed by TABCORP Issuer under the Centrebet Note
Deed or in respect of the Centrebet Notes; and
- payment of all costs, charges and expenses
properly incurred by the Note Trustee under or in
connection with the Centrebet Note Deed.
43
INFORMATION FOR
RPS HOLDERS
44
SECTION 8 - IMPORTANT DATES AND TIMES FOR THE RPS SCHEME
Record time and date for dividend on RPS 10.00pm on 1 October 2003
- ------------------------------------------------------------------------------------------------------
Latest date for lodgment of completed Trigger Event Conversion
Notice with Jupiters 8 October 2003
- ------------------------------------------------------------------------------------------------------
Payment date for dividend on RPS 9 October 2003
- ------------------------------------------------------------------------------------------------------
Latest time and date for lodgment of completed proxy form for
the RPS Scheme Meeting with Jupiters 5.00pm on 22 October 2003
- ------------------------------------------------------------------------------------------------------
Time and date for determining eligibility to vote at the RPS
Scheme Meeting 7.00pm on 22 October 2003
- ------------------------------------------------------------------------------------------------------
Time and date of RPS Scheme Meeting 2.00pm on 24 October 2003
- ------------------------------------------------------------------------------------------------------
Court hearing for approval of the RPS Scheme 31 October 2003
- ------------------------------------------------------------------------------------------------------
Suspension of trading in RPS 31 October 2003
- ------------------------------------------------------------------------------------------------------
Implementation Record Date for determining entitlements under
the RPS Scheme 10 November 2003
- ------------------------------------------------------------------------------------------------------
Implementation Date for the RPS Scheme 13 November 2003
- ------------------------------------------------------------------------------------------------------
Despatch of cheques by TABCORP Investments to RPS Holders
(if RPS Scheme implemented) by 20 November 2003
- ------------------------------------------------------------------------------------------------------
RPS the subject of Trigger Event Conversion Notices sold to
TABCORP Investments (if RPS Scheme is not implemented) 20 November 2003
- ------------------------------------------------------------------------------------------------------
All dates and times are indicative only. The actual timetable will depend on
many factors outside the control of Jupiters, including the Court and Queensland
State Government approval processes. Any changes to the above timetable will be
notified on Jupiters' website, www.jupiters.com.au, and announced to ASX. All
times are referenced to the time in Brisbane, Queensland.
45
SECTION 9 - HOW TO VOTE AT THE RPS SCHEME MEETING
The RPS Scheme Meeting will commence at 2.00pm on 24 October 2003. The RPS
Scheme Meeting will be held at the Hotel Conrad and Jupiters Casino, Broadbeach,
Gold Coast.
For the RPS Scheme to proceed, it must (amongst other things) be approved by a
majority in number of RPS Holders present and voting at the RPS Scheme Meeting
and at least 75% of the total number of votes which are cast at the RPS Scheme
Meeting.
You will be entitled to vote at the RPS Scheme Meeting if you hold RPS at 7.00pm
on 22 October 2003, except to the extent that you hold RPS on behalf of or for
the benefit of TABCORP or one of its Related Entities. You can vote at the RPS
Scheme Meeting:
- - in person;
- - by proxy;
- - by corporate representative (if you are a corporate shareholder); or
- - by attorney.
You will be counted as being present at the RPS Scheme Meeting if you vote in
any of the ways outlined above.
If you wish to vote in person, you should attend the RPS Scheme Meeting and
bring with you a copy of the personalised registration letter enclosed with this
Scheme Booklet.
If you wish to vote by proxy, you must complete and sign the RPS Scheme Meeting
proxy form accompanying this Scheme Booklet. Completed proxy forms can be:
- - posted to Jupiters' Share Registry, Computershare Investor Services Pty
Ltd, in the envelope provided (prepaid for mailing in Australia) or
otherwise delivered to Computershare Investor Services Pty Ltd at Level
27, 345 Queen Street, Brisbane; or
- - faxed to Jupiters' Share Registry at facsimile number (07) 3229 9860 if
you are within Australia or +61 7 3229 9860 if you are outside
Australia,
and must be received by 5.00pm on 22 October 2003. If a proxy form is completed
by an individual or a corporation under a power of attorney, the original or a
certified copy of that power of attorney under which the form is signed must
also be received by Jupiters by 5.00pm on 22 October 2003. Powers of attorney
and certified copies of powers of attorney can be provided to Jupiters in the
same manner as proxy forms.
If you are an attorney and you wish to attend the RPS Scheme Meeting, you must
provide to Jupiters the original or a certified copy of the power of attorney
under which you have been authorised to attend and vote at the RPS Scheme
Meeting. Original or certified copies of powers of attorney can be provided to
Jupiters in the same manner as proxy forms and must be received by Jupiters by
5.00pm on 22 October 2003.
If you are a corporate shareholder and you wish to appoint a representative to
attend the RPS Scheme Meeting, you should ensure that your representative can
provide appropriate evidence of their appointment.
Voting on the resolution to approve the RPS Scheme will be by poll.
46
If the RPS Scheme is approved at the RPS Scheme Meeting, and the Ordinary Share
Scheme is approved at the Ordinary Share Scheme Meeting, the Court will be asked
to approve both Schemes. The Court hearing for this purpose is expected to be
held on 31 October 2003.
47
SECTION 10 - LETTER TO RPS HOLDERS FROM THE CHAIRMAN OF JUPITERS
[JUPITERS LETTERHEAD]
5 September 2003
Dear RPS Holder,
On 12 June 2003, the Jupiters Board announced that it had signed a Merger
Implementation Agreement with TABCORP and that it recommended that Jupiters'
shareholders support a proposal to merge Jupiters with TABCORP.
As part of the Merger proposal, the TABCORP Group is offering to acquire all RPS
by way of a separate scheme of arrangement - the RPS Scheme. The RPS Scheme is
conditional on the Ordinary Share Scheme becoming effective.
The meeting of RPS Holders to approve the RPS Scheme will be held on 24 October
2003 at the Hotel Conrad and Jupiters Casino, Broadbeach, Gold Coast,
Queensland, at 2.00pm. The meeting of Jupiters Ordinary Shareholders will
commence at 10.00am on 24 October 2003.
If the RPS Scheme is implemented, you will receive $105.26 in cash for each RPS
held by you at the Implementation Record Date for the RPS Scheme plus an amount
equal to any dividend accrued on those RPS up to the Implementation Date for the
RPS Scheme.
Your Directors unanimously recommend that you vote in favour of the RPS Scheme
for the following reasons:
- - The independent expert appointed by your Directors,
PricewaterhouseCoopers Securities Ltd, has advised that:
"the RPS Scheme is fair and reasonable and in the best interests of RPS
Holders" and therefore "RPS Holders should approve the RPS Scheme
resolution".
- - The consideration you will receive under the RPS Scheme is likely to be
equal to or higher than the value you would realise under other
alternatives such as continuing to hold the RPS or having them acquired
or redeemed following a request for conversion.
- - You could only achieve a better alternative if the VWAP for Jupiters
Ordinary Shares for 20 Business Days prior to the Conversion Date is
more than $6.77, or if there was a higher bid for Jupiters Ordinary
Shares. The Independent Expert has placed an upper value of $6.85 on
the entitlements to be provided to Jupiters Ordinary Shareholders, so
while it concedes it is possible Jupiters Ordinary Shares could trade
above $6.77, given the trading history, it does not consider it likely.
Receipt of a higher bid is unlikely because no higher bid has been
received by Jupiters despite the public knowledge of the Merger and
because the Merger values Jupiters with a full control premium such
that an alternative acquirer is unlikely to offer to pay a materially
higher price for Jupiters Ordinary Shares.
Those of your Directors who hold RPS intend to vote in favour of the RPS Scheme.
This Scheme Booklet contains important information for you to make a decision as
to whether to vote in favour of the RPS Scheme. Please read the information in
this Scheme Booklet relevant to RPS Holders carefully, including the Independent
Expert's Report on the RPS Scheme. In addition,
48
the other sections of this Scheme Booklet contain information on the Ordinary
Share Scheme which you may also find useful in making your decision.
If you have any questions, please call the Jupiters Information Line on 1800 65
65 06 (if you are calling from within Australia) or +612 9207 3783 (if you are
calling from outside Australia) or consult your legal, financial or other
professional adviser.
Yours sincerely
Lawrence Willett AO
Chairman
Jupiters Limited
49
SECTION 11 - LETTER TO RPS HOLDERS FROM THE CHAIRMAN OF TABCORP
TABCORP LETTERHEAD
5 September 2003
Dear RPS Holder
The Merger of Jupiters and TABCORP provides you with an opportunity to realise
$105.26 cash for each RPS you hold plus an amount equal to any dividend accrued
up to the Implementation Date for the RPS Scheme.
TABCORP believes the consideration offered under the RPS Scheme represents an
attractive alternative as the consideration exceeds the value the Independent
Expert (PricewaterhouseCoopers Securities Ltd) has estimated you would receive
through either continuing to hold your RPS or having them acquired or redeemed
following a request for conversion.
The RPS Scheme has been unanimously recommended by the Board of Jupiters. This
recommendation is also supported by the Independent Expert who has concluded
that the RPS Scheme is in the best interests of RPS Holders and is both "fair
and reasonable".
The RPS Scheme is conditional on Jupiters' Ordinary Share Scheme becoming
effective and certain other approvals.
This Scheme Booklet provides details of the RPS Scheme, including the
Independent Expert's report on the RPS Scheme and information on how to vote.
Please read it carefully before making your decision.
Yours sincerely,
MICHAEL ROBINSON
Chairman
50
SECTION 12 - OVERVIEW OF THE RPS SCHEME
Following is a summary of the key features of the RPS Scheme. This summary
should be read in conjunction with the remaining information for RPS Holders in
this Scheme Booklet, including information relating to RPS Holders' rights to
deliver Conversion Notices under the RPS Terms.
CONSIDERATION RPS Holders will receive $105.26 for each RPS they hold plus
Accrued Dividend Equivalents.
RPS Holders will only be eligible to receive consideration
under the RPS Scheme for RPS they hold on the Implementation
Record Date for the RPS Scheme, which is expected to be 5.00pm
on 10 November 2003. TABCORP and any Related Entities of
TABCORP which are RPS Holders will not participate in the RPS
Scheme.
DIRECTORS' The Directors unanimously recommend that RPS Holders vote in
RECOMMENDATION favour of the RPS Scheme and intend to vote all RPS held by
AND INDEPENDENT them (if any) in favour of the RPS Scheme.
EXPERT'S REPORT
The matters which the Directors have had regard to in making
this recommendation are set out in Section 13.5.
The implications for RPS Holders if the RPS Scheme does not
proceed are set out in Sections 13.4 and 13.8.
The Independent Expert was appointed to provide its opinion on
the RPS Scheme and has concluded that the RPS Scheme is fair
and reasonable and in the best interests of RPS Holders and
that, therefore, RPS Holders should approve the RPS Scheme.
The Independent Expert's Report on the RPS Scheme is set out
in full in Appendix F.
CONDITIONS Implementation of the RPS Scheme is subject to a number of
conditions, including:
- the Ordinary Share Scheme becoming effective;
- the RPS Scheme being approved by the required
majorities of RPS Holders and by the Court,
and receipt of various approvals from the Queensland State
Government.
The conditions are set out in detail in Section 20.3.
PAYMENT DATE The RPS Scheme consideration will be paid by cheques
distributed to RPS Holders within five Business Days after the
Implementation Date for the RPS Scheme. It is currently
anticipated that the distribution of cheques will be made by
20 November 2003.
51
VOTING THRESHOLDS The RPS Scheme must be approved by:
- a majority in number of RPS Holders present and
voting at the RPS Scheme Meeting (in person or by
proxy, attorney or corporate representative); and
- at least 75% of the total number of votes which are
cast at the RPS Scheme Meeting.
RPS SCHEME The RPS Scheme Meeting will commence at 2.00pm on 24 October
MEETING 2003. The RPS Scheme Meeting will be held at the Hotel Conrad
and Jupiters Casino, Broadbeach, Gold Coast, Queensland.
Only RPS Holders who hold RPS at 7.00pm on 22 October 2003
will be entitled to vote at the RPS Scheme Meeting. RPS
Holders will not be entitled to vote with respect to any RPS
they hold on behalf of or for the benefit of TABCORP or any of
its Related Entities.
Further details of the RPS Scheme Meeting, including how to
vote, are contained in Section 9.
TAX A summary of the Australian tax consequences of the RPS Scheme
for certain RPS Holders is set out in Appendix G.
If RPS Holders have any questions in relation to the Merger, the RPS Scheme or
the RPS Scheme Meeting, they should contact their legal, investment or other
adviser or telephone the Jupiters Information Line on:
- - if calling from within Australia: 1800 65 65 06; and
- - if calling from outside Australia: +612 9207 3783.
52
SECTION 13 - MATTERS RELEVANT TO RPS HOLDERS
Following is a summary of the key features of the RPS Scheme. This section
should be read in conjunction with the remaining information for RPS Holders in
this Scheme Booklet.
13.1 OVERVIEW OF THE RPS SCHEME
On 5 March 2003, Jupiters and TABCORP announced a proposal to merge and
to divest the Centrebet Business.
On 12 June 2003, Jupiters and TABCORP entered into a Merger
Implementation Agreement following the completion by each party of
detailed due diligence on the other party. A summary of the key terms
of the Merger Implementation Agreement is set out in Section 20.
Pursuant to the Merger Implementation Agreement, Jupiters has agreed to
propose two separate schemes of arrangement - one relating to Jupiters
Ordinary Shares and one relating to RPS. This Section relates to the
RPS Scheme. Details relating to the Ordinary Share Scheme are set out
in Sections 5 and 6. TABCORP Investments has also agreed with Jupiters
Optionholders, through individual agreements with them, that, if the
Ordinary Share Scheme is implemented, all Jupiters Options on issue at
the Implementation Date for the Ordinary Share Scheme will be
cancelled.
If the RPS Scheme is implemented, TABCORP Investments, a wholly owned
subsidiary of TABCORP, will become the holder of all RPS.
The RPS Scheme is conditional upon the Ordinary Share Scheme becoming
effective. However, the Ordinary Share Scheme is not conditional upon
the RPS Scheme becoming effective. Other conditions to the RPS Scheme
are described in Section 20.3.
13.2 CONSIDERATION THAT RPS HOLDERS WILL RECEIVE UNDER THE RPS SCHEME
If the RPS Scheme is implemented, then all RPS will be transferred to
TABCORP Investments and RPS Holders participating in the RPS Scheme
will be paid $105.26 for each RPS transferred to TABCORP Investments
under the RPS Scheme, plus the Accrued Dividend Equivalent for each
such RPS.
RPS Holders will only be eligible to receive consideration under the
RPS Scheme for RPS they hold on the Implementation Record Date for the
RPS Scheme, which is expected to be 5.00pm on 10 November 2003. TABCORP
and any Related Entities which are RPS Holders will not participate in
the RPS Scheme.
13.3 DIRECTORS' RECOMMENDATION ON THE RPS SCHEME
The Directors unanimously recommend that RPS Holders vote in favour of
the RPS Scheme. The Directors have formed their conclusion and made
their recommendation based on the reasons outlined in Section 13.5
below.
The Directors who hold RPS intend to vote in favour of the RPS Scheme.
13.4 RPS HOLDERS' RIGHTS UNDER THE RPS TERMS
All references in this Section 13.4 to the amount RPS Holders will
receive on the Trigger Event Conversion Date following delivery by them
to Jupiters of a Trigger Event
53
Conversion Notice and the consideration offered under the RPS Scheme
exclude the value of dividends accrued on the RPS, unless stated to the
contrary.
Under the RPS Terms, as a consequence of the proposed Merger, RPS
Holders may give Jupiters a Trigger Event Conversion Notice. In
addition, RPS Holders continue to have the right to give Jupiters a
Special Conversion Notice at any time. Alternatively, RPS Holders can
take no action under the RPS Terms. These options are discussed in
further detail below.
(a) TAKE NO ACTION
RPS Holders are not required to take any action under the RPS
Terms as a result of the proposed Merger.
If neither the Ordinary Share Scheme nor the RPS Scheme is
implemented and a RPS Holder does nothing, they will continue
to hold their RPS.
The implications for RPS Holders in taking no action in
circumstances where:
- both the Ordinary Share Scheme and the RPS Scheme are
implemented are set out in Section 13.7; and
- the Ordinary Share Scheme is implemented but the RPS
Scheme is not implemented are set out in Section
13.8.
(b) TRIGGER EVENT CONVERSION RIGHT
The RPS Terms provide that if a "trigger event" under the RPS
Terms takes place, RPS Holders may give Jupiters a conversion
notice under the RPS Terms. A trigger event occurred on the
release of this Scheme Booklet to ASX, and that event is
referred to in this Scheme Booklet as the "Trigger Event".
Following notice of the Trigger Event from Jupiters to each
RPS Holder on 9 September 2003, each RPS Holder may give
Jupiters a Trigger Event Conversion Notice at any time on or
before 8 October 2003.
If a RPS Holder gives Jupiters a Trigger Event Conversion
Notice, Jupiters has the option of either converting the
relevant RPS into Jupiters Ordinary Shares, redeeming them or
arranging for their sale to a third party. Jupiters is
required to notify all RPS Holders who give it a Trigger Event
Conversion Notice of its intentions on or before 21 October
2003. The conversion, redemption or sale will take place on
the day which is 50 Business Days after the date on which
Jupiters gave notice of the Trigger Event (referred to as the
"TRIGGER EVENT CONVERSION DATE"). The Trigger Event Conversion
Date is 20 November 2003.
Under the terms of the Merger Implementation Agreement,
Jupiters has agreed with TABCORP to arrange for all RPS
subject to a Trigger Event Conversion Notice to be sold to
TABCORP Investments on the Trigger Event Conversion Date. As
required by the RPS Terms, on that date, TABCORP Investments
will pay RPS Holders the Repurchase Amount for each RPS which
is subject to a Trigger Event Conversion Notice. In addition,
Jupiters will pay an amount equal to the dividend then accrued
on those RPS.
54
The Repurchase Amount is determined in accordance with a
formula set out in the RPS Terms. That formula is such that
the actual value of the Repurchase Amount cannot be determined
before the latest date on which a RPS Holder may give a
Trigger Event Conversion Notice to Jupiters as a result of the
Trigger Event (which occurred on 5 September 2003). The
Independent Expert's Report on the RPS Scheme has estimated
that the Repurchase Amount which will be payable on the
Trigger Event Conversion Date will be $101.12. In any case,
the RPS Terms provide that the Repurchase Amount payable on
the Trigger Event Conversion Date will not be less than
$100.16 (in this Scheme Booklet called the "MINIMUM TRIGGER
EVENT REPURCHASE AMOUNT"), which is based on a determination
by the Independent Expert. Further details of the Independent
Expert's determination and the calculation of the Minimum
Trigger Event Repurchase Amount can be found in section 4B of
the Independent Expert's Report on the RPS Scheme contained in
Appendix F.
The Independent Expert's estimate as to the Repurchase Amount
which would be payable on the Trigger Event Conversion Date is
based on an estimate of the VWAP for Jupiters Ordinary Shares
for the 20 Business Days prior to the Trigger Event Conversion
Date (20 November 2003). At the time RPS Holders are required
to make a decision whether or not they wish to give Jupiters a
Trigger Event Conversion Notice (that is by 8 October 2003),
they will not know what the VWAP for Jupiters Ordinary Shares
for the 20 Business Days prior to the Trigger Event Conversion
Date will be. RPS Holders should monitor the trading range of
Jupiters Ordinary Shares prior to making any decision to give
Jupiters a Trigger Event Conversion Notice. The Independent
Expert has formed the view that it is unlikely that the VWAP
for Jupiters Ordinary Shares for the 20 Business Days prior to
the Trigger Event Conversion Date will be such that the
Repurchase Amount will be more than what is being offered
under the RPS Scheme. For that to happen the relevant VWAP for
Jupiters Ordinary Shares would need to be greater than $6.77.
If the Ordinary Share Scheme is approved:
- Jupiters Ordinary Shares are likely to have ceased
trading on ASX prior to the Trigger Event Conversion
Date, in which case a VWAP for Jupiters Ordinary
Shares will not be able to be measured based on ASX
trades for some or all of the 20 Business Days prior
to the Trigger Event Conversion Date;
- the Conversion Minimum (which is used in the
Repurchase Amount formula) is subject to adjustment
according to a formula under the RPS Terms for the
dividends received by Jupiters Ordinary Shareholders
as part of the Merger; and
- the relevant VWAP and/or Conversion Minimum for the
calculation of the Repurchase Amount under the RPS
Terms may be determined or adjusted by the Jupiters
Board using its discretion but within certain
guidelines contained in the RPS Terms.
The Jupiters Board considers it would be an appropriate
exercise of its discretion to adjust the relevant VWAP for
Jupiters Ordinary Shares and/or the Conversion Minimum under
the RPS Terms so that RPS Holders receive an appropriate cash
amount as a result of lodging a Trigger Event Conversion
Notice in respect of
55
their RPS. At the time this discretion is exercised, if the
Merger proceeds, the current Directors will not still be
members of the Jupiters Board. The Jupiters Board will be
required to take into account guidelines contained in the RPS
Terms and prevailing circumstances in determining what
constitutes an appropriate amount, including the fact that the
VWAP for Jupiters Ordinary Shares over a period before the
cessation of trading of those shares will likely incorporate
some value in recognition of the proposed Special Dividend
and, potentially, the Centrebet Dividend (but potentially not
the full value of those dividends). In the case where the
Trigger Event Conversion Date is after the Effective Date for
the Ordinary Share Scheme, it is expected that the relevant
amount would equal the greater of the Minimum Trigger Event
Repurchase Amount, being $100.16, and the amount determined by
multiplying the current Conversion Minimum by the VWAP for
Jupiters Ordinary Shares over the 20 Business Days immediately
before the cessation of trading of those shares. The
Independent Expert's estimate of this value is $101.12. This
amount would reflect what the RPS Holder would have received
had the Trigger Event Conversion Date occurred prior to the
Effective Date for the Ordinary Share Scheme.
In most cases, if neither the Ordinary Share Scheme nor the
RPS Scheme is implemented and the Merger does not proceed, a
RPS Holder who has given a Trigger Event Conversion Notice to
Jupiters will be paid the Repurchase Amount, which will not be
less than the Minimum Trigger Event Repurchase Amount, in
respect of each relevant RPS plus the accrued dividend on each
such RPS. Those RPS will be transferred to TABCORP
Investments. The transfers and payments will be made on the
Trigger Event Conversion Date.
If, before Jupiters notifies a RPS Holder who has given a
Trigger Event Conversion Notice that the relevant RPS will be
sold to TABCORP Investments, it becomes clear that the Merger
will not proceed or if the Merger does not proceed as a result
of Jupiters' material breach of the Merger Implementation
Agreement or because the Jupiters Board withdraws its
recommendation of the Ordinary Share Scheme, then the RPS are
unlikely to be sold to TABCORP Investments. (This might occur
if the Queensland State Government declared that it would not
provide the Regulatory Approvals which are required as a
condition to the Merger or if a higher offer were made by a
third party for Jupiters Ordinary Shares, and as a consequence
the Merger Implementation Agreement was terminated.) In that
case, Jupiters would consider how to respond to a Trigger
Event Conversion Notice, but may choose to sell the relevant
RPS to a different third party, to redeem them or to convert
them into Jupiters Ordinary Shares. In any event, RPS Holders
who have served a Trigger Event Conversion Notice in these
circumstances will be notified of Jupiters' intentions by no
later than 21 October 2003.
The implications for RPS Holders of delivering a Trigger Event
Conversion Notice in circumstances where:
- both the Ordinary Share Scheme and the RPS Scheme are
implemented are set out in Section 13.7; and
- the Ordinary Share Scheme is implemented but the RPS
Scheme is not implemented are set out in Section
13.8.
56
(c) SPECIAL CONVERSION RIGHT
The RPS Terms provide that RPS Holders may give Jupiters a
Special Conversion Notice at any time.
On receipt of a Special Conversion Notice, Jupiters has the
option of either converting the relevant RPS into Jupiters
Ordinary Shares or redeeming them. If Jupiters elects to
redeem the relevant RPS, the redemption will take place on the
first to occur of 9 October or 9 April after Jupiters makes
that election. However, if Jupiters elects to convert the
relevant RPS into Jupiters Ordinary Shares, the conversion
will occur on the last Business Day of the month following the
month in which the Special Conversion Notice is received by
Jupiters (all such dates are referred to as the "SPECIAL
CONVERSION DATE").
Under the terms of the Merger Implementation Agreement,
Jupiters has agreed with TABCORP that Jupiters will elect to
redeem all RPS which are the subject of a Special Conversion
Notice delivered before the Ordinary Share Scheme is
implemented. As a result, the earliest date which will be a
Special Conversion Date in respect of any Special Conversion
Notices received by Jupiters after the date of this Scheme
Booklet will be 9 April 2004. Payment under the RPS Scheme (if
it becomes effective) will be made considerably earlier than 9
April 2004.
TABCORP intends to procure that Jupiters elects to redeem any
RPS which are the subject of a Special Conversion Notice after
the Ordinary Share Scheme is implemented in the event that the
RPS Scheme is not implemented.
The cash amount payable to a RPS Holder in respect of RPS
redeemed by Jupiters as a result of the provision of a Special
Conversion Notice is determined in accordance with a formula
set out in the RPS Terms. Unlike the cash amount payable upon
completion of a sale of RPS following the provision of a
Trigger Event Conversion Notice (described in Section 13.4(b)
above), this amount does not include the value of accrued
dividends. The formula is such that the amount payable cannot
be determined before the date on which a RPS Holder gives a
Special Conversion Notice to Jupiters, because it includes the
VWAP for Jupiters Ordinary Shares for the five Business Days
prior to the Special Conversion Date.
Jupiters anticipates that the consideration payable to a RPS
Holder who has their RPS redeemed following the delivery of a
Special Conversion Notice will be less than the consideration
which would have been payable had that RPS Holder had their
RPS transferred to a third party (that is, TABCORP
Investments) following the delivery of a Trigger Event
Conversion Notice as no value will be received for their
accrued dividends. In both cases the consideration is expected
to be less than the $105.26 per RPS to be provided under the
RPS Scheme because the VWAP for Jupiters Ordinary Shares over
the relevant period prior to the Special Conversion Date is
unlikely to be more than $6.77.
If the Ordinary Share Scheme is approved:
- Jupiters Ordinary Shares are likely to have ceased
trading on ASX prior to the Special Conversion Date,
in which case a VWAP for Jupiters Ordinary Shares
will not be able to be measured based on ASX trades
for the five Business Days prior to the Special
Conversion Date;
57
- the Conversion Minimum (which is used in the formula
to determine the cash amount payable in respect of
RPS which are redeemed pursuant to a Special
Conversion Notice) is subject to adjustment according
to a formula under the RPS Terms for the dividends
received by Jupiters Ordinary Shareholders as part of
the Merger; and
- the relevant VWAP and/or Conversion Minimum for the
calculation of the cash amount payable on the
redemption of the relevant RPS may be determined or
adjusted by the Jupiters Board using its discretion
but within certain guidelines contained in the RPS
Terms.
The Jupiters Board considers it would be an appropriate
exercise of its discretion under the RPS Terms to adjust the
relevant VWAP for Jupiters Ordinary Shares and/or the
Conversion Minimum so that RPS Holders receive an appropriate
cash amount upon redemption as a result of lodging a Special
Conversion Notice in respect of their RPS. At the time this
discretion is exercised, if the Merger proceeds, the current
Directors will not still be members of the Jupiters Board. The
Jupiters Board will be required to take into account the
guidelines contained in the RPS Terms and prevailing
circumstances in determining what constitutes an appropriate
amount, including the fact that the VWAP for Jupiters Ordinary
Shares over a period before the cessation of trading of those
shares will likely incorporate some value in recognition of
the proposed Special Dividend and, potentially, the Centrebet
Dividend (but potentially not the full value of those
dividends).
If neither the Ordinary Share Scheme nor the RPS Scheme is
implemented and the Merger does not proceed, a RPS Holder who
has given a Special Conversion Notice to Jupiters will be paid
a cash amount for the redemption of the relevant RPS under the
RPS Terms as described above. That cash amount is expected to
be less than the amount that would have been received had that
RPS Holder served a Trigger Event Conversion Notice as no
value will be received for their accrued dividends.
If, before Jupiters notifies a RPS Holder who has given a
Special Conversion Notice that the relevant RPS will be
redeemed, it becomes clear that the Merger will not proceed or
if the Merger does not proceed as a result of Jupiters'
material breach of the Merger Implementation Agreement or
because the Jupiters Board withdraws its recommendation of the
Ordinary Share Scheme, then the RPS may not be redeemed by
Jupiters. (This might occur if the Queensland State Government
declared that it would not provide the Regulatory Approvals
which are required as a condition to the Merger or if a higher
offer were made by a third party for Jupiters Ordinary Shares,
and as a consequence the Merger Implementation Agreement is
terminated.) In that case, Jupiters would consider how to
respond to a Special Conversion Notice, but may choose to
convert the relevant RPS into Jupiters Ordinary Shares rather
than redeeming them. In any event, RPS Holders who have served
a Special Conversion Notice in these circumstances will be
notified of Jupiters' intentions within the time required
under the RPS Terms.
The implications for RPS Holders of delivering a Special
Conversion Notice in circumstances where:
58
- both the Ordinary Share Scheme and the RPS Scheme are
implemented are set out in Section 13.7; and
- the Ordinary Share Scheme is implemented but the RPS
Scheme is not implemented are set out in Section
13.8.
13.5 WHY RPS HOLDERS SHOULD VOTE FOR THE RPS SCHEME
All references to the value of the amount RPS Holders will receive on
the Trigger Event Conversion Date following delivery by them to
Jupiters of a Trigger Event Conversion Notice and the consideration
offered under the RPS Scheme in this Section 13.5 exclude the value of
dividends accrued on the RPS, unless stated to the contrary. All
references to trading prices of RPS have been adjusted to an
ex-dividend basis unless stated to the contrary.
(a) THE CONSIDERATION RPS HOLDERS WILL RECEIVE AS PART OF THE RPS
SCHEME IS FAIR
The Independent Expert has found that the consideration of
$105.26 per RPS offered under the RPS Scheme is fair because
it is not less than the value RPS Holders would receive in the
absence of the RPS Scheme either through continuing to hold
the RPS or exercising a conversion right under the RPS Terms.
FIGURE 13.5.1: VALUE OF ALTERNATIVES FOR THE RPS(1)
[BAR CHART]
VALUE PER RPS($)
Consideration under RPS Scheme $105.26
Value of Holding the RPS $103.77(2)
Value under Exercise of Conversion Right $101.12(2)
(1) Jupiters anticipates that the value received on redemption of a RPS
following delivery of a Special Conversion Notice will be less than the
value received as a result of the transfer of a RPS following delivery
of a Trigger Event Conversion Notice, because RPS Holders are not paid
the value of accrued dividends in the former case.
(2) Independent Expert's estimate.
- A RPS Holder who delivers a Trigger Event Conversion
Notice and whose RPS are sold to TABCORP Investments
in accordance with the RPS Terms will receive cash
consideration calculated in accordance with the
59
RPS Terms, estimated by the Independent Expert to be
$101.12 per RPS, plus accrued dividends. Sections
13.4(b) and 13.7 contain further details on what a
RPS Holder may receive following delivery of a
Trigger Event Conversion Notice. Jupiters anticipates
that the value received by a RPS Holder as a result
of the redemption of their RPS following the giving
of a Special Conversion Notice will be less than the
value which that RPS Holder would have received as a
result of lodging a Trigger Event Conversion Notice
and having their RPS transferred to TABCORP
Investments in accordance with the RPS Terms as no
value will be received for their accrued dividends.
Sections 13.4(c) and 13.7 contain further details on
what a RPS Holder may receive following delivery of a
Special Conversion Notice.
- In the absence of the Merger, the RPS would continue
to be quoted by ASX. The Independent Expert has
estimated the likely value of holding RPS to be
$103.77, representing the midpoint of the trading
range of RPS on ASX for the 20 trading days prior to
the announcement of the Merger. The Independent
Expert's assumptions and further details of the
Independent Expert's calculations in this regard can
be found in section 4A of the Independent Expert's
Report on the RPS Scheme in Appendix F.
In the absence of the Merger, the only way for RPS
Holders to receive value above $105.26 under the RPS
Terms is if the relevant VWAP for Jupiters Ordinary
Shares is above $6.77 or Jupiters receives an
alternative offer reflecting a takeover premium (to
the average trading price on ASX before announcement
of the takeover or scheme of arrangement) of more
than $1.35 per Jupiters Ordinary Share. Jupiters
believes that these are unlikely to occur in the
short to medium term.
- If the Ordinary Share Scheme is implemented TABCORP
intends to procure that Jupiters will apply to be
removed from the official list of ASX. If ASX grants
the application to remove Jupiters from its official
list, the RPS will cease to be quoted and liquidity
will be reduced for RPS Holders. Even if the RPS
continue to be quoted, where the Ordinary Share
Scheme is approved, Jupiters Ordinary Shares will
cease to be quoted and this may impact on the
liquidity of RPS. The Independent Expert is of the
view that the value of holding the RPS in an unlisted
entity will be less than the value of holding the RPS
in a listed entity, that is, the value will be less
than $103.77. TABCORP has indicated in Section 13.8
that if the Ordinary Share Scheme is implemented and
the RPS Scheme is not, the Merged Group will seek to
acquire all the RPS by compulsory acquisition to the
extent that this is possible under the Corporations
Act. In such circumstances, TABCORP Investments would
have to pay fair value for the RPS. The Independent
Expert has indicated it has no reason to expect
TABCORP Investments would be required to pay an
amount in excess of $105.26 per RPS under a
compulsory acquisition process, in the absence of any
changed circumstances, such as a significant
reduction in investment rates or a significant
increase in trading values of Jupiters Ordinary
Shares.
60
(b) THE CONSIDERATION TO BE RECEIVED BY RPS HOLDERS REPRESENTS A
PREMIUM TO THE HISTORICAL TRADING PRICE OF RPS
Figure 13.5.2 below shows the historical trading prices of RPS
on ASX from quotation until 29 August 2003.
The consideration of $105.26 per RPS offered under the RPS
Scheme represents a premium over the historical trading price
of the RPS before the announcement regarding merger
discussions with TABCORP.
The only times at which RPS have traded above $105.26 were
briefly in January 2003 after Jupiters announced that it was
in merger discussions with TABCORP and after 5 March 2003,
when the RPS Scheme was announced.
FIGURE 13.5.2: CLOSING PRICES OF RPS ON ASX(C)
[LINE GRAPH]
- - Closing Price
- - Consideration under RPS Scheme
Source: Iress Market Technology Limited
(a) Announcement of initial merger discussions between
Jupiters and TABCORP (10 January 2003).
(b) Announcement of the scheme of arrangement to effect the
merger of Jupiters and TABCORP (5 March 2003).
(c) Excludes accrued dividends.
The latest recorded sale price for RPS on the date before this
Scheme Booklet was lodged for registration with ASIC was
$104.55 (on 4 September 2003).
During the three months ended on the day immediately before
the date on which this Scheme Booklet was lodged for
registration with ASIC:
- the highest recorded sale price for RPS on ASX
(adjusted to exclude accrued dividends) was $106.26
which was recorded on 17 June 2003; and
61
- the lowest recorded sale price for RPS on ASX
(adjusted to exclude accrued dividends) was $104.52
which was recorded on 3 September 2003.
The latest recorded sale price for RPS on ASX before
the announcement of the Merger was $102.99 (adjusted
to exclude accrued dividends) on 4 March 2003.
(c) THE MERGER IS THE BEST ALTERNATIVE AVAILABLE
A better alternative for RPS Holders could only be achieved if
the relevant VWAP for Jupiters Ordinary Shares prior to the
Trigger Event Conversion Date is greater than $6.77 or if
there were a higher bid for Jupiters Ordinary Shares. A higher
bid is unlikely because no alternative higher bid has been
received by Jupiters at the date of this Scheme Booklet
despite the public knowledge of the proposed Merger, and
because the Merger values Jupiters with a full control premium
such that an alternative acquirer is unlikely to offer to pay
a materially higher price for Jupiters Ordinary Shares.
(d) THE INDEPENDENT EXPERT HAS FOUND THAT THE RPS SCHEME IS FAIR
AND REASONABLE AND IN THE BEST INTERESTS OF RPS HOLDERS AND
THAT THEREFORE RPS HOLDERS SHOULD APPROVE THE RPS SCHEME
The Independent Expert has reached this conclusion due to a
number of reasons including:
- The consideration offered under the RPS Scheme is
fair.
- RPS Holders will be better off after the RPS Scheme
because they will have received an amount of cash
under the RPS Scheme that delivers a greater value
than any of the other alternatives available.
- It is reasonable for RPS Holders to approve the RPS
Scheme because of the combination of the above
factors.
Jupiters recommends that RPS Holders read the Independent
Expert's Report on the RPS Scheme in full (see Appendix F).
(e) THE CONSIDERATION UNDER THE RPS SCHEME REFLECTS PARTICIPATION
IN A THEORETICAL TAKEOVER PREMIUM FOR JUPITERS ORDINARY SHARES
The terms of the RPS allow holders to participate in a
theoretical takeover premium in relation to Jupiters Ordinary
Shares or an increase in the ASX trading price of Jupiters
Ordinary Shares above $6.44 per share.
The only way RPS Holders would receive cash consideration
under the RPS Terms of at least that to be received under the
RPS Scheme (that is, $105.26 per RPS, ignoring in each case,
any value attributable to any accrued dividend on the RPS) is
if:
- Jupiters Ordinary Shares were acquired (under a
takeover or scheme of arrangement) for an amount
reflecting a takeover premium (to their 20 Business
Day VWAP before the date of announcement of the
takeover
62
or scheme of arrangement) of more than $1.35 per
Jupiters Ordinary Share; or
- the VWAP for Jupiters Ordinary Shares over the 20
Business Days before the RPS are repurchased from, or
transferred on behalf of, the RPS Holder by Jupiters
is greater than $6.77.
(f) RPS HOLDERS CAN REALISE THEIR HOLDING IN CASH
All of the consideration to be received by RPS Holders will be
in cash.
13.6 RELEVANT CONSIDERATIONS AGAINST THE RPS SCHEME
The reasons why RPS Holders may consider voting against the RPS Scheme
include the following:
(a) TAXATION CONSEQUENCES
Implementation of the RPS Scheme will have tax consequences
for RPS Holders. A full summary of the Australian tax
consequences is contained in Appendix G. RPS Holders should
consider the precise tax consequences of the RPS Scheme in
their own particular circumstances and seek advice from their
professional adviser. However, as an example only, and in
summary, the Australian tax consequence that is expected to
arise for Australian resident RPS Holders who hold their
shares on capital account and who do not lodge a Trigger Event
Conversion Notice, is that a capital gain or loss will arise
in respect of RPS transferred to TABCORP Investments.
(b) REINVESTMENT RISK
RPS Holders who receive the cash consideration under the RPS
Scheme may not be able to reinvest their cash proceeds in
securities offering a similar or higher return to that
available on the RPS.
13.7 IMPLICATIONS IF BOTH ORDINARY SHARE SCHEME AND RPS SCHEME ARE
IMPLEMENTED
If both the Ordinary Share Scheme and the RPS Scheme are implemented in
accordance with the proposed timetable, such that the Trigger Event
Conversion Date and the Special Conversion Date occur after the
Implementation Date for the RPS Scheme, all RPS (including those in
respect of which a Trigger Event Conversion Notice or a Special
Conversion Notice has been given) will be transferred to TABCORP
Investments and RPS Holders will receive $105.26 plus the Accrued
Dividend Equivalent in respect of each RPS held by them at the
Implementation Record Date for the RPS Scheme. (The exceptions are
TABCORP and its Related Entities who will not participate in the RPS
Scheme in respect of any RPS held by them.) RPS Holders will receive no
consideration under the RPS Terms.
A range of factors affect the actual timing of the Implementation Date
for the RPS Scheme, including the length of the Court approval process
which is outside the control of Jupiters and TABCORP. If the
Implementation Date for the RPS Scheme occurs after the Trigger Event
Conversion Date, RPS that are the subject of a Trigger Event Conversion
Notice will not be transferred under the RPS Scheme, but will be sold
to TABCORP Investments under the RPS Terms. The value to be received by
RPS Holders who have delivered such
63
a notice is discussed in Section 13.4(b). In summary, if the VWAP for
Jupiters Ordinary Shares for the 20 Business Days prior to the Trigger
Event Conversion Date is less than or equal to $6.77, such RPS Holders
will receive, for each RPS, less than the $105.26 plus Accrued Dividend
Equivalent offered under the RPS Scheme, but will not receive less than
the Minimum Trigger Event Repurchase Amount plus the accrued dividend
on the RPS.
Likewise, if the Implementation Date for the RPS Scheme occurs after
the Special Conversion Date, RPS that are the subject of a Special
Conversion Notice will not be transferred under the RPS Scheme, but
will be redeemed by Jupiters under the RPS Terms. The value to be
received by RPS Holders who have delivered such a notice is discussed
in Section 13.4(c). In summary, such RPS Holders are likely to receive
less for each RPS than the amount they would have received had they
delivered a Trigger Event Conversion Notice, as they will not receive
any value for accrued dividends.
13.8 IMPLICATIONS IF THE ORDINARY SHARE SCHEME IS IMPLEMENTED AND THE RPS
SCHEME IS NOT
If the Ordinary Share Scheme is implemented but the RPS Scheme is not,
the implications for RPS Holders will differ depending on whether a RPS
Holder has given Jupiters a Conversion Notice or has taken no action
under the RPS Terms.
(a) CONVERSION NOTICE SERVED
If a RPS Holder has given Jupiters a Trigger Event Conversion
Notice or a Special Conversion Notice, the RPS which are the
subject of the relevant Conversion Notice will be transferred
to TABCORP Investments or redeemed by Jupiters (as
appropriate) for the consideration determined under the RPS
Terms. That consideration will depend on the VWAP for Jupiters
Ordinary Shares in the relevant period leading up to the
relevant Conversion Date and the Conversion Minimum at the
Conversion Date. Further details on the consideration payable
in these circumstances is discussed in Sections 13.4(b) and
(c).
(b) NO ACTION TAKEN
If a RPS Holder has taken no action under the RPS Terms, the
RPS will remain on issue and RPS Holders will continue to be
entitled to receive dividends in accordance with the RPS
Terms.
In certain circumstances RPS Holders will continue to be able
to serve trigger event conversion notices and special
conversion notices under the RPS Terms on Jupiters. TABCORP
intends to procure that Jupiters will exercise its rights
under the RPS Terms to elect to redeem, or (if applicable)
arrange for the sale to TABCORP Investments of, any RPS which
are the subject of such a notice. TABCORP intends to procure
that Jupiters not allow RPS to convert into Jupiters Ordinary
Shares following the lodgment of any such notice.
If the Ordinary Share Scheme is implemented but the RPS Scheme
is not, TABCORP intends to procure that Jupiters will apply to
be removed from the official list of ASX. If ASX grants the
application to remove Jupiters from the official list, the RPS
will cease to be quoted. By the time the conversion date in
respect of any post-Merger conversion notice given to Jupiters
under
64
the RPS Terms occurs, the Jupiters Ordinary Shares will not
have been traded on ASX for some time. It is expected that the
Jupiters Board will exercise its discretion under the RPS
Terms to ensure that the consideration received by each RPS
Holder pursuant to any post-Merger Conversion Notice will be
an appropriate amount in light of the prevailing
circumstances.
In any case, the consideration received by RPS Holders
pursuant to such post-Merger conversion notices may be less
than that which they would have received under the RPS Scheme.
Following the implementation of the Ordinary Share Scheme and
regardless of whether RPS cease to be quoted by ASX, RPS
Holders may experience reduced liquidity in their RPS. This
could be an expected consequence of the cessation of trading
in Jupiters Ordinary Shares. It will also result if the RPS
cease to be quoted by ASX.
If it is entitled to do so, TABCORP Investments will seek to
compulsorily acquire all RPS which it does not own under the
general compulsory acquisition provisions of chapter 6A of the
Corporations Act. TABCORP Investments would first need to have
full beneficial interests in at least 90% by value of all of
the securities of Jupiters which are shares or convertible
into shares. It is possible that as a result of the
combination of the subscription for RPS by TABCORP Investments
as contemplated by Sections 19.1(e) and 19.2, and the
acquisition of RPS by TABCORP Investments as a result of RPS
Holders giving Trigger Event Conversion Notices (as described
in Section 13.4(b)), TABCORP Investments would have full
beneficial interests in at least 90% by value of all of the
securities of Jupiters which are shares or convertible into
shares upon or after implementation of the Ordinary Share
Scheme. Under the compulsory acquisition provisions, TABCORP
Investments would be required to offer cash and provide to RPS
Holders an independent expert's report stating whether the
terms offered by TABCORP Investments give a fair value for the
RPS and whether TABCORP Investments satisfied this "90% by
value" test. Without ASIC's consent, TABCORP Investments may
only exercise this compulsory acquisition power within six
months after becoming entitled to do so. In this respect, if
TABCORP Investments considers it necessary and appropriate in
particular circumstances, TABCORP Investments may apply to
ASIC for a modification to the Corporations Act so that the
six month period is halted. By way of example, if TABCORP
Investments is required to apply to the Court in order to
implement compulsory acquisition of the RPS which it does not
own, TABCORP Investments may apply to ASIC for a modification
to the Corporations Act so that time stops running between the
time of that application and the end of all proceedings in
relation to that application (including appeals).
If RPS remain on issue on 9 January 2007, TABCORP intends to
procure that Jupiters exercises its rights to elect to redeem
all RPS on 9 March 2007. Given that Jupiters Ordinary Shares
will cease trading on ASX from the Effective Date for the
Ordinary Share Scheme, it is expected that the Jupiters Board
will exercise its discretion under the RPS Terms to ensure
that the consideration received by each RPS Holder on
redemption will be an appropriate amount in light of the
prevailing circumstances.
13.9 ADDITIONAL CONSIDERATIONS FOR RPS HOLDERS
If the Ordinary Share Scheme is implemented in circumstances where the
RPS Scheme is not, there are some additional considerations for RPS
Holders who will, in the absence of
65
serving a conversion notice under the RPS Terms, continue to hold RPS
in Jupiters, which will be a subsidiary of TABCORP.
(a) CREDIT RATING FOR RPS HOLDERS
Jupiters credit rating prior to the announcement of the Merger
was BB+ (stable outlook). In July 2003, Standard & Poor's
confirmed TABCORP's BBB+ (negative outlook) rating. Standard &
Poor's consider a rating downgrade would occur if:
- TABCORP is unable to achieve meaningful debt
reduction and credit-protection measures in the next
three years;
- the regulatory environment changes in a way that
impacts TABCORP's cash flow in the medium term; or
- TABCORP is unable to successfully integrate Jupiters
and TABCORP within the timeframe anticipated and
achieve the anticipated synergies and cost savings.
(b) INCREASED LEVERAGE OF TABCORP
If the Ordinary Share Scheme is implemented, TABCORP's
leverage will increase. Higher levels of leverage may
potentially:
- restrict the ability of the Merged Group to borrow in
the future; and
- increase the sensitivity of the Merged Group's
earnings to movements in interest rates.
Further details of the increased leverage are contained in
Section 18.5(d).
(c) RISKS ASSOCIATED WITH TABCORP'S BUSINESS
There are specific risks associated with TABCORP's business,
such as the uncertainty surrounding the renewal of the
Wagering Licence and Gaming Licence in 2012 and the impact of
SARS on the casino businesses and risks associated with the
Merger such as integration risks. Details of the risks are set
out in Section 18.
66
INFORMATION FOR JUPITERS
ORDINARY SHAREHOLDERS
AND RPS HOLDERS
67
SECTION 14 - INDUSTRY OVERVIEW
14.1 INTRODUCTION
The Australian gambling market generates annual revenue of more than
$15 billion, with three of the major legalised categories being
wagering, gaming and casino operations.
Wagering comprises the conduct of totalizators and fixed odds betting
on thoroughbred, harness and greyhound racing and on sporting and other
events. Apart from TABCORP, the other major wagering companies listed
on ASX are TAB Ltd and UNiTAB Limited.
Gaming comprises the operation of gaming machines in clubs and hotels.
Gaming operators' licences are held in Victoria by TABCORP and
Tattersall's. TAB Ltd in New South Wales and Jupiters in Queensland
hold licences that permit them to carry on certain gaming related
operations in those jurisdictions.
Casino operations include the conduct of table games and the operation
of gaming machines at casinos. Major casinos in Australia include
TABCORP's Star City Casino in Sydney, Jupiters' casinos on the Gold
Coast (Conrad Jupiters) and in Brisbane (Conrad Treasury), Publishing
and Broadcasting Limited's Crown Casino in Melbourne, Sky City
Entertainment Group Limited's Adelaide Casino and Burswood Casino in
Perth.
Other legalised gambling categories include lotteries, keno, bingo,
pools, instant lotteries and raffles. Tattersall's is the largest
lottery provider in Australia.
Gambling in Australia is principally regulated at State and Territory
level. The Federal Government regulates on-line gambling through the
Interactive Gambling Act 2001 (Cth). Areas of the industry that are
regulated include the form of gambling permitted, parties permitted to
conduct gambling, the returns to bettors or players and the State and
Territory tax rates.
14.2 THE AUSTRALIAN GAMBLING INDUSTRY
In the three years to 30 June 2002, gambling expenditure in Australia
is estimated to have grown at a compound annual growth rate in excess
of 6.0%. This growth was primarily driven by gaming machines in
licensed clubs and hotels in New South Wales, Victoria, Queensland and
South Australia and in casinos in Melbourne, Sydney, Brisbane and on
the Gold Coast.
68
FIGURE 14.2.1: AUSTRALIAN GAMBLING MARKET
[BAR CHART]
$ billion
1998/99 12.6
1999/00 13.6
2000/01 14.6
2001/02E 15.3
- EGMs - Pubs/Clubs/Casinos - Wagering (incl. Sportsbetting) - Casino
- Tables - Lotteries / Other
SOURCE: Tasmanian Gaming Commission; TABCORP
14.3 THE VICTORIAN GAMBLING INDUSTRY
In the three years to 30 June 2002, gambling expenditure in Victoria is
estimated to have grown at a compound annual growth rate of
approximately 8%. This growth was primarily driven by continued gaming
machine growth in clubs and hotels and at Crown Casino.
FIGURE 14.3.1: VICTORIAN GAMBLING MARKET
[BAR CHART]
$ billion
1998/99 3.5
1999/00 3.8
2000/01 4.2
2001/02E 4.4
- EGMs - Pubs/Clubs/Casinos - Wagering (incl. Sportsbetting) - Casino
- Tables -Lotteries / Other
SOURCE: Tasmanian Gaming Commission; TABCORP
Subsequently, for the year ended 30 June 2003, Victorian gaming machine
revenue from pubs, clubs and Crown Casino is estimated to have declined
by approximately 8% due to the impact of bans on smoking in gaming
areas, implemented on 1 September 2002.
14.4 THE NEW SOUTH WALES GAMBLING INDUSTRY
In the three years to 30 June 2002, gambling expenditure in New South
Wales is estimated to have grown at a compound annual growth rate of
approximately 6.8%. This growth was primarily driven by growth in
gaming machines in clubs and hotels and continued growth at Star City
Casino.
69
FIGURE 14.4.1: NEW SOUTH WALES GAMBLING MARKET
[BAR CHART]
$ billion
1998/99 5.1
1999/00 5.6
2000/01 5.9
2001/02E 6.2
- EGMs - Pubs/Clubs/Casinos - Wagering (incl. Sportsbetting) - Casino
- Tables - Lotteries / other
SOURCE: Tasmanian Gaming Commission; TABCORP
14.5 THE QUEENSLAND GAMBLING INDUSTRY
In the three years to 30 June 2002, gambling expenditure in Queensland
is estimated to have grown at a compound annual growth rate in excess
of 7.0%. This growth was primarily driven by growth in gaming machines
in clubs and hotels and continued growth from casino operations.
FIGURE 14.5.1: QUEENSLAND GAMBLING MARKET
[BAR CHART]
$ billion
1998/99 2.0
1999/00 2.1
2000/01 2.3
2001/02E 2.5
- EGMs - Pubs/Clubs/Casinos - Wagering (incl. Sportsbetting) - Casino
- Tables - Lotteries / Other
SOURCE: Tasmanian Gaming Commission; TABCORP
70
SECTION 15 -INFORMATION ABOUT JUPITERS
15.1 ABOUT JUPITERS
Jupiters was incorporated on 10 August 1987 and listed on ASX on 28
July 1988. Jupiters acquired the Hotel Conrad & Jupiters Casino
business of Jupiters Trust, which was established in 1983 to develop
the Hotel Conrad & Jupiters Casino. Since listing, Jupiters has grown
to become a major Australian diversified gaming and wagering enterprise
with assets of over $1 billion.
Jupiters' activities include the operation of hotel and casino
properties in Brisbane, on the Gold Coast and in Townsville, the
operation of wide area Keno gaming in Queensland and New South Wales,
the provision of gaming machine monitoring services in Queensland, the
operation of an international fixed odds sports book from the Northern
Territory and the provision of information technology support services
throughout Australia. Jupiters is also a supplier of wagering and
gaming systems to licensed operators internationally. Jupiters
currently employs over 5,200 people.
Based on a closing Jupiters Ordinary Share price of $6.59 on 4
September 2003, Jupiters has an ordinary equity market capitalisation
of $1.3 billion, ranking Jupiters amongst the top 100 listed entities
in Australia by this measure.
71
15.2 JUPITERS' BUSINESS UNITS
JUPITERS LIMITED
[OPERATIONAL CHART]
15.3 BUSINESS OVERVIEW
CONRAD JUPITERS
In 1985, Jupiters established its first wholly owned hotel and casino
complex on the Gold Coast, Conrad Jupiters, after the State of
Queensland agreed to award it a casino licence.
Conrad Jupiters is managed by BI Gaming Corporation under a Casino
Management Agreement. Conrad Jupiters caters to local patrons,
Australian tourists and targeted premium players. Conrad Jupiters is
situated on a 6.6 hectare landscaped island facility. It offers
approximately 6,218 square metres of casino space, including Club
Conrad, a 5 star hotel and a number of entertainment and dining venues.
At 30 June 2003, the casino featured 1,348 gaming machines and 103
table games. The table games include blackjack, roulette, baccarat,
craps, mini dice, wheel of fortune, pai gow poker, Caribbean stud poker
and sic-bo. Jupiters offers Keno jackpots of up to $2 million. The
casino's Club Conrad facility also offers premium players an
international standard private gaming venue.
72
At 30 June 2003, the hotel had 603 rooms, including 29 suites. Conrad
Jupiters also has a theatre with a seating capacity of approximately
1,125. The theatre primarily features live entertainment productions
that have an average season of 12 months.
CONRAD TREASURY
In 1995, Jupiters established Conrad Treasury after the State of
Queensland agreed to award it an additional casino licence. The casino
licence provides for a ten year exclusivity period for casino gaming
within a 60 kilometre radius of the location of Conrad Treasury in
Brisbane.
Conrad Treasury is managed by BI Gaming Corporation under a Casino
Management Agreement. Conrad Treasury is a boutique hotel and landmark
casino which is located in an historic government building. Development
of this facility involved the restoration of Brisbane's Treasury and
Land Administration buildings, over which Jupiters holds a 75 year
lease. Conrad Treasury caters to local patrons, Australian tourists and
targeted premium players.
Conrad Treasury offers approximately 4,960 square metres of casino
space, including Club Conrad, a five star hotel and several dining
venues. At 30 June 2003, the casino featured 1,329 gaming machines and
86 table games. The table games include blackjack, roulette, baccarat,
craps, mini dice, wheel of fortune, pai gow poker, Caribbean stud poker
and sic-bo. Conrad Treasury also offers Keno jackpots of up to $2
million. At 30 June 2003, the hotel had 130 guest rooms.
JUPITERS TOWNSVILLE
Jupiters wholly owns Breakwater Island Trust and Breakwater Island
Limited, the trustee of the Breakwater Island Trust. Breakwater Island
Trust was issued with North Queensland's first casino licence in 1986
for the purpose of establishing a hotel-casino property, now known as
Jupiters Townsville.
Jupiters Townsville is an integrated tourism and leisure facility that
caters to local patrons and Australian tourists. At 30 June 2003, the
facility included a 194 room hotel, a casino with 16 table games and
294 gaming machines, and seven restaurants and bars.
Breakwater Island Trust also operates the Breakwater Marina in
Townsville, which includes a 241 berth marina. It also holds a 20%
interest in and operates the Townsville Entertainment and Convention
Centre.
JUPITERS ONLINE
The Jupiters OnLine group includes the Centrebet Business and Jupiters
International, an international totalizator business.
Centrebet holds a sports bookmakers licence from the Northern Territory
Government and is one of Australia's leading sports bookmakers. It
offers a wide variety of sports betting options to a large domestic and
international clientele from its base in Alice Springs. In September
2002, Centrebet expanded its operations to include the United Kingdom.
Jupiters is currently pursuing the sale of the Centrebet Business.
Section 7 contains further information about the proposed Centrebet
Sale.
73
The international totalizator business provides software and hardware
support services to about 24 customers operating race tracks, lottery
systems and numbers games in 11 countries.
JUPITERS MACHINE GAMING
Jupiters Machine Gaming Services Pty Ltd is a Licensed Monitoring
Operator providing gaming machine monitoring services to Queensland
hotels and clubs. It also develops and maintains various electronic
gaming machine software and hardware products to assist venues to
maximise their gaming machine operations.
NEW SOUTH WALES KENO
Jupiters operates the Keno game in New South Wales under a joint
licence with Clubs New South Wales. The game is currently distributed
in more than 1,000 clubs across New South Wales and at Star City Casino
in Sydney.
Jupiters has lodged a submission with the New South Wales State
Government to extend the game of Keno into hotels in New South Wales.
QUEENSLAND KENO
Jupiters operates the Keno game in more than 830 Queensland locations
including casinos, clubs, hotels and some TAB agencies.
AWA TECHNOLOGY
AWA Technology Services provides independent support services to the
information technology and gaming industry and employs more than 260
staff.
The business provides support nationally for desktop and network
equipment to the Australian information technology industry and
provides support for gaming machines, Keno and wagering terminals and a
wide variety of gaming ancillary equipment.
JUPITERS TECHNOLOGY
Jupiters Technology provides product development and support for the
Jupiters Group's casinos, Keno, the Jupiters Group's gaming machine
monitoring service, and Centrebet. Utilising in-house hardware,
software and web development skills, Jupiters Technology has developed
proprietary technology to enable Keno, gaming machine monitoring
services and progressive jackpots to be operated across real time wide
area networks.
15.4 GOLD COAST CONVENTION & EXHIBITION CENTRE
The State of Queensland owns the Gold Coast Convention & Exhibition
Centre ("GCCEC") on the Gold Coast which is currently under
construction. Jupiters has been appointed as the developer and manager
of the GCCEC.
The GCCEC is scheduled to open in mid 2004. Once complete, the GCCEC
will accommodate up to 6,000 people in various entertainment and sports
modes and up to 2,000 delegates in convention mode.
74
15.5 SUMMARISED HISTORICAL FINANCIAL INFORMATION
With respect to the following financial information the capitalised
term "Normalised" refers to:
- in relation to revenue, EBITDA, EBITA and net profit after tax
(NPAT) generally, the Normalised result excludes the impact of
material non-recurring items and has been adjusted for the
deviation away from theoretical win rates in Jupiters'
international commission business;
- in relation to the year ended 30 June 2002, the Normalised
result has been adjusted for the deviation away from
theoretical win rates in the international commission business
and excludes the impact of the adverse tax ruling relating to
the deductibility of rent paid for Conrad Treasury; and
- in relation to the year ended 30 June 2003, the Normalised
result has been adjusted for the deviation away from
theoretical win rates in Jupiters' international commission
business and excludes Merger costs.
SUMMARY STATEMENTS OF FINANCIAL PERFORMANCE
The following selected information has been extracted and/or derived
from Jupiters' audited statements of financial performance
(consolidated) for the years ended 30 June 2003, 30 June 2002 and 30
June 2001 and is a summary only.
FIGURE 15.5.1: SUMMARY OF JUPITERS' FINANCIAL PERFORMANCE
FOR FISCAL YEAR ENDED 30 JUNE
--------------------------------
(A$ in millions) 2001 2002 2003
- ----------------------------------------------------------------------------
Operating Revenue $ 771.0 $ 793.4 $ 785.9
EBITDA 198.5 207.3 178.7
EBIT 146.7 152.9 124.7
Net Interest Expense (20.7) (27.6) (35.6)
-------- -------- --------
Net Profit Before Tax 126.0 125.3 89.1
Tax Expense (47.0) (46.5) (30.0)
Outside Equity Interests (1.9) (0.7) (0.6)
-------- -------- --------
Net Profit 77.1 78.1 58.5
- ----------------------------------------------------------------------------
75
SUMMARY STATEMENTS OF FINANCIAL POSITION
The following selected information has been derived from Jupiters'
audited statements of financial position (consolidated) as at 30 June
2003, 30 June 2002 and 30 June 2001 and is a summary only.
FIGURE 15.5.2: SUMMARY OF JUPITERS' FINANCIAL POSITION
AS AT 30 JUNE
------------------------------------
(A$ in millions) 2001 2002 2003
- ---------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash $ 116.7 $ 85.3 $ 77.9
Receivables 30.4 18.4 21.8
Inventories 13.3 14.1 13.1
Other 16.6 16.1 31.8
--------- --------- ---------
Total Current Assets 177.0 133.9 144.6
NON-CURRENT ASSETS
Property, Plant & Equipment 744.7 746.9 758.8
Intangibles 127.9 122.8 106.7
Deferred Tax Assets 0.0 0.0 3.3
Other 91.9 63.8 39.0
--------- --------- ---------
Total Non-Current Assets 964.5 933.5 907.8
TOTAL ASSETS 1,141.5 1,067.4 1,052.4
CURRENT LIABILITIES
Payables 80.3 91.8 87.5
Interest Bearing Liabilities 1.6 1.8 45.3
Tax Liabilities 27.1 21.3 6.1
Provisions 44.1 38.3 20.2
Other 0.0 0.0 12.3
--------- --------- ---------
Total Current Liabilities 153.1 153.2 171.4
NON-CURRENT LIABILITIES
Interest Bearing Liabilities 340.7 431.7 392.3
Deferred Tax Liabilities 17.2 2.4 0.0
Other Provisions 9.9 10.6 9.7
--------- --------- ---------
Total Non-Current Liabilities 367.8 444.7 402.0
TOTAL LIABILITIES 520.9 597.9 573.4
NET ASSETS 620.6 469.5 479.0
EQUITY
Contributed Equity 466.1 310.5 313.0
Retained Profits 123.9 127.6 166.0
Outside Equity Interest 30.6 31.4 0.0
--------- --------- ---------
TOTAL EQUITY 620.6 469.5 479.0
- --------------------------------------------------------------------------------------------
76
SUMMARY STATEMENTS OF CASHFLOWS
The following selected information has been derived from Jupiters'
audited statements of cashflows (consolidated) for the years ended 30
June 2003, 30 June 2002 and 30 June 2001 and is a summary only.
FIGURE 15.5.3: SUMMARY OF JUPITERS' STATEMENT OF CASHFLOWS
FOR FISCAL YEAR ENDED 30 JUNE
-----------------------------------
(A$ in millions) 2001 2002 2003
- ---------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities $ 118.0 $ 136.2 $ 85.6
Net Purchase of Property, Plant & Equipment (44.2) (46.1) (61.7)
Net (Purchase of) / Proceeds from sale of Businesses (2.8) (2.0) (26.6)
--------- --------- --------
Net Cash Used in Investing Activities (47.0) (48.1) (88.3)
Net Cash Used in Financing Activities (77.2) (119.5) (4.7)
--------- --------- --------
Net Decrease in Cash (6.2) (31.4) (7.4)
- ---------------------------------------------------------------------------------------------------
OVERVIEW OF 2003 FINANCIAL PERFORMANCE
For the year ended 30 June 2003 Jupiters' net profit after tax (NPAT)
declined to $58.5 million from $78.1 million for the year ended 30 June
2002. On a Normalised basis, NPAT was approximately $65.9 million with
earnings per Jupiters Ordinary Share up from 32.3 cents in the year
ended 30 June 2002 to 32.7 cents in year ended 30 June 2003.
The decline in Normalised NPAT was mainly due to an additional $8.9
million in after tax borrowing costs incurred as a result of issuing
RPS in April 2002. The lower Normalised NPAT had no material effect on
earnings per Jupiters Ordinary Share as a result of the reduction in
the number of Jupiters Ordinary Shares on issue as a result of the
restructure of Jupiters' share capital.
During the year ended 30 June 2003 the only material change to the
share capital of Jupiters was the issue of approximately 423,000
Jupiters Ordinary Shares in the course of the takeover of Breakwater
Island Trust. Changes to Jupiters' share capital in the year ended 30
June 2002 included the buy back of approximately 40 million Jupiters
Ordinary Shares funded by the issue of $190.2 million RPS.
In the year ended 30 June 2003 Jupiters incurred non-recurring costs
related to the Merger of $4.0 million after tax, reducing earnings per
share by 2.0 cents. Jupiters' international commission business
achieved a win rate of 1.215% versus a theoretical win rate of 1.265%,
reducing NPAT by $3.4 million and earnings per share by 1.7 cents.
The businesses that will be merged with TABCORP (that is, all
operations excluding Centrebet) produced Normalised EBITA of $136.5
million in the year ended 30 June 2003, an increase of 4.7% from $130.4
million in the year ended 30 June 2002.
77
REVENUE
Normalised operating revenue was $802.3 million in the year ended 30
June 2003, up 3.7% compared to $774.0 million in the year ended 30 June
2002. Normalised land based revenues increased by $26.5 million or
4.5%. International commission business revenue increased by 20.9% on a
Normalised basis. Gaming machine revenue in the casinos increased by
2.1%. Wide area operations increased revenue by 3.7%. AWA Technology
Services revenue decreased by 3.7%. Centrebet increased revenue by
1.3%.
EARNINGS BEFORE INTEREST, TAX, DEPRECIATION AND AMORTISATION
EBITDA for the year ended 30 June 2003 was $178.7 million, compared
with $207.3 million in the year ended 30 June 2002. Normalised EBITDA
decreased by $1.4 million from the year ended 30 June 2002 to the year
ended 30 June 2003. This Normalised decrease was primarily attributable
to a poor performance in Centrebet and increased provisioning for
doubtful debts in the international commission business partially
offset by earnings from Jupiters' wide-area gaming and technology
services operations.
EBITDA BUSINESS SEGMENT ANALYSIS
Consolidated EBITDA analysed on a business segment basis is as follows:
FIGURE 15.5.4: BUSINESS SEGMENT ANALYSIS OF JUPITERS' PERFORMANCE FOR
YEARS ENDED 30 JUNE 2002 AND 30 JUNE 2003
ACTUAL NORMALISED
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
30 JUNE 30 JUNE 30 JUNE 30 JUNE
2003 2002 2003 2002
$M $M $M $M
Land based operations 141.5 167.3 146.4 149.0
Wide-area operations 44.5 39.0 44.5 39.0
Sportsbetting operations 9.5 14.7 9.5 14.7
Technology operations 1.5 (1.0) 1.5 (1.0)
Unallocated (18.3) (12.7) (14.3) (12.7)
------- ------ ------ -------
EBITDA 178.7 207.3 187.6 189.0
------- ------ ------ -------
CASINO REVENUE
Casino revenue decreased by $18.4 million, or 3.8%, to $463.0 million
in the year ended 30 June 2003. On a Normalised basis, casino revenue
increased by $17.4 million, or 3.8%.
On a Normalised basis, international commission business revenue for
the year ended 30 June 2003 increased 20.9% over the year ended 30 June
2002, reflecting an increase in international commission business front
money. Revenue earned from this business segment remains in the range
of 10%-15% of Jupiters' revenue. The international commission business
increased provisioning for doubtful debts during the year ended 30 June
2003 by $5.3 million, compared to less than $0.1 million in the year
ended 30 June 2002.
Club Conrad's non-commission premium play revenues decreased 4.0% from
the year ended 30 June 2002 to the year ended 30 June 2003 in the South
East Queensland properties. Jupiters Townsville does not participate in
premium play business. Main floor table game performance remained flat.
Gaming machine revenue growth improved in the
78
last three quarters of the year ended 30 June 2003 compared with the
year ended 30 June 2002 (see figure 15.5.5). Total gaming machine
revenues for the three casinos was $259.6 million in the year ended 30
June 2003 compared to $254.3 million in the year ended 30 June 2002, an
increase of $5.3 million or 2.1%. Revenue for the six months ended 30
June 2003 was an increase of $10.4 million or 8.5% on the previous
corresponding period continuing the positive trend evident since the
installation of the Cougar gaming machine monitoring system and the
introduction of new gaming machines.
FIGURE 15.5.5: GAMING MACHINE REVENUE GROWTH
QUARTER SEPT. 02 DEC. 02 MAR. 03 JUN. 03
- ------- -------- ------- ------- -------
Revenue growth vs previous
corresponding period (8.9%) 2.1% 7.9% 9.2%
HOTEL REVENUE
Total hotel revenue increased by $9.1 million, or 7.2% to $135.0
million in the year ended 30 June 2003 compared to $125.9 million in
the year ended 30 June 2002. This was primarily attributable to an
improved performance by food and beverage operations across all
properties.
As a result of a continued focus on high yielding corporate and
convention business revenues, hotel rooms revenue increased by 7.7%
from the year ended 30 June 2002 to the year ended 30 June 2003. This
result was achieved despite the war in Iraq and the outbreak of SARS.
An increase in domestic activity compensated for the decrease in
activity in the inbound segment.
CONRAD JUPITERS, GOLD COAST
Operating revenues at Conrad Jupiters decreased by $2.4 million, or
0.7% to $328.6 million in the year ended 30 June 2003 compared to
$331.0 million in the year ended 30 June 2002. On a Normalised basis,
operating revenues increased by $23.7 million or 7.5% to $340.1 million
in the year ended 30 June 2003 compared to $316.4 million in the year
ended 30 June 2002. Casino patronage of approximately 11,000 per day in
the year ended 30 June 2003 remained in line with the year ended 30
June 2002. Average main floor spend per patron was also consistent year
on year.
Gaming machine revenue increased in the year ended 30 June 2003 by
2.9%. Strong growth against the previous corresponding period was
recorded for the second half due to the impact of a significant rollout
of new product in the first half.
Hotel room revenue increased in the year ended 30 June 2003 compared to
the year ended 30 June 2002 reflecting an improvement in average
occupancy from 60.3% to 62.4% supported by an increase in average room
rate of 2.8%.
Food and beverage revenues increased 8.9% in the year ended 30 June
2003 compared with the year ended 30 June 2002 primarily as a result of
promotions, theatre packages and some menu revisions. The hotel also
benefited from increased domestic tourism.
CONRAD TREASURY, BRISBANE
Operating revenues at Conrad Treasury decreased $7.9 million, or 3.3%
to $229.4 million in the year ended 30 June 2003 compared to $237.3
million in the year ended 30 June
79
2002. On a Normalised basis, operating revenues increased by $2.0
million or 0.9% to $234.4 million in the year ended 30 June 2003
compared to $232.4 million in the year ended 30 June 2002.
Gaming machine revenue increased in the year ended 30 June 2003 by
1.7%. Strong growth against the previous corresponding period was
recorded for the second half due to the impact of a significant rollout
of new product in the first half.
Daily casino patronage remained flat at around 9,000. Average main
floor spend per patron improved in the year ended 30 June 2003
primarily due to the small increase in gaming machine activity along
with a small increase in main floor table revenue.
Hotel room revenue was up 8.3% in the year ended 30 June 2003 compared
with the year ended 30 June 2002. Occupancy continued to improve
increasing from 74.7% in the year ended 30 June 2002 to 78.5% in the
year ended 30 June 2003 and was supported by an increase in average
room rate of 3.9% year on year.
Food and beverage revenues increased 10.2% in the year ended 30 June
2003 compared to the year ended 30 June 2002 due to strong convention
activity in Brisbane.
JUPITERS TOWNSVILLE
Operating revenues at Jupiters Townsville increased $0.9 million, or
2.3% to $39.9 million in the year ended 30 June 2003 compared to $39.0
million in the year ended 30 June 2002.
Gaming machine revenue for the year ended 30 June 2003 was in line with
the year ended 30 June 2002. Strong growth against the previous
corresponding period was recorded for the second half due to the impact
of a significant rollout of new product in the first half.
Hotel room revenue increased 7.4% in the year ended 30 June 2003
compared to the year ended 30 June 2002 with occupancy strengthening to
49.8% from 47.1% in the year ended 30 June 2002. Improved hotel
occupancy and marketing efforts resulted in food and beverage
operations performing strongly with revenues increasing 7.7% in the
year ended 30 June 2003 compared to the year ended 30 June 2002.
GOLD COAST CONVENTION & EXHIBITION CENTRE
Construction work on the Gold Coast Convention & Exhibition Centre
progressed well in the year ended 30 June 2003 and is on schedule for a
mid 2004 opening.
The core management team of the venue is in place. Forward bookings
continue to grow in the domestic market with strong interest being
shown from international markets, especially Asia.
NON-CASINO AND NON-HOTEL OPERATIONS
Revenue earned by non-casino and non-hotel operations of $187.9 million
in the year ended 30 June 2003 was 23.4% of the Normalised operating
revenue of Jupiters for that year compared to $186.1 million (24.0%) in
the year ended 30 June 2002.
Jupiters provides Keno to over 830 outlets in Queensland and 1,000
clubs in New South Wales. Keno turnover in Queensland in the year ended
30 June 2003 was $278.2 million compared with $261.4 million in the
year ended 30 June 2002 and in New South Wales was $333.7 million
compared with $343.0 million in the year ended 30 June 2002. The
80
increased responsible gambling regulation has continued to have a
negative impact on Keno operations in New South Wales. A new logo was
launched into the Queensland and New South Wales market providing a
unified brand for the game.
Monitoring of gaming machines in clubs and hotels in Queensland
generated revenue of $19.1 million in the year ended 30 June 2003, an
increase of 15.6%. The increase in revenue combined with operational
improvements saw most of the incremental revenue reflected at the
EBITDA line in the year ended 30 June 2003.
CENTREBET
Centrebet revenue increased by 1.3% to $30.8 million in the year ended
30 June 2003 from $30.4 million in the year ended 30 June 2002.
Centrebet EBITDA decreased by 35.4% to $9.5 million in the year ended
30 June 2003 from $14.7 million in the year ended 30 June 2002. The
reduction in profitability of the Centrebet Business was partly due to
a lower win rate in the last quarter of the year and increased
competition.
FIGURE 15.5.6: CENTREBET PERFORMANCE FOR YEARS ENDED 30 JUNE 2002 AND
2003
$ 000'S YEAR ENDED 30 JUNE 2003 YEAR ENDED 30 JUNE 2002 CHANGE
----------------------- ----------------------- -------
TURNOVER 452,087 401,006 12.7%
WAGERING REVENUE 30,026 28,678 4.7%
WIN RATES 6.64% 7.15% (7.1)%
The total number of bets placed continued to grow strongly in the year
ended 30 June 2003, although the average bet size reduced.
FIGURE 15.5.7: CENTREBET BETS FOR YEARS ENDED 30 JUNE 2002 AND 2003
YEAR ENDED 30 JUNE 2003 YEAR ENDED 30 JUNE 2002 CHANGE
----------------------- ----------------------- -------
TOTAL BETS (MILLIONS) 15.4 11.7 32%
AVERAGE BET SIZE $ 29.38 $ 34.35 (14.5)%
OTHER
Operating expenses were $607.2 million in the year ended 30 June 2003
compared to $586.1 million in the year ended 30 June 2002, an increase
of $21.1 million. Expenses in the year ended 30 June 2003 included $4.0
million in costs relating to the proposed Merger.
Depreciation and amortisation expense was $54.0 million in the year
ended 30 June 2003, broadly consistent with the year ended 30 June 2002
of $54.4 million.
Net interest and finance charges increased by $8.0 million to $35.6
million in the year ended 30 June 2003. Interest expense includes $15.5
million payable in respect of the RPS issued in April 2002.
81
15.6 JUPITERS' ISSUED SECURITIES
As at the date of this Scheme Booklet, the issued securities of
Jupiters comprise:
- 201,784,202 Jupiters Ordinary Shares; and
- 1,901,735 RPS.
In addition, Jupiters has 1,520,000 Jupiters Options on issue over
unissued ordinary shares in the company.
Jupiters is under no obligation to issue further Jupiters Ordinary
Shares before the commencement of the Ordinary Share Scheme Meeting,
other than Jupiters Ordinary Shares issued upon the exercise of certain
Jupiters Options.
15.7 DIRECTORS OF JUPITERS
As at the date of this Scheme Booklet, the directors of Jupiters are:
- Mr Lawrence Willett AO (Chairman);
- Mr Robert Hines (Managing Director);
- Sir Francis Moore AO;
- Mrs Penelope Morris AM; and
- Mr John Story.
If the Ordinary Share Scheme becomes effective, it is proposed that Mr
Lawrence Willett AO and Mr John Story will join the TABCORP Board
(subject to all necessary Regulatory Approvals being obtained).
82
SECTION 16 - INFORMATION ABOUT TABCORP
16.1 ABOUT TABCORP
TABCORP heads Australia's premier gambling and entertainment group and
is one of the world's largest publicly listed gambling companies. The
TABCORP Group currently conducts a unique combination of gambling and
hospitality activities, including:
- gaming operations in Victoria under the Tabaret brand;
- wagering operations under brands such as TAB (Victoria), TAB
Sportsbet and FootyTAB. The Trackside and Club Keno brands
also operate within TABCORP's wagering division; and
- casino and hospitality operations at the only casino in New
South Wales, Star City Casino.
Since it was floated in 1994, the TABCORP Group has consistently grown
its business for the benefit of its shareholders. In particular:
- net profit after tax increased from $63.4 million in the 10.5
months ended 30 June 1995 to $263.1 million (excluding $10.5
million in non-recurring items) in the financial year ended 30
June 2003;
- earnings per share increased from 24.1 cents in the 10.5
months ended 30 June 1995 to 71.5 cents (excluding $10.5
million in non-recurring items) in the financial year ended 30
June 2003 (in each case on an annualised basis); and
- a high dividend payout ratio has been maintained since 1994,
with TABCORP increasing its dividends from 14.5 cents per
share in the financial year ended 30 June 1995 to 67.0 cents
per share in the financial year ended 30 June 2003.
In addition to dividends, TABCORP returned capital of 33.0 cents per
share to shareholders in the year ended 30 June 1999, and, in the years
ended 30 June 2002 and 30 June 2003, TABCORP entered into an on-market
share buyback, buying 11,278,013 TABCORP Shares.
As at 30 June 2003, the TABCORP Group had net assets of over $1.25
billion and employed approximately 5,000 people. TABCORP's market
capitalisation was $4.1 billion at the close of trading on ASX on 4
September 2003.
(a) GAMING OPERATIONS
TABCORP has one of two licences which permit the monitoring and
operation of gaming machines in licensed clubs and hotels in Victoria.
The venues subject to TABCORP's licence operate under the Tabaret brand
and provide an integrated gambling and entertainment product to
customers. TABCORP is focused on providing a comprehensive
entertainment offering tailored to each venue's local market.
(b) WAGERING OPERATIONS
TABCORP has been granted the sole licence to conduct
off-course totalizators in Victoria on thoroughbred, harness
and greyhound racing in Australia and New
83
Zealand. It also offers totalizator and fixed odds betting on
sporting and other events.
TABCORP conducts wagering activities in a network of agencies,
hotels and clubs throughout Victoria, provides on-course
totalizators at metropolitan and country Victorian race
meetings and provides telephone and internet betting services
to its customers. Considerable effort is directed to improving
products, upgrading systems and ensuring that venues are
comfortable and customer friendly.
Products are sold under the TAB, TAB Sportsbet and FootyTAB
brands. TABCORP's wagering division is also responsible for
the Trackside and Club Keno brands. Products such as
Trackside, a simulated racing competition, have been
introduced to provide TABCORP's wagering customers with more
entertainment options.
(c) CASINO OPERATIONS
The TABCORP Group owns and operates Star City Casino, New
South Wales' only casino. The Star City Casino entertainment
complex is located on Sydney Harbour.
Star City Casino caters to a diverse range of customers. Star
City Casino has 200 gaming tables and 1,500 gaming machines, a
491-room hotel and apartment complex, two theatres with a
total 3,000-seat capacity, seven major restaurants and a
nightclub. In addition, it provides a large banquet and
convention facility. Star City Casino is open 24 hours a day,
365 days a year.
Star City is focused on providing its customers with superior
service across its entire operation.
16.2 TABCORP'S GOALS AND STRATEGY
TABCORP aspires to consolidate the TABCORP Group's position as
Australia's premier gambling and entertainment group. To achieve this
aspiration, TABCORP's strategic focus is on both organic and inorganic
growth opportunities.
(a) ORGANIC GROWTH
TABCORP will continue to seek to drive growth in its existing
businesses through focus on:
- continuous improvement in customer service and
overall product quality;
- disciplined investment in people, product and
processes;
- operational excellence in delivery; and
- speed in execution and innovation.
84
(b) INORGANIC GROWTH
TABCORP will seek to implement merger and acquisition
opportunities that:
- are within TABCORP's core competencies of gambling,
entertainment and hospitality; and
- enhance shareholder value through delivery of returns
in excess of TABCORP's cost of capital.
The key performance indicators in determining whether TABCORP has
achieved its goals are whether TABCORP:
- achieves growth that provides superior shareholder returns;
- is acknowledged as providing a great place to work;
- is renowned for offering the best gambling and entertainment
experience for customers; and
- is respected as a responsible and valued member of the
community.
These key performance indicators will continue to be framed by
TABCORP's core values of teamwork, integrity and performance.
16.3 HISTORY AND BACKGROUND
(a) PRIVATISATION OF THE TOTALIZATOR AGENCY BOARD AND ACQUISITION
OF STAR CITY HOLDINGS
The Totalizator Agency Board of Victoria was a statutory body
which commenced operation in 1961 to conduct off-course
totalizator betting in Victoria on thoroughbred and harness
racing.
In April 1992, the Totalizator Agency Board of Victoria was
granted a gaming operator's licence in order, amongst other
things, to operate and monitor gaming machines in licensed
venues in Victoria.
On 15 August 1994, TABCORP listed on ASX by way of a public
float and raised $675 million. The funds raised were used to
acquire:
- the assets, liabilities and businesses of the
Totalizator Agency Board of Victoria, for which
TABCORP paid $78 million; and
- two separate licences from the State of Victoria, the
Wagering Licence and the Gaming Licence, for which
TABCORP paid $597 million in aggregate.
The TABCORP Group subsequently acquired Star City Holdings, a
public company which was listed on ASX. Star City Holdings
headed the group of companies which holds the sole casino
licence in New South Wales and owns and operates Star City
Casino.
85
(b) WAGERING AND GAMING LICENCES
Pursuant to the Wagering Licence, TABCORP has the sole licence
to conduct off-course totalizators in Victoria on
thoroughbred, harness and greyhound racing in Australia and
New Zealand. The Wagering Licence also authorises TABCORP to
conduct totalizator and fixed odds betting competitions in
Victoria on approved sporting events and to conduct on-course
totalizators in Victoria on thoroughbred, harness and
greyhound racing.
The Gaming Licence authorises TABCORP (as one of two
authorised participants) to conduct, amongst other things:
- gaming in licensed clubs and hotels in Victoria as a
gaming operator; and
- Club Keno games in licensed clubs and hotels in
Victoria, which are conducted through a joint venture
arrangement with Tattersall's.
The other gaming licence is held by Tattersall's. The
proprietor of Crown Casino is separately licensed to conduct
gaming at that venue.
TABCORP's Wagering Licence and Gaming Licence expire in 2012,
prior to which the Gaming and Betting Act contemplates new
licences being applied for. TABCORP will be entitled to apply
for any such licences (unless either the Wagering Licence or
the Gaming Licence has been cancelled). On the grant of any
such new licences under the Gaming and Betting Act, TABCORP
will be entitled to receive an amount equal to the lesser of
the purchase consideration for the new licences and an amount
between 85% and 115% of the original $597 million paid by
TABCORP for the Wagering Licence and the Gaming Licence in
1994.
The Victorian Government has indicated that it wishes to
resolve licence arrangements for the Victorian gaming and
betting industries in its current term and that it will review
all options available to it in that regard. TABCORP has not
yet entered into negotiations with the Victorian Government
regarding the terms on which future wagering and gaming
licences might be granted. However, TABCORP is committed to
working with the Victorian Government to reach an outcome
which is in the interests of all stakeholders. The next
Victorian election is scheduled for 25 November 2006.
For a more detailed description of the Wagering Licence and
the Gaming Licence, refer to Section 16.13(b).
(c) NSW CASINO LICENCE
In December 1994, the NSW Casino Control Authority issued Star
City the NSW Casino Licence for a period of 99 years. This
licence gives Star City the exclusive right to operate the
only casino in New South Wales for a period of 12 years until
13 September 2007. After this period, the NSW Casino Licence
is non-exclusive.
For a more detailed description of the NSW Casino Licence,
refer to Section 16.13(b). The regulatory environment in which
TABCORP's casinos division operates in New South Wales is also
summarised in that Section.
86
16.4 TABCORP'S PRINCIPAL ACTIVITIES
(a) INTRODUCTION
TABCORP has three principal operating divisions, being gaming,
wagering and casinos.
In accordance with the Joint Venture Agreement establishing
the joint venture between TABCORP Participant, a wholly owned
subsidiary of TABCORP, and VicRacing Pty Ltd, the income
generated from, and expenses incurred in, TABCORP's conduct of
its activities under the Wagering Licence and the Gaming
Licence are shared 75% by the TABCORP Group and 25% by
VicRacing Pty Ltd.
Historically, a third party has been entitled to a proportion
of a management fee payable in respect of the operation of the
Star City Casino business. Between 11 January 2000 and 15 July
2003 (inclusive), that management fee was shared 85% by a
wholly owned subsidiary of TABCORP and 15% by Leighton
Property Development Pty Ltd. On 30 June 2003, the TABCORP
Group entered into an agreement with Leighton Property
Development Pty Ltd to purchase that company's 15% interest in
the management company and the Star City Management Agreement
for $53 million. Completion of the sale under that agreement
occurred on 15 July 2003.
The above arrangements are summarised in Section 16.5.
(b) THE GAMING DIVISION
INTRODUCTION
The gaming division primarily consists of the activities
conducted under the Gaming Licence. TABCORP conducts its
Victorian gaming machine operations under the Tabaret brand.
OPERATIONS
As at 30 June 2003, TABCORP operated 13,692 gaming machines in
271 licensed club and hotel venues in metropolitan and country
Victoria, as summarised in the table below.
FIGURE 16.4.1: TABCORP'S GAMING MACHINE NETWORK
NUMBER OF VENUES NUMBER OF GAMING MACHINES
------------------------ -------------------------
AREA CLUBS HOTELS CLUBS HOTELS
- ---------------------------------------------------------------------------------------------
Melbourne Metropolitan 68 94 3,938 5,717
Victorian Country 75 34 2,902 1,135
- ---------------------------------------------------------------------------------------------
TOTAL 143 128 6,840 6,852
- ---------------------------------------------------------------------------------------------
In April 1998, a wholly owned subsidiary of TABCORP was
successful in its application for a gaming machine monitoring
licence in Queensland (one of eight licences issued). As at 30
June 2003, there were 479 gaming machines in TABCORP's
Queensland club venues network. The monitoring of this
business has been sub-contracted to Jupiters since 1998.
87
COMPETITION
Generally, the gaming division competes with both gambling and
non-gambling businesses.
TABCORP's gaming division competes with gambling product
providers such as Crown Casino and Tattersall's and the
providers of other Victorian-based gambling products such as
wagering via bookmakers and lotteries. Tattersall's, as a
gaming operator, competes with TABCORP for venue operators as
well as gaming customers. Information relating to the
regulations governing the allocation of gaming machines
between TABCORP, Tattersall's and Crown Casino is set out in
Section 16.13(c).
TABCORP estimates that its share of gaming machine revenue in
Victoria from licensed clubs and hotels has increased from
35.5% for the year ended 30 June 1994 (for the Totalizator
Agency Board of Victoria) to 48.3% for the year ended 30 June
2003.
Non-gambling businesses with which TABCORP competes include
cinemas, restaurants and other recreational product providers.
BUSINESS STRATEGIES
The gaming division's business strategies are to responsibly
grow Victorian gaming revenues and profits and increase market
share by:
- working with venue operators to increase the number
of venues with attractive theming, quality
entertainment facilities and good customer access;
- optimising the location of venues and gaming
machines;
- providing new gaming products; and
- working with venue operators to implement uniformly
high quality customer service standards and venue
management procedures across all venues.
Customer service improvement
The gaming division aims to continue to improve customer
service for new and existing customers by conducting customer
focus groups, implementing a process of "mystery shopping
visits" to venues (pursuant to which TABCORP representatives
monitor and assess customer service at venues) and training
staff in venues.
In light of the introduction of bans on smoking in gaming
areas in Victoria on 1 September 2002, customers who smoke
have been a particular focus of TABCORP's customer service
improvement program. In response to the customer focus groups,
a machine reservation system has been introduced which enables
customers who smoke to take a cigarette break without another
person interrupting their use of a particular machine.
88
In response to the division's feedback from customers who
smoke, TABCORP (in conjunction with its Tabaret venue
partners) has also acted to improve the amenity for customers
who smoke. Based on detailed customer research, venues have
endeavoured to provide improved facilities for customers who
smoke. The gaming division will continue to work with its
Tabaret partners to improve the amenity for customers who
smoke.
(c) THE WAGERING DIVISION
INTRODUCTION
The operations of TABCORP's wagering division are set out in
the diagram below.
FIGURE 16.4.2: WAGERING DIVISION OPERATIONS
[WAGERING DIVISION OPERATIONS STRUCTURE CHART]
OPERATIONS
The wagering division conducts totalizator wagering in
Victoria on thoroughbred, harness and greyhound racing. Wagers
are sold:
- in Victoria through a retail network of 566 retail
agencies and selected clubs and hotels (PubTABs);
- to customers via telephone betting accounts, through
TABCORP's two telephone betting centres, and
interactively through touch tone and natural language
voice recognition systems;
- via the internet; and
- at Victorian metropolitan and country race tracks
through on-course totalizators.
In addition, the wagering division conducts fixed odds and
totalizator betting on sporting events. Such bets are
primarily sold through:
- telephone betting accounts;
- the internet; and
- PubTABs and retail agencies.
Off-course wagering is the principal form of wagering in
Victoria. The growing popularity of fixed odds betting on
approved sporting competitions saw this
89
segment of TABCORP's wagering business grow at a compound
annual growth rate of 25.3% between 30 June 1995 and 30 June
2003, albeit from a low base.
As at 30 June 2003, the Club Keno product (as part of a joint
venture with Tattersall's) was offered at 102 TABCORP gaming
venues.
TABCORP's simulated horse racing product, Trackside, also
operates within 205 Victorian retail agencies and hotels as at
30 June 2003, as well as Star City Casino. The Trackside game
is also supplied to interstate and overseas customers through
TABCORP's wholly owned subsidiary Structured Data Systems Pty
Ltd. This company earns revenue from the sale of Trackside
terminals and ongoing support and maintenance fees.
COMPETITION
Generally, the wagering division competes with both gambling
and non-gambling businesses.
A number of forms of competition exist, both intrastate and
interstate. In particular, competition exists from licensed
bookmakers and interstate TABs. On-course bookmakers in
Victoria can accept off-course telephone betting in certain
circumstances and interstate TABs and bookmakers can legally
accept telephone and internet bets from bettors in Victoria.
From 1 July 2003, the minimum phone bet able to be taken by
Victorian bookmakers was reduced from $100 to $50, thus
potentially increasing competition in this segment of the
wagering market. The minimum phone bet able to be accepted by
Victorian bookmakers has progressively fallen since 1 July
2001 ($200) and there will be no minimum phone bet from 1 July
2004. This may increase competition for win/place betting,
predominantly in the telephone betting segment of TABCORP's
business.
Further competition may come from the introduction, or
increased presence of, betting exchanges which take bets over
the internet. A betting exchange enables persons to offer to
take a bet, or place a bet, on a particular outcome. The
betting exchange operator merely facilitates the processing of
transactions for a fee and does not take gambling risk.
The wagering division also competes with other Victorian based
gambling products such as gaming machines, table games at
Crown Casino and lotteries.
Non-gambling businesses with which the wagering division
competes include cinemas, restaurants and other recreational
product providers.
BUSINESS STRATEGIES
The wagering division's business strategies are to
responsibly:
- enhance the wagering product by:
- working with the Victorian Racing Industry
to increase the quantity and improve the
quality of racing for wagering purposes;
- optimising bet pricing; and
- expanding the available range of bet types;
90
- expand the coverage of the wagering product by:
- increasing the availability of racing
information through the expansion of radio,
free-to-air and pay television coverage; and
- improving the availability and quality of
wagering information provided to customers;
- improve and expand the distribution of the wagering
product by:
- upgrading the presentation of retail
outlets;
- improving internet wagering facilities;
- installing further self-service betting
terminals;
- expanding interactive voice response
technology for telephone betting;
- optimising the ratio of PubTABs to retail
agencies; and
- working with PubTABs to improve
profitability of outlets; and
- expand the sale and distribution of the Trackside
product to new jurisdictions and gambling outlets,
including off-track betting facilities and casinos.
(d) THE CASINOS DIVISION
INTRODUCTION
The casinos division is responsible for the operation of Star
City Casino.
Star City Casino is New South Wales' only casino and its
premier gambling, leisure and entertainment venue with table
games, gaming machines, hotel rooms and apartments, theatres,
restaurants, bars and banquet and convention facilities.
OPERATIONS
Star City Casino's operations can be divided into gambling and
non-gambling. Pursuant to a casino services agreement which
TABCORP negotiated with Harrah's Entertainment, Inc. (one of
the world's largest casino operators) at the time TABCORP
acquired Star City, Star City has had the benefit of certain
knowledge and expertise of Harrah's. That agreement will
expire in January 2005.
GAMBLING
- Star City Casino's gambling operations include an
exclusive licence to operate 200 gaming tables in New
South Wales (exclusive to 2007 with respect to
certain table games conducted with chips,
non-exclusive thereafter: see Section 16.13(b) for
further information). The tables are located on the
main gaming floor and in the private gaming room
(known as the "Endeavour Room"). Table games include
blackjack, roulette,
91
craps, baccarat, sic bo, big wheel, Caribbean stud
poker, pai gow and pontoon.
- Star City Casino has currently suspended its
international rebate play business. As a result of
this, ten gaming tables are currently not in
operation in line with a direction from the NSW
Minister for Gaming and Racing.
- Electronic gaming operations include an approval to
operate 1,500 gaming machines, a wagering outlet and
Keno terminals.
NON-GAMBLING
- Star City Casino's non-gambling operations include
352 hotel rooms as part of Star City Casino's five
star hotel and 139 apartments, of which 95 are owned
by Star City.
- Other operations include:
- seven restaurants including Astral, Lotus
Pond and Pyrmont's;
- six bars;
- banquet facilities, including the Grand
Harbour Ballroom which has capacity for in
excess of 950 people;
- the Lyric theatre (2,000 seats);
- the Showroom theatre (1,000 seats);
- a retail arcade including five restaurants,
two bars and 13 retail outlets (five
currently vacant); and
- a 2,500 space car park.
COMPETITION
Generally, Star City Casino competes with both gambling and
non-gambling businesses. Although Star City holds the sole
licence to provide casino table games in New South Wales, a
number of forms of competition exist intrastate, interstate
and overseas. While Star City Casino does not compete directly
in the international rebate business it does compete with both
Australian and international casinos for international and, to
a lesser extent, interstate players. In the electronic gaming
business, competition exists from pubs and clubs within the
Sydney metropolitan area, which offer gaming machine
entertainment. Star City Casino also competes with other
providers of gambling products such as wagering and lotteries.
Non-gambling businesses with which Star City Casino competes
include cinemas, restaurants and other recreational product
providers. As an operator of a five star hotel and several
highly regarded restaurants, Star City Casino also competes in
the Sydney luxury hotel and fine dining markets.
92
BUSINESS STRATEGIES
Star City's business strategies are to:
- responsibly grow revenue by:
- marketing to the Sydney market and
highlighting the customer service and
product offering in both gambling and
non-gambling areas;
- marketing to existing customers (including
VIP and premium play customers), and
increasing Star City's share of their
gambling budget, through improved customer
service, product offering and reward and
recognition;
- cross-marketing to customers of other
services at the Star City Casino complex;
- improving the table games product mix so
that it matches demand;
- marketing to interstate and international
visitors; and
- building loyalty through customer knowledge;
and
- enhance operational performance by:
- continuing to focus on cost efficiency in
all areas of the business;
- undertaking further capital investment in
gaming machines and table games and also in
the food and beverage and hotel operations;
- refining the product mix; and
- replacing traditional table games with
electronic table games.
(e) TECHNICAL SERVICES
Computer systems and operational and field service areas are
integral to the conduct of the TABCORP Group's wagering,
gaming and casino businesses.
TABCORP has recently completed an organisational restructure.
As part of this restructure, TABCORP has reorganised its
operational and field service areas into a combined technical
services division. This reorganisation was undertaken as it is
critical to TABCORP's success that business divisions are
provided with relevant, effective and highly efficient
information technology systems. The restructure will allow the
gaming, wagering and casinos divisions to have a stronger
focus on customer service.
Overall, TABCORP's technical services strategy is to maintain
a very high level of technological self-sufficiency, combined
with a flexible and competitive portfolio of arrangements with
external equipment and service providers to access products
and critical specialist skills and to manage variability of
development demand.
93
16.5 KEY CONTRACTUAL ARRANGEMENTS
(a) CONTRACTUAL ARRANGEMENTS WITH THE VICTORIAN RACING INDUSTRY
On 25 May 1994, TABCORP and certain of its subsidiaries
entered into a Joint Venture Agreement, a Racing Program
Agreement and a Product Supply Agreement with companies
controlled by the Victorian Racing Industry.
The Joint Venture Agreement established an unincorporated
joint venture between TABCORP Participant, a wholly owned
subsidiary of TABCORP, and VicRacing Pty Ltd, and entitles
VicRacing Pty Ltd to a 25% interest in the income generated
from, and the expenses incurred in, TABCORP's conduct of the
activities under its Wagering Licence and Gaming Licence. This
25% interest amounted to $80.8 million (net) for the year
ended 30 June 2003.
The Racing Program Agreement and the Product Supply Agreement
are agreements whereby the major Victorian racing bodies have
undertaken to provide services and information to TABCORP,
including an annual program of race meetings in Victoria and
information required to conduct totalizators in Victoria on
racing within the state, interstate and overseas.
Fees payable to Racing Products Victoria Pty Limited for the
services under the Product Supply Agreement are calculated as
18.8% of turnover less dividends paid to bettors (that is,
revenue) on totalizator betting on thoroughbred, harness and
greyhound racing. For the year ended 30 June 2003, those fees
amounted to $99.0 million.
Under the Racing Program Agreement, Racing Products Victoria
Pty Limited receives a minimum payment of $50 million per
annum for the supply of the racing program in Victoria. Under
the Product Supply Agreement, it also receives a minimum of
$2.5 million per annum for developing a marketing program.
Both of these payments to Racing Products Victoria Pty Limited
are indexed to the growth in off-course net wagering revenue
from the 1996/97 financial year.
The total amount paid to the Victorian Racing Industry,
including the 25% interest referred to above, for the year
ended 30 June 2003 was $250.4 million.
Further details in relation to the above agreements are set
out in Section 16.14.
(b) MANAGEMENT OF STAR CITY CASINO
Historically, pursuant to the Star City Management Agreement,
the Star City Group subcontracted the management of Star City
Casino for a management fee of:
- 1.5% of casino revenue for each financial year;
- 6% of casino gross operating profit (that is, casino
revenue less casino operating expenses) for each
financial year;
- 3.5% of non-casino revenue (that is, revenue from
operating the casino complex less casino revenue) for
each financial year; and
94
- 10% of the non-casino gross operating profit (that
is, non-casino revenue less operating expenses
excluding casino operating expenses) for each
financial year.
The Star City Management Agreement is still in operation.
However, since 16 July 2003, the TABCORP Group has been
entitled to 100% of the management fee under the Star City
Management Agreement.
Between 11 January 2000 and 15 July 2003 (inclusive), the
TABCORP Group owned 85% of the shares in the management
company and a corresponding interest in the Star City
Management Agreement. Accordingly, the TABCORP Group was
entitled to 85% of the management fee summarised above. The
remaining 15% of the shares in the management company and the
corresponding interest in the Star City Management Agreement
were held by Perpetual Trustees Consolidated Limited on trust
for Leighton Property Development Pty Ltd. Accordingly, during
this period, Leighton Property Development Pty Ltd was
beneficially entitled to 15% of the management fee summarised
above. On 30 June 2003, the TABCORP Group entered into an
agreement with Leighton Property Development Pty Ltd to
purchase that company's 15% interest in the management company
and the Star City Management Agreement for $53 million.
Completion of the sale under that agreement occurred on 15
July 2003.
(c) TAXATION AND LEVIES ON STAR CITY
On 14 December 1994, the State of New South Wales and Star
City entered into the Casino Duty and Community Benefit Levy
Agreement, under which the parties agreed the manner in which
the casino duty and casino community benefit levy to be paid
by Star City under New South Wales law would be calculated and
paid during the period of 12 years commencing on 13 September
1995.
The parties have agreed that, during that 12 year period, the
rates at which the casino duty and casino community benefit
levy would be charged would be fixed. By way of exception,
however, the State of New South Wales can elect to change the
rate of the casino community benefit levy provided that there
is also a corresponding and "offsetting" change in the rate of
the casino duty. The calculations of the casino duty are also
subject to adjustments to reflect changes in a consumer price
index.
The agreement provides for the State of New South Wales to
review the casino duty and casino community benefit levy
arrangements applying to Star City on 13 September 2007. In
conducting that review, the Treasurer of New South Wales is
required to (amongst other things):
- provide Star City with an opportunity to make
representations and submissions and give due regard
to those submissions;
- give due regard to the financial viability of Star
City and Star City earning a fair return on capital;
and
- ensure that any casino duty is calculated by
reference to and dependent on receipt of gross
revenue.
95
16.6 DIRECTORS, OFFICERS AND CORPORATE GOVERNANCE
(a) DIRECTORS OF TABCORP
M.B. ROBINSON AO Michael Robinson is a Partner of
CHAIRMAN AND NON-EXECUTIVE the law firm Allens Arthur
DIRECTOR SINCE JUNE 1994 Robinson. He was the Senior
Partner of Arthur Robinson &
Hedderwicks from 1996 to 2001
and was its Managing Partner
from 1980 to 1988. Mr Robinson
is Chairman of the Bionic Ear
Institute, a Trustee of the
Epworth Medical Foundation and a
Director of the Asia Society
AustralAsia Centre, the National
Australia Day Council, the State
Orchestra of Victoria, Clough
Limited and the General Sir John
Monash Foundation. He is
Chairman of the TABCORP
Nomination Committee and is a
member of the TABCORP Audit,
Remuneration and Compliance
Committees.
Matthew Slatter commenced as
M.J. SLATTER Managing Director and Chief
MANAGING DIRECTOR AND CHIEF Executive Officer in October
EXECUTIVE OFFICER SINCE 2002. Mr Slatter was previously
OCTOBER 2002 Chief Finance Officer and
Director of AXA Asia Pacific
since July 2000 and has over 20
years experience in the
financial services industry in
Australia, New Zealand and the
United Kingdom. Immediately
prior to joining AXA, he was
Chief Executive of the Bank of
Melbourne, responsible for its
integration with Westpac, and
has held general management
positions at Westpac, Lloyds TSB
and The National Bank of New
Zealand.
A.G. HODGSON Tony Hodgson was the co-founder
DEPUTY CHAIRMAN AND and was formerly Senior Partner
NON-EXECUTIVE DIRECTOR SINCE of the chartered accounting firm
JUNE 1994 Ferrier Hodgson and is a
Consultant to the firm. Mr
Hodgson is Chairman of HSBC
Asset Management (Australia) Ltd
and Chairman of the Advisory
Board to the Victorian Rugby
Union. Mr Hodgson is also a
Director of Coles Myer Ltd, HSBC
Bank Australia Limited,
Presidents Club Ltd and Collins
Associates Ltd. Mr Hodgson is
Chairman of the TABCORP Audit
Committee and a member of the
TABCORP Nomination Committee.
P.G. SATRE Phil Satre is Chairman of
NON-EXECUTIVE DIRECTOR SINCE Harrah's Entertainment, Inc.,
JUNE 2000 one of the world's largest
gambling companies. Mr Satre is
also a Director of the Gaming
Entertainment Research and
Education Foundations and the
American Gaming Association. He
is a Director of JDN Realty
Company.
P.H. WADE Peter Wade was Managing Director
NON-EXECUTIVE DIRECTOR SINCE of North Broken Hill Peko
JUNE 1994 Limited until his retirement in
1993. He is Chairman of CSL
Limited. Mr Wade is Chairman of
the TABCORP Remuneration
Committee and the TABCORP Staff
Superannuation Fund. He is also
a member of the TABCORP Audit
Committee.
R.F.E. WARBURTON Richard Warburton was formerly
NON-EXECUTIVE DIRECTOR SINCE Chairman of Star City Holdings.
JUNE 2000 He is currently Chairman of
Caltex Australia Limited and the
Board of Taxation. Mr Warburton
is also a Director of Southcorp
Limited and Nufarm Limited. He
is a member of the TABCORP
Remuneration and Nomination
Committees.
96
W.V. WILSON Warren Wilson held senior posts
NON-EXECUTIVE DIRECTOR SINCE at the South Australian and
JUNE 1994 Tasmanian Totalizator Agency
Boards from 1967 until he joined
the Royal Hong Kong Jockey Club
in 1978. In 1980 Mr Wilson
became the Executive Director
responsible for all betting and
lottery activity. He retired
from the Club in January 1994.
Mr Wilson is a Board member of
the South Australian Forestry
Corporation, and a Partner in
the Ramada Pier Hotel at Glenelg
in South Australia. He is
Chairman of the TABCORP
Compliance Committee.
(b) SENIOR MANAGEMENT OF TABCORP
D. BANKS David Banks was appointed Chief
BBus Executive Officer - Star City in
EXECUTIVE GENERAL MANAGER November 1999, having previously
- CASINOS held the position of Chief
Operating Officer since November
1997. During TABCORP's recent
organisational restructure,
David was promoted to the
position of Executive General
Manager - Casinos. Prior to
joining Star City, he was Chief
Operating Officer of Austar
Entertainment Pty Limited. David
has held a number of senior
operational and financial roles
nationally and internationally
with listed companies, including
eight years with Wormald Group.
P.R. BROBERG Peter Broberg was appointed to
BSc the position of Executive
ACTING EXECUTIVE GENERAL General Manager - Information
MANAGER - TECHNICAL Technology in May 1995.
SERVICES Following the recent
organisational restructure,
Peter is Executive General
Manager - Technical Services in
an acting capacity, whilst an
executive search is conducted
both internally and externally
to fill the position on a
permanent basis. Previously he
was Group General Manager -
Information Technology Services
with the Australian Postal
Corporation prior to which he
held senior information
technology management roles with
the Defence Signals Directorate
and the Bureau of Meteorology.
P.H. CAILLARD Peter Caillard was appointed to
BA, LLB(HONS), LLM, the position of General Counsel
MAICD, FCIS and Company Secretary in
EXECUTIVE GENERAL MANAGER September 1998. During the
- CORPORATE, LEGAL AND recent organisational
COMPLIANCE restructure Peter was promoted
to the position of Executive
General Manager - Corporate,
Legal and Compliance which
covers the corporate
secretariat, corporate affairs
and government affairs
functions. Previously he held
the position of Legal Counsel
with Crown Limited, prior to
which he was a solicitor with
Arthur Robinson & Hedderwicks.
He is a former Director of the
Law Institute of Victoria,
Victorian President of the
Australian Corporate Lawyers
Association and Fellow of the
Williamson Leadership Program.
D.E. ELMSLIE David Elmslie was appointed
BComm, LLB, ACA Chief Financial Officer in
CHIEF FINANCIAL OFFICER February 2003 having previously
held the position of Executive
General Manager - Gaming since
May 2000. He joined TABCORP in
May 1995 and held the position
of Executive General Manager -
Development in which he played a
key role in the acquisition and
post-merger integration of Star
City Casino in 1999. Prior to
joining TABCORP, he held a
number of finance positions in
industry, including at Elders
Resources NZFP Ltd and Coopers
and Lybrand.
97
P.V. GULBENKIAN Seconded to the position of
BEC Executive General Manager -
EXECUTIVE GENERAL MANAGER Gaming in February 2003, Paul
- INTEGRATION Gulbenkian was appointed
Executive General Manger -
Integration in June 2003.
Previously he was General
Manager - Finance and
Administration - Gaming and held
a number of management positions
within TABCORP since March 1996.
Prior to joining TABCORP he held
various finance positions in
industry including at Elders
Resources NZFP Ltd.
M. JESUDASON Mohan Jesudason began his
EXECUTIVE GENERAL MANAGER appointment as Executive General
- GAMING Manager - Gaming in August 2003.
Previously he held the positions
of Group Director Mobile with
AAPT Mobile Limited, General
Manager Mobile with Telecom New
Zealand Limited and various
senior management roles in the
banking and insurance industry.
M.J. PIGGOTT Michael Piggott was appointed to
MBA, BTECH, DIPELECENG the position of Executive
EXECUTIVE GENERAL MANAGER General Manager - Wagering in
- WAGERING March 1995. Previously he was
President and Chief Executive
Officer of AmTote International
based in Maryland, USA. Prior to
this he was Group General
Manager, AWA Gaming and Wagering
in Sydney.
R.E. PRESTON Robert Preston was appointed to
DIPBUS, FAICD the position of Executive
EXECUTIVE GENERAL MANAGER General Manager - Human
- HUMAN RESOURCES Resources in November 1992.
Previously he was National
Employee Relations Manager at
Qantas Airways Limited, and
prior to this held a variety of
industrial relations and human
resources management roles at
Australian Airlines Limited.
J.C. READ Charles Read was appointed to
BCOMM, BA, GRADDIP APPLIED the position of Executive
FINANCE AND INVESTMENT General Manager - Development in
EXECUTIVE GENERAL MANAGER September 2000. Previously he
- STRATEGY AND DEVELOPMENT was a Director - Corporate
Finance with Warburg Dillon Read
based in Melbourne and London,
UK, prior to which he was with
Arthur Andersen in Melbourne and
Hong Kong. He has broad
experience covering
acquisitions, divestments,
capital raisings, project
financing and strategic
planning.
(c) CORPORATE GOVERNANCE ISSUES
The TABCORP Board strongly supports the principles of
corporate governance and is committed to maintaining the
highest standards within TABCORP.
TABCORP's policies and corporate governance practices are
reviewed annually and will continue to be developed and
refined to meet the needs of the company and best practice.
COMPOSITION OF THE TABCORP BOARD
The TABCORP Board presently comprises six independent
non-executive directors, including the Chairman, and one
executive Director, being the Managing Director and Chief
Executive Officer. Each of the TABCORP Board's committees is
composed exclusively of independent non-executive directors.
Details of the current directors and their qualifications and
experience are contained in Section 16.6(a).
If the Ordinary Share Scheme becomes effective, Lawrence
Willett and John Story (currently non-executive Directors of
Jupiters) will be invited to join the TABCORP Board, subject
to all necessary Regulatory Approvals being obtained.
98
TABCORP's constitution requires that at least one third of the
directors of TABCORP, other than a director who is a Managing
Director and Chief Executive Officer, retire by rotation and
provides that they may stand for re-election at each annual
general meeting of the company. The TABCORP Board has the
power to appoint any person as a director, either to fill a
casual vacancy or as an addition to the TABCORP Board, subject
to receiving all necessary Regulatory Approvals, but that
person must stand for election at the next annual general
meeting.
RESPONSIBILITIES AND FUNCTIONS OF THE TABCORP BOARD
TABCORP's Board Manual sets out the roles and responsibilities
of the Managing Director and Chief Executive Officer, the
Chairman and directors, and contains the terms of reference
and processes governing the TABCORP Board and each of its
committees.
The TABCORP Board has overall responsibility for the corporate
governance of the company. Its role also includes:
- reviewing and approving the strategic direction,
budgets and business plans prepared by management;
- assuring itself of the effectiveness of arrangements
for the governance of the company including:
- the quality of the executive team;
- the appropriateness of organisational
arrangements and structure;
- the adequacy of internal controls and
processes;
- overseeing performance against targets and
objectives; and
- overseeing reporting to shareholders on the
direction, governance and performance of the company.
BOARD INDEPENDENCE
The TABCORP Board regularly assesses the independence of each
director. For this purpose an independent director is a
non-executive director whom the TABCORP Board considers to be
independent of management and free of any business or other
relationship that could materially interfere with the exercise
of their unfettered and independent judgment.
In addition to being required to conduct themselves in
accordance with the ethical policies of TABCORP, directors are
required to be meticulous in their disclosure of any material
contract or relationship in accordance with the Corporations
Act, and this disclosure extends to the interests of family
companies and spouses. Directors are required to adhere
strictly to the constraints on their participation and voting
in relation to matters in which they may have an interest in
accordance with the Corporations Act and TABCORP's policies.
Some of the directors are involved with other companies or
professional firms, which may from time to time have dealings
with TABCORP. Details of certain
99
offices held by directors with other organisations are set out
in Section 16.6(a). Details of related party dealings are set
out in notes to TABCORP's accounts as required by law.
All the current non-executive directors of TABCORP have been
assessed as independent directors. In reaching that
determination, the TABCORP Board has taken into account (in
addition to the matters set out above):
- The specific disclosures made by each director as
referred to above.
- Where applicable, the related party dealings
referable to each director, noting that those
dealings are not material under accounting standards.
- That no director is, or is associated directly with,
a substantial shareholder of TABCORP.
- That no non-executive director has ever been employed
by TABCORP or any of its subsidiaries.
- That no director is, or is associated with, a
supplier, professional adviser, consultant to or
customer of TABCORP which is material under
accounting standards.
- That no non-executive director personally carries on
any role for TABCORP other than as a director of the
company.
TABCORP does not consider that term of service on the TABCORP
Board should be considered as a factor affecting a director's
ability to act in the best interests of the company. The
TABCORP Board has established a policy that directors must
retire before reaching 70 years of age.
The TABCORP Board also has procedures in place to ensure it
operates independently of management. Prior to every TABCORP
Board meeting, the non-executive directors meet together in
the absence of executive directors and other executives of
TABCORP.
BOARD AND COMMITTEE MEETINGS
The TABCORP Board and its committees meet regularly to discuss
formally matters relevant to the company. Any director with a
material personal interest in a matter being considered by the
TABCORP Board must not be present when the matter is being
considered and may not vote on the matter.
COMMITTEES OF THE TABCORP BOARD
To assist the TABCORP Board in achieving the highest standards
of corporate governance, the directors of TABCORP closely
involve themselves with the critical areas of the TABCORP
Group's activities through Board Committees with specific
responsibilities for audit, nominations/succession planning,
remuneration and compliance. There are no executive directors
on any of these committees.
100
Audit Committee
The Audit Committee has been established to provide additional
assurance regarding the quality and reliability of financial
information used by the TABCORP Board and financial statements
issued by TABCORP to its shareholders. The Committee oversees
compliance with statutory responsibilities relating to
financial disclosure, including related party transactions.
The Audit Committee reviews the activities of both the
independent internal and external auditors and reviews their
performance on an annual basis. Both auditors have direct
access to the Audit Committee Chairman.
The annual internal audit program and the scope of work to be
performed is set in consultation with the Audit Committee of
the TABCORP Board. The Audit Committee approves the annual
internal audit program and reviews each of the reports made
pursuant to that program.
The Audit Committee is committed to maintaining auditor
independence and supports the rotation of the lead audit
partner at least every five years and engaging the auditor for
only audit related services, unless exceptional circumstances
necessitate the involvement of the auditor. The external
auditor attends TABCORP's annual general meeting and is
available to answer shareholder questions regarding aspects of
the audit and their report.
The Audit Committee reviews the risk management policies and
processes of the company. Working closely with the Compliance
Committee, it also reviews the risk exposures and controls
with respect to existing Information Technology systems and
those under development.
MEMBERS OF THE AUDIT COMMITTEE
Chairman: Mr A.G. Hodgson
Members: Mr M.B. Robinson, Mr P.H. Wade
Compliance Committee
The Compliance Committee is responsible for monitoring
business processes and operations, and taking reasonable steps
designed to ensure that TABCORP complies with its licences and
other regulatory requirements. The Committee places particular
emphasis on a proper compliance program, systems and culture
being in place for the purpose of providing confidence in the
reliability and integrity of the TABCORP Group's operations.
TABCORP has put in place procedures designed to ensure
communication and close cooperation with all regulatory
authorities responsible for monitoring and overseeing its
businesses, including the Victorian Casino and Gaming
Authority, New South Wales Casino Control Authority, the
Tasmanian Gaming Commission and the Queensland Office of
Gaming Regulation.
101
TABCORP's compliance managers and management compliance
committees monitor matters of compliance and report regularly
to the Compliance Committee.
MEMBERS OF THE COMPLIANCE COMMITTEE
Chairman: Mr W.V. Wilson
Member: Mr M.B. Robinson
Remuneration Committee
The Remuneration Committee has responsibility to consider
matters relating to the remuneration of senior executives as
well as the remuneration policies and structure for TABCORP
generally.
The Remuneration Committee has responsibility to review and
make recommendations to the TABCORP Board on remuneration
packages and policies applicable to the Managing Director and
Chief Executive Officer, directors and senior executives. This
committee has responsibility for approving the company's
general remuneration practices, including employee share
ownership and option schemes, incentive performance packages,
superannuation entitlements and retirement and termination
entitlements.
The TABCORP Board has decided to terminate retirement benefits
for all non-executive directors, effective 30 June 2003.
Retirement benefits accrued until that time have been paid
into the TABCORP Staff Superannuation Fund. The fund will pay
those benefits and any accrued entitlement on them to each
director on their retirement from the Board.
MEMBERS OF THE REMUNERATION COMMITTEE
Chairman: Mr P.H. Wade
Members: Mr M.B. Robinson, Mr R.F.E. Warburton
Nomination Committee
The composition of the TABCORP Board and its committees is the
subject of ongoing review by the directors and the Nomination
Committee has the responsibility to make recommendations to
the TABCORP Board on succession planning for the TABCORP
Board. From time to time as TABCORP grows and its field of
activities changes, it may be appropriate to make other
changes to the composition of the TABCORP Board so that it
includes the necessary and desirable competencies among its
members and an appropriate mix of non-executive and executive
directors.
All appointments to the TABCORP Board are subject to receiving
all necessary Regulatory Approvals. Upon appointment each new
director receives a letter of appointment stating their
obligations and the key terms and conditions of their
appointment. They undertake an induction program and are
provided with a copy
102
of the TABCORP Board Manual and other materials to assist in
fulfilling their obligations.
MEMBERS OF THE NOMINATION COMMITTEE
Chairman: Mr M.B. Robinson
Members: Mr A.G. Hodgson, Mr R.F.E. Warburton
INTERNAL CONTROL FRAMEWORK
The TABCORP Board is responsible for the establishment and
maintenance of the internal control structure of the company.
Financial reporting includes the annual development of a five
year strategic plan and a detailed annual budget which is
subject to the approval of the directors. Actual monthly and
year to date results for TABCORP are reported to the TABCORP
Board at every meeting to enable it to monitor performance
against the annual budget.
Forecasts for the company and each of the operating divisions
are regularly updated and reported to the TABCORP Board during
the year.
TABCORP has detailed procedural guidelines for the approval of
capital expenditure including annual budgeting, review and
approval of individual proposals and specific levels of
authority between the TABCORP Board and the Managing Director
and Chief Executive Officer.
TABCORP maintains a field audit program of its retail wagering
outlets.
Processes for the investment of surplus cash and management of
debt have been approved by the TABCORP Board and are the
subject of ongoing reporting to the TABCORP Board.
INTERNAL AUDIT
TABCORP's internal audit function is conducted under contract
by KPMG. The internal auditors submit regular reports to the
Audit Committee and, where appropriate, to the TABCORP Board.
MANAGEMENT OF RISK
TABCORP's current operations are conducted within Victoria
pursuant to the Wagering Licence and Gaming Licence. It is
also the holder of a monitoring operator's licence issued
under the Queensland Gaming Machine Act 1991 and a licence to
permit online gaming under the Tasmanian Gaming Control Act
1993. In addition, TABCORP owns the Star City Group which is
the operator of Sydney's Star City Casino and holder of the
NSW Casino Licence.
TABCORP has in place policies and procedures designed to
manage the risk associated with its operations. These policies
and procedures will be further developed as the company's
existing operations develop and its range of activities
expands.
103
The implementation of these policies and procedures is
monitored by the Audit and Compliance Committees of the
TABCORP Board.
TABCORP has in place a detailed policy for the management of
liability risk in respect of its expanding fixed odds
sportsbetting operation.
ETHICAL STANDARDS
TABCORP's policies as to the conduct and integrity of its
personnel, including the maintenance of ethical standards, are
set out in the Human Resources Policy Manual.
TABCORP's key personnel and all its directors have undergone
extensive probity investigation and clearance by the NSW
Casino Control Authority, VCGA, the Tasmanian Gaming
Commission and the Queensland Office of Gaming Regulation.
TABCORP has established a Responsible Gambling Code containing
comprehensive policies and guidelines for its directors,
staff, agents and venue operators with respect to the
company's gambling products. KPMG has conducted an independent
audit of the code to assess the whole organisation's
compliance with the code. KPMG's preliminary findings indicate
that, overall, there is an awareness of and commitment to the
code at TABCORP and a relatively high level of compliance with
it. TABCORP is awaiting the final audit report and KPMG's
recommendations.
INDEPENDENT PROFESSIONAL ADVICE
An individual director who has concern with respect to a
particular matter before the TABCORP Board may, after
discussion with the Chairman, and advising the Managing
Director and Chief Executive Officer, obtain independent
professional advice at TABCORP's expense. Such advice is to be
made available to all other directors.
SHARE TRADING POLICY
TABCORP has a policy that regulates the sale or purchase of
shares in the company by directors, executive officers and all
employees.
Directors and employees with access to information about
TABCORP's financial performance may only deal in TABCORP's
securities during the period of one month following the
company's annual general meeting or the release of the
company's annual and half yearly results. Even during this
trading window, directors and employees dealing in TABCORP's
securities must ensure that they are not in possession of
price sensitive information that is not generally available to
the public.
Each TABCORP director is required to obtain the approval of
the Chairman prior to the sale or purchase by that director of
shares in the company, even during a trading window. In the
case of a proposed transaction by the Chairman, approval is
required from the Deputy Chairman. Executive officers are
required to obtain the prior approval of the Managing Director
and Chief Executive Officer to a proposed transaction.
104
CONTINUOUS DISCLOSURE
The TABCORP Board has a disclosure policy and procedures are
in place designed to ensure that information is reported to
ASX in accordance with the continuous disclosure requirements
of the ASX Listing Rules. The TABCORP Board reviews the
company's compliance with its continuous disclosure
obligations at each of its meetings. TABCORP's Executive
General Manager - Corporate, Legal & Compliance, in his
capacity as Company Secretary, is responsible for coordinating
disclosure of information to ASX, ASIC and shareholders.
SUCCESSION PLANNING
TABCORP has been developing a succession plan for members of
the TABCORP Board and senior management. This plan is intended
to identify the best candidates for leadership and management
roles and develop potential successors that best meet the
organisation's needs.
GROUP STRATEGIC PLANNING
TABCORP has a formal strategic planning process whereby a five
year strategic plan is prepared and approved by the TABCORP
Board each year. The intent of the annual review is to
consider a range of strategies and provide management with
guidance on those strategies that in the TABCORP Board's
opinion will enhance shareholder value in the medium term.
SUSTAINABILITY
TABCORP is committed to the long-term sustainability of its
operations and aims to optimise the social, environmental and
economic impact of its operations for the benefit of all
stakeholders.
Although TABCORP's operations are considered to have minor
impact on the environment, TABCORP is committed to protecting
the environment and minimising the impact wherever
appropriate.
OTHER DIRECTORSHIPS
TABCORP directors are required continually to evaluate the
number of boards on which they serve to ensure that each can
be given the time and attention required to fulfil their
duties and responsibilities. Directors are required to seek
approval from the Chairman prior to accepting an invitation to
become a director of any corporation. The Chairman must seek
approval from the Deputy Chairman.
COMMITMENT TO SHAREHOLDERS
It is the TABCORP Board's intention that shareholders are
informed of major developments affecting the company. This
information is communicated to shareholders through the
half-yearly and annual reports, ASX, the TABCORP website at
www.tabcorp.com.au and other means where appropriate.
TABCORP employs a dedicated shareholder relations manager to
assist in responding promptly to all shareholder inquiries.
105
TABCORP encourages the full participation of shareholders at
its annual general meeting. Important issues are presented to
shareholders as single resolutions and full discussion of each
item is encouraged. Explanatory memoranda, where considered
appropriate, are included with the notice of meeting for the
annual general meeting in respect of items to be voted on at
the meeting.
16.7 TABCORP'S FINANCIAL INFORMATION
(a) OVERVIEW
Set out below is selected information derived from:
- TABCORP's audited consolidated statements of
financial performance for the years ended 30 June
1999 to 30 June 2003;
- TABCORP's audited consolidated statements of
cashflows for the years ended 30 June 1999 to 30 June
2003;
- adjustments for non-recurring items for TABCORP's
audited consolidated statements of financial
performance and TABCORP's audited consolidated
statements of cashflows for the years ended 30 June
1999 to 30 June 2003; and
- TABCORP's audited consolidated statement of financial
position as at 30 June 2003.
That information (the "FINANCIAL INFORMATION") should be read
together with the assumptions underlying its preparation and
the other information contained in this Scheme Booklet.
(b) TABCORP STATEMENTS OF FINANCIAL PERFORMANCE
The table below sets out selected information which has been
derived from TABCORP's audited consolidated statements of
financial performance for the years ended 30 June 1999 to 30
June 2003. The table is a summary only.
106
FIGURE 16.7.1: SUMMARY STATEMENTS OF FINANCIAL PERFORMANCE
($m) 1999A 2000A 2001A 2002A 2003A
- ------------------------------------------------------------------------------------------------
NET REVENUE 1,066 1,596 1,813 1,933 1,901
EBITDA 255 414 479 541 541
EBITA 220 332 383 451 454
EBIT 220 319 365 433 436
Net interest expense 4 (46) (67) (52) (49)
-----------------------------------------------------
PBT (EXCLUDING NON-RECURRING ITEMS) 224 274 299 381 387
Tax expense (81) (104) (111) (121) (124)
-----------------------------------------------------
NPAT (EXCLUDING NON-RECURRING ITEMS
AND PRE GOODWILL AMORTISATION) 143 183 206 278 281
NPAT (excluding non-recurring items
and post goodwill amortisation) 143 170 188 259 263
Non-recurring items after tax 4(1) 2(2) (10)(3)
-----------------------------------------------------
NPAT (POST GOODWILL AMORTISATION) 143 174 188 261 253
- ------------------------------------------------------------------------------------------------
Notes:
(1) For the year ended 30 June 2000, the non-recurring item was profit on sale
of land and buildings of $4.4 million after tax.
(2) For the year ended 30 June 2002, non-recurring items included the SA TAB
penalty payment of $3.9 million after tax (positive) and restructure costs of
$2.3 million after tax (negative).
(3) For the year ended 30 June 2003, non-recurring items included restructure
costs of $2.7 million after tax and property related write-downs and provisions
of $7.8 million after tax.
(c) MANAGEMENT DISCUSSION OF FINANCIAL PERFORMANCE
OVERVIEW
TABCORP has consistently recorded strong financial
performance, resulting in increased returns to shareholders,
as illustrated in the graphs below.
FIGURE 16.7.2: NET PROFIT AFTER TAX (POST GOODWILL AMORTISATION)*
[BAR CHART]
$ millions
1999 143.3
2000 170.3
2001 187.7
2002 259.3
2003 263.1
* Excludes non-recurring items
FIGURE 16.7.3: EARNINGS PER SHARE*
[BAR CHART]
cps
1999 47.1
2000 48.8 52.5
2001 50.4 55.3
2002 69.5 74.3
2003 71.5 76.4
- - EPS (post goodwill amortisation)
- - Goodwill amortisation
* Excludes non-recurring items
107
FIGURE 16.7.4: DIVIDENDS PER SHARE
[BAR CHART]
cps
1999 43.0
2000 47.0
2001 51.0
2002 63.0
2003 67.0
FIGURE 16.7.5: RETURN ON SHAREHOLDERS' FUNDS*
[BAR CHART]
1999 18.8%
2000 16.4%
2001 15.4%
2002 20.2%
2003 20.9%
* Excludes non-recurring items and pre-amortisation of goodwill
TABCORP has grown profit significantly since listing on ASX in
1994 with net profit after tax growing from $63.4 million for
the 10.5 months ended 30 June 1995 to $263.1 million for the
year ended 30 June 2003 (excluding non-recurring items). Over
the same period, TABCORP has maintained a high dividend payout
ratio, returning a total of $3.90 in dividends (fully franked)
per share, in addition to a return of capital in January 1999
of 33 cents per share.
During the financial year ended 30 June 1999, net profit after
tax increased by 18.2% to $143.3 million, while revenues
increased 13.7% to $1,066.2 million. This result was driven by
a strategic focus on providing customers with modern,
attractive venues and facilities and high levels of customer
service. The gaming division increased revenue by 17.2% to
$713.2 million and EBIT on a full allocation basis by 20.6% to
$176.4 million. The wagering division increased revenue by
7.2% to $353.0 million and EBIT on a full allocation basis by
16.7% to $43.7 million.
During the financial year ended 30 June 2000, TABCORP
maintained its record of continuous strong profit growth,
whilst at the same time undergoing a significant change in its
profile with the acquisition of the Star City Group.
Continuing revenue increases from both the wagering and gaming
businesses combined with the acquisition of the Star City
Group enabled the company to achieve a 49.7% increase in
revenue to $1,595.8 million. This growth in revenue, combined
with a continuing focus on the containment of operating
expenses, resulted in an increase in EBIT of 45.3% to $319.9
million (excluding abnormal items) and an increase in net
profit after tax of 18.8% to $170.3 million (excluding
non-recurring items of $4.4 million (after tax) relating to
the sale of a property).
The year ended 30 June 2001 resulted in TABCORP growing its
profit despite a number of regulatory changes and the impact
of the introduction of the GST on consumer confidence and
household disposable income. Net profit after tax increased by
7.4% on the prior year to $187.7 million. TABCORP's net profit
after tax in this year was negatively affected by a below
theoretical win rate in the international rebate business
conducted by Star City at that time (which business has now
been suspended). The net profit after tax from operations
other than the international rebate business grew by 16.3%.
During the financial year ended 30 June 2002, TABCORP was able
to maintain the momentum of the wagering and gaming businesses
and implement significant initiatives at Star City Casino,
which resulted in a record net profit after tax of
108
$259.3 million (excluding non-recurring items), a 38.1%
increase on the prior comparable 12 months. Including the
non-recurring items, net profit after tax was $261.0 million,
a 39.0% increase on the prior comparable 12 months. This
result was driven by effective cost management across the
entire business, particularly in the wagering business. The
non-recurring items of approximately $1.7 million profit
(after tax) related to termination fees paid by the South
Australian State Government with respect to SA TAB's
termination of contractual arrangements involving TABCORP and
redundancy costs arising from the restructure of the Star City
Casino operations.
TABCORP recorded a 1.5% increase in profit after tax
(excluding non-recurring items) to $263.1 million for the year
ended 30 June 2003. Including the non-recurring items ($10.5
million after tax), net profit after tax was $252.6 million, a
decrease of 3.2%.
During the year, the company's net operating revenue declined
by 1.7% to $1,900.7 million with increases in wagering and
Star City Casino revenue more than offset by a decline in
gaming revenue following the introduction of bans on smoking
in Victorian gaming venues from 1 September 2002.
GAMING DIVISION
The historical revenue and profit performance of the gaming
division is summarised in the graphs below:
FIGURE 16.7.6: NET OPERATING REVENUE - GAMING
[BAR CHART]
$ millions
1999 713
2000 795
2001 846
2002 918
2003 848
FIGURE 16.7.7: EBIT - GAMING*
[BAR CHART]
$ millions
1999 176
2000 202
2001 218
2002 231
2003 208
* On a full allocation cost basis and excluding non-recurring items
In the year ended 30 June 1999, the gaming division recorded
an increase in EBIT on a full allocation cost basis of 20.6%
to $176.4 million. This was driven by an increase in net
operating revenue of 17.2% to $713.2 million. Assisting the
improved performance in this year were product and venue
enhancements as well as the results of TABCORP working closely
with its venue operators to drive improvements in venue
presentation and customer service.
In the year ended 30 June 2000, the gaming division recorded
an increase in EBIT on a full allocation cost basis of 14.5%
to $202.0 million whilst net operating revenue grew 11.4%,
reflecting TABCORP's ability to grow revenue at a rate greater
than costs. The gaming division continued to successfully grow
the Victorian market by working with its network of venue
operators to provide high quality venues with a broad range of
entertainment facilities, the latest gaming products and high
levels of customer service.
109
In the year ended 30 June 2001, the gaming division recorded a
6.5% increase in net operating revenue and grew revenue at
greater than costs. This resulted in an increase in EBIT on a
full allocation cost basis of 8.1% to $218.4 million.
The growth in revenue was impacted by regulatory changes
introduced by the Victorian State Government, which
temporarily slowed down the opening of a number of venues and
resulted in the warehousing of a number of gaming machines.
In the year ended 30 June 2002, the gaming division increased
net operating revenue by 8.4% to $917.6 million. Consistent
revenue growth, together with containment of operating
expenses, enabled the division to report a 5.7% increase in
EBIT on a full allocation cost basis to $230.8 million despite
an additional $12.2 million charge being levied by the
Victorian State Government on gaming machines. The revenue
growth in the 2002 financial year can be attributed to
improved amenity and customer service standards in the venues
in TABCORP's gaming network and the introduction of new games
with over 25% of the gaming machine network being upgraded.
The gaming division revenue for the year to 30 June 2003 was
$848.1 million, 7.6% below the previous year. EBIT on a full
allocation cost basis (excluding non-recurring items) was
$207.8 million, a decrease of 10.0% on the previous year.
The introduction of smoking bans in Victorian gaming venues
from 1 September 2002 resulted in many customers who smoke
either not staying as long in venues as they would have before
the bans or reducing their number of visits to venues. This
adversely impacted revenue and profitability with revenue
declining by 13.0% in the second half of the year relative to
the prior corresponding period.
In response to the division's feedback from customers who
smoke, the gaming division (in conjunction with its Tabaret
venue partners) acted to improve the amenity for those
customers. While revenue levels were still down on the
comparable period last year, the improvement to the overall
amenity for all customers has reduced the impact of the
smoking bans in the majority of cases.
Major refurbishments were undertaken in 19 venues with a
further 23 undergoing minor refurbishments. Two new venues
opened during the 2003 financial year.
The gaming division was able to hold its operating expenses to
2002 levels, excluding non-recurring items relating to
provisions against the Queensland gaming assets, provisions
for surplus lease space and restructuring costs, which
amounted to $4.9 million before tax.
110
WAGERING DIVISION
The historical revenue and profit performance of the wagering
division is summarised in the graphs below.
FIGURE 16.7.8: NET OPERATING REVENUE - WAGERING
[BAR CHART]
$ millions
1999 353
2000 363
2001 380
2002 404
2003 421
FIGURE 16.7.9: EBIT - WAGERING*
[BAR CHART]
$ millions
1999 44
2000 48
2001 53
2002 58
2003 64
* On a full allocation cost basis and excluding non-recurring items
In the year ended 30 June 1999, the wagering division recorded
an increase in EBIT on a full allocation cost basis of 16.7%
to $43.7 million. This profit result was achieved through a
focus on cost control and through strong net operating revenue
growth of 7.2%. A major factor in this growth was the
introduction of twilight, night and Sunday racing. Also, the
introduction of racing to Pay TV in this year brought racing
to a wider "at home" audience and contributed to the growth in
telephone betting in 1999.
In the year ended 30 June 2000, the wagering division recorded
an increase in EBIT on a full allocation cost basis of 8.8% to
$47.6 million and an increase in net operating revenue of 2.9%
to $363.1 million. Growth was achieved in most products and
distribution channels, reflecting the continued success of
customer-focused strategies implemented over the previous
years. Net operating revenue growth in this year was also
achieved through continued new product offerings and through
increased twilight, night and Sunday racing.
In the year ended 30 June 2001, the wagering division
increased net operating revenue by 4.7% to $380.3 million
which, when combined with continued cost controls, resulted in
an increase in EBIT on a full allocation cost basis of 10.3%
to $52.5 million. Total revenue growth was driven by strong
wagering on thoroughbreds during the Spring Racing Carnival
and continued growth in net operating revenue from greyhound
racing.
In the year ended 30 June 2002, the wagering division
increased net operating revenue by 6.1% to $403.6 million.
EBIT on a full allocation cost basis (excluding a
non-recurring item) grew by 11.1% to $58.3 million. Including
the non-recurring item, EBIT on a full allocation cost basis
grew by 21.9% to $63.9 million. The non-recurring item related
to a payment of $5.6 million from South Australia TAB for
exiting pooling arrangements, following the acquisition of
South Australia TAB by Queensland based UNiTAB Limited.
Thoroughbred wagering was again well supported, with an
excellent Spring Racing Carnival and harness and greyhound
racing also performing well. Sportsbetting revenue was buoyed
by betting on the soccer World Cup and other popular sporting
codes such as AFL, tennis and golf.
111
In the year ended 30 June 2003, the wagering division
increased net operating revenue by 4.4% to $421.3 million.
EBIT on a full allocation cost basis excluding non-recurring
items of $1.4 million relating to restructure costs grew by
9.3% to $63.7 million.
Each of the three racing codes achieved revenue growth during
the year with revenue from thoroughbred racing up 3.4%,
revenue from harness racing up 4.7% and revenue from greyhound
racing up 7.4%. A strong Spring Carnival and growth from
provincial and interstate racing supported the continued
growth. Having consistently decreased since TABCORP listed on
ASX, on-course turnover grew during the year ended 30 June
2003.
Sportsbetting revenue was down on the previous year - the
previous year having featured the soccer World Cup. However
the underlying performance, excluding the impact of the soccer
World Cup, was a continuation of strong growth in revenue.
The number of TAB venues in Victoria at which the Trackside
product was offered increased from 160 to 205, while in
Denmark the number of sites offering the product increased to
36. Plans are underway to expand Trackside into Norway and the
United States of America.
Improving service levels to customers continued to be a key
focus of the wagering division during the year ended 30 June
2003. Seven agencies were refurbished during that year.
Furthermore, an additional 350 self-service "Easy Bet"
terminals are being installed across the PubTAB network and
racetracks providing further options for customers to get
efficient access to wagering products.
Self-service continued to grow, particularly the usage by
TABCORP's account sales customers, during the year ended 30
June 2003. From 30% of all account sales transactions for the
year ended 30 June 2002, touch tone telephone, natural
language speech recognition and the internet comprised 46% of
all account sales transactions during that year. The expansion
of these options assisted the wagering division to reduce
expenses on the prior year.
STAR CITY CASINO
The historical revenue and profit performance of the
operations of Star City Casino is summarised in the graphs
below.
112
FIGURE 16.7.10: NET OPERATING REVENUE - CASINO*
[BAR CHART]
$ millions
2000 438
2001 586
2002 612
2003 631
* 2000 results are for 8.5 months
FIGURE 16.7.11: EBITA - CASINO* **
[BAR CHART]
$ millions
2000 83
2001 112
2002 162
2003 182
* 2000 results are for 8.5 months
** On a full allocation cost basis and excluding non-recurring items
TABCORP acquired a controlling interest in the Star City Group
in October 1999 and completed the acquisition of the Star City
Group shortly after that. For the 8.5 months until 30 June
2000, Star City recorded net operating revenue of $438.4
million and EBITA on a full allocation cost basis of $83.0
million. For comparative purposes, in the 12 months to 30 June
2000, Star City generated net operating revenue of $610.2
million, an increase of 11.0% on the previous corresponding
period. Revenue growth in excess of 7% was achieved on the
main gaming floor and overall gaming revenue growth increased
by 11.7%, the major contributor being substantial growth in
rebate play. Over the same period, non-gaming revenue grew by
7.2%.
In the year ended 30 June 2001, results were mixed with strong
growth on the main gaming floor, and in electronic gaming
machines and accommodation. However, the private gaming room
and the international rebate business did not perform well.
The net effect was a 3.9% decline in net operating revenue to
$586.3 million compared to the prior corresponding period.
EBITA on a full allocation cost basis declined by 1.6% to
$112.3 million compared to the prior corresponding period. As
a result of the poor performance of the international rebate
business and after a comprehensive review, TABCORP elected to
suspend Star City Casino's international rebate program.
Star City Casino achieved a 4.4% increase in net operating
revenue to $611.9 million for the year ended 30 June 2002. The
increase in revenue, efficiency improvements (which resulted
in a 6.7% decrease in operating expenses) and the suspension
of the international rebate program resulted in an increase in
EBITA on a full allocation cost basis (pre non-recurring items
of $3.2 million relating to restructure costs) of 44.0% to
$161.7 million. Total gaming net operating revenue increased
by 5.4%. Table game net operating revenue increased by 5.2%,
driven by increased patronage from local, interstate and
international visitors in the private gaming room, which more
than offset the net revenue foregone from the cessation of the
international rebate program. Electronic gaming machine
revenue increased by 5.8%. Occupancy levels in the hotel and
apartments increased from 77% to 79%, but were offset by a
decline in the average room rate.
In the year ended 30 June 2003, Star City Casino increased net
operating revenue by 3.2% to $631.3 million. EBITA on a full
allocation cost basis (excluding non-recurring items) grew by
12.4% to $181.7 million.
113
Relative to the first half, the result reflected an improved
second half to the year despite the impact of the SARS virus
and the war in Iraq. Revenue from table games on the main
gaming floor increased with changes in product mix such as the
introduction of low limit double zero roulette in January 2003
and rapid roulette in April 2003.
Electronic gaming machine revenue achieved revenue growth of
4.0% during the year. Refinements to the overall electronic
gaming machine offer were ongoing with new games continually
being introduced and a VIP gaming machine lounge being opened
in June. This followed the relocation of 28 machines earlier
in the financial year from the main gaming floor to the
private gaming room.
Table game revenue from the private gaming floor was below the
previous year but showed a marked turnaround in the fourth
quarter as it recovered from the negative impacts associated
with the SARS virus and war in Iraq.
Non-gaming revenue grew strongly during the year ended 30 June
2003, with all businesses showing improvement on the previous
year. The hotel and apartments' occupancy increased to 79.9%
and the average room rate increased by 7.0%.
Star City Casino maintained its focus on expenditure control
during the year ended 30 June 2003, enabling the division to
post double digit growth in EBITA (excluding non-recurring
items relating to a provision of $7.0 million with respect to
a lease liability and $1.2 million relating to restructuring
costs).
(d) TABCORP STATEMENTS OF CASHFLOWS
The table below sets out selected information which has been
derived from TABCORP's audited consolidated statements of
cashflows for the years ended 30 June 1999 to 30 June 2003.
The table is a summary only.
114
FIGURE 16.7.12: SUMMARY STATEMENTS OF CASHFLOWS
($m) 1999A 2000A 2001A 2002A 2003A
- -----------------------------------------------------------------------------------------------------
EBITDA (post non-recurring items) 255 421 478 544 526
Income tax paid (73) (92) (136) (99) (122)
Other cashflow from operations 23 (42) (52) (30) (26)
-------------------------------------------------
TOTAL CASHFLOW FROM OPERATIONS 205 287 290 415 378
Capital expenditure (86) (76) (47) (47) (44)
Payment for controlled entities (net of cash
acquired) - (473) - - -
Other cashflow from investing activities 8 17 10 12 14
-------------------------------------------------
TOTAL CASHFLOW FROM INVESTING ACTIVITIES (78) (532) (37) (35) (30)
Net proceeds from borrowings 38 320 (29) (162) (11)
Proceeds from issue of securities (100) 92 - (1) (105)
Dividends paid (122) (171) (182) (213) (240)
Other cashflow from financing activities - 1 - - -
-------------------------------------------------
TOTAL CASHFLOW FROM FINANCING ACTIVITIES (184) 242 (211) (376) (356)
-------------------------------------------------
TOTAL CASHFLOW (57) (3) 41 3 (8)
- -----------------------------------------------------------------------------------------------------
Section 16.7(c) describes the non-recurring items referred to
in figure 16.7.12.
(e) TABCORP STATEMENT OF FINANCIAL POSITION
The table below sets out selected information which has been
derived from TABCORP's audited consolidated statement of
financial position as at 30 June 2003. The table is a summary
only.
FIGURE 16.7.13: STATEMENT OF FINANCIAL POSITION
($m) 30 JUNE 2003
- ----------------------------------------------------------------------
Cash and deposits 118.8
Other current assets 39.6
-------
TOTAL CURRENT ASSETS 158.4
Land and buildings, plant and equipment 759.2
Licences and casino management contract 1,081.8
Goodwill 292.9
Other assets 107.2
-------
TOTAL ASSETS 2,399.5
Current borrowings 450.9
Other current liabilities 238.2
Non current borrowings 315.0
Other non current liabilities 75.5
-------
TOTAL LIABILITIES 1,079.6
SHAREHOLDERS' FUNDS 1,319.9
- -------------------------------------------------------------------
115
(f) CONTINGENT LIABILITIES AND CONTINGENT ASSETS
Set out below are details of contingent liabilities and
contingent assets where the probability of future
payments/receipts is not considered remote. Also set out below
are details of contingent liabilities and contingent assets
which, although considered remote, TABCORP considers should be
disclosed.
The directors of TABCORP are of the opinion that provisions
are not required in respect of these matters, because it is
not probable that a future sacrifice of economic benefits will
be required or because the relevant amount is not capable of
reliable measurement.
CONTINGENT LIABILITIES
Deeds of cross guarantee
TABCORP (the parent entity of the TABCORP Group) has entered
into a deed of cross guarantee in accordance with a class
order issued by ASIC. The parent entity, and all the
controlled entities which are a party to the deed, have
guaranteed the repayment of all current and future creditors
in accordance with the terms of the deed in the event any of
these companies are wound-up.
TABCORP Investments Pty Ltd, the immediate parent company of
Star City Holdings, has also entered into a deed of cross
guarantee in accordance with a class order issued by ASIC.
TABCORP Investments Pty Ltd, and all of its controlled
entities which are a party to the deed, have guaranteed the
repayment of all current and future creditors in accordance
with the terms of the deed in the event any of the companies
are wound up.
Charges
Certain of TABCORP's controlled entities have provided the NSW
Casino Control Authority with a fixed and floating charge over
all of the assets and undertakings of each relevant company to
secure payment of all monies and the performance of all
obligations which they have to the NSW Casino Control
Authority.
TABCORP Participant has entered into a deed of cross charge
with its joint venture partner under the Joint Venture
Agreement to cover the non-payment of a called sum in the
event of the joint venture incurring a loss. The charge is
over undistributed and future earnings of the joint venture to
the level of the unpaid call.
Guarantee and indemnity
TABCORP's controlled entities have entered into a guarantee
and indemnity agreement in favour of the NSW Casino Control
Authority whereby all parties to the agreement are jointly and
severally liable for the performance of the obligations and
liabilities of each company participating in the agreement
with respect to agreements entered into and guarantees given.
116
Banking facilities
A controlled entity of TABCORP has provided a bank guarantee
to Workcover NSW for the amount of $11.8 million which is
required under the entity's self-insurance licence.
Tax audit
A controlled entity of TABCORP has been audited by the
Australian Taxation Office. The Australian Taxation Office has
identified an issue which relates to the deductibility of rent
of $120 million prepaid in December 1994 in relation to the
Star City Casino site. The primary tax in dispute in relation
to deductions claimed to date is approximately $33 million.
Under current Australian Accounting Standards, the current
profit impact of the primary tax in dispute would be
approximately $13 million, the balance having a statement of
financial position impact only.
On the basis of external advice and its assessment of the
issue, TABCORP believes that the positions taken in the income
tax returns which have been lodged are correct.
Undertakings - insurance deductible
Under an agreement with the State of New South Wales, Star
City is required to take out insurance in the name of the NSW
Casino Control Authority in respect of anticipated weekly
casino duty and casino community benefit levy liabilities
arising out of partial or total loss or destruction of the
Star City Casino premises. The agreement allows for a $1
million deductible for each and every loss. Since the events
of 11 September 2001, Star City has only managed to secure a
14 day loss deductible. Subsequent to 30 June 2003, TABCORP
has provided the NSW Casino Control Authority with a Deed of
Undertaking to fund the shortfall of the difference between
the current 14 day deductible and the $1 million deductible
required under the agreement. The directors of TABCORP believe
that this undertaking would not require payment in excess of
$3 million to $4 million for any one loss and believe that the
probability of such an event is remote.
Interest rate option agreements
TABCORP has entered into interest rate option agreements. If
the Merger does not proceed, the interest rate swaps which
relate to the option agreements may not be required. To the
extent that the interest rate swaps are not entered into,
TABCORP may be required to pay costs associated with closing
out the option agreements. Any amounts required to be paid
will depend on the level of interest rates at that date.
CONTINGENT ASSETS
During the year, a controlled entity of TABCORP disposed of
land owned at 50 Union Street, Pyrmont. Proceeds of $12.3
million were received in February 2003. The sale agreement
provides for an additional amount to be received by the
TABCORP Group if the purchaser is able to obtain an approved
development application from Planning NSW to develop to a
specified lettable rent area. The
117
additional amount cannot be reliably measured. As at the date
of this Scheme Booklet, no such approval has been received.
(g) TABCORP ACCOUNTING POLICIES
Outlined below are the significant policies which have been
adopted in the preparation of the financial statements from
which the Financial Information for the financial year ended
30 June 2003 is extracted. The accounting policies used are
consistent with those adopted in the year ended 30 June 2002,
except where there has been a change in accounting policy as
set out in this Section 16.7(g).
BASIS OF PREPARATION
The financial statements have been drawn up as a general
purpose financial report in accordance with Australian
Accounting Standards, Urgent Issues Group Consensus Views and
the Corporations Act. The financial statements have also been
prepared on the basis of historical costs and do not take into
account changing money values or, except where stated, current
valuations of non-current assets. The accounting policies
described below have been consistently applied by all entities
in the economic entity.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the economic entity
include the financial statements of the parent entity,
TABCORP, and its controlled entities, referred to collectively
throughout this Section 16.7(g) as the "economic entity".
Where an entity began to be controlled during the year, the
results are included only from the date control commenced. The
balances, and effects of transactions, between controlled
entities included in the consolidated financial statements
have been eliminated.
GOODWILL
Goodwill, representing the excess of the purchase
consideration plus incidental costs over the fair value of the
identifiable net assets acquired on the acquisition of a
controlled entity, is amortised over the period of time during
which benefits are expected to arise.
Goodwill is amortised on a straight-line basis over 20 years.
The unamortised balance of goodwill is reviewed at least at
each reporting date. Where the balance exceeds the value of
expected future benefits, the difference is charged to the
statement of financial performance. In establishing the fair
value of the identifiable net assets acquired, a liability for
restructuring costs is only recognised at the date of
acquisition where there is a demonstrable commitment and a
detailed plan. The liability is only recognised where there is
little or no discretion to avoid payment to other parties in
settlement of costs of the restructuring and a reliable
estimate of the amount of the liability as at the date of
acquisition can be made.
118
REVENUE RECOGNITION
Revenue
Wagering and gaming revenue is recognised as the residual
value after deducting the statutory return to customers from
the wagering and gaming turnover. Casino revenue is the net
gaming win plus the retail sales of food, beverages,
accommodation and other services. Revenues from ordinary
operations includes revenue derived from monitoring
operations, which is recognised as it is earned.
Interest income
Interest income is recognised as it accrues.
ASSET SALES
The gross proceeds of asset sales are included as revenue of
the entity. The profit and loss on disposal of assets is
brought to account at the completion of the sale.
FOREIGN CURRENCY
Foreign currency transactions are translated to Australian
currency at the rates of exchange ruling at the dates of the
transactions. Amounts receivable and payable in foreign
currencies at balance date are translated at the rates of
exchange ruling on that date. Exchange differences relating to
amounts payable and receivable in foreign currencies are
brought to account as exchange gains or losses in the
statement of financial performance in the financial period in
which the exchange rates change.
TAXATION
The economic entity follows the policy of tax effect
accounting. The income tax expense in the statement of
financial performance represents the tax on pre-tax accounting
profit adjusted for income and expenses never to be assessed
or allowed for taxation purposes. The tax effect of timing
differences which arise from items being brought to account in
different periods for income tax and accounting purposes is
carried forward in the statement of financial position as a
future income tax benefit or a provision for deferred income
tax liability, calculated at the tax rates expected to apply
when the differences reverse. Future income tax benefits are
not brought to account unless realisation of such benefit is
assured beyond any reasonable doubt. Future income tax
benefits relating to entities with tax losses are only brought
to account when their realisation is virtually certain.
NON-CURRENT ASSETS
The carrying amounts of non-current assets are reviewed to
determine whether they are in excess of their recoverable
amount at balance date. If the carrying amount of a
non-current asset exceeds the recoverable amount, the asset is
written down to the lower amount. In assessing recoverable
amounts the relevant cash flows have not been discounted to
their present value.
119
FINANCIAL INSTRUMENTS
Trade accounts receivable generally settled within 60 days are
carried at amounts due, and are non-interest bearing. A
provision is raised for any doubtful debts based on a review
of all outstanding amounts at balance date. Bad debts are
written off in the period in which they are identified. The
carrying amounts approximate fair value.
Cash, short-term deposits and bank accepted bills are carried
at cost. Interest revenue is recognised on an effective yield
basis. The carrying amounts approximate fair value because of
their short-term to maturity.
Trade accounts payable, including accruals not yet billed, are
recognised when the economic entity becomes obliged to make
future payments as a result of a purchase of assets or
services. Trade accounts payable are generally settled within
30 days, and are non-interest bearing. The carrying amounts
approximate fair value.
Bank overdraft and loans are carried at cost. Borrowing costs,
including interest, are expensed as incurred. The carrying
amounts approximate fair value because of the short-term to
maturity of the amounts drawn.
Loans pursuant to TABCORP's employee share plan are held at
the outstanding value applicable to the loan at balance date.
The carrying amounts approximate fair value as the amounts are
based on the economic entity's entitlement to all monies
outstanding.
TABCORP Shares bear no special terms or conditions affecting
income or capital entitlements of shareholders.
PROPERTY, PLANT AND EQUIPMENT
Items of property, plant and equipment excluding freehold land
are recorded at cost and depreciated by the straight-line
method to write off the original cost over the estimated
useful lives. Assets are depreciated from the date of
acquisition.
The depreciation rates used for each class of asset are within
the following ranges:
Buildings 1.05% to 11.11%
Leasehold improvements 1.05% to 20.00% (in 2002: 1.05%
to 25.00%)
Plant and equipment 5.26% to 33.33%
Consumables 20.00% to 33.33%
Freehold land is recorded at the lower of cost and recoverable
amount and is not depreciated.
Assets acquired under finance leases are capitalised and
amortised over the life of the relevant lease, or where
ownership is likely to be obtained on expiration of the lease,
over the expected useful life of the asset. Lease payments are
allocated between interest expense and reduction in the lease
liability.
120
Operating lease assets are not capitalised and rental payments
are charged against profits in equal instalments over the
accounting periods covered by the lease term. Provision is
made for future operating lease payments in relation to
surplus lease space.
LICENCES
The Wagering Licence and the Gaming Licence have not been
amortised as the payment currently expected to be received by
the parent entity under the Gaming and Betting Act at the end
of the licence period is currently expected to be not less
than the carrying value of the asset. The licence period
expires in the year 2012, unless the licences are earlier
cancelled. The NSW Casino Licence is amortised over the life
of the NSW Casino Licence, being 99 years from the date of
issue, 14 December 1994. Other licences are amortised over the
period of operation of the licences.
RIGHTS UNDER STAR CITY MANAGEMENT AGREEMENT
The rights under the Star City Management Agreement are
amortised over the life of the agreement, which coincides with
the term of the NSW Casino Licence.
RENTAL EXPENDITURE
The payment made for rental in advance for the Star City
Casino site for twelve years has been deferred in the
statement of financial position at the nominal amount and is
being amortised over 12 years commencing from the date of
issue of the NSW Casino Licence, being 14 December 1994. The
payment made for rental in advance in respect of a property
(switching station) has been deferred in the statement of
financial position at the nominal amount and is being
amortised over 95 years commencing from the date of
acquisition of the site, being 5 December 1997.
DEFERRED REVENUE
Deferred revenue comprises three elements, being an amount
representing an initial lease incentive period at the
commencement of a non-cancellable operating lease, which is
being reduced on an imputed interest basis over the lease term
at the rate implicit in the lease; deferred revenue relating
to exclusivity contracts which is being reduced over the
period of the contracts; and third party contributions to a
capital project which are being reduced over five years.
INVESTMENTS
Investments in controlled entities are carried in the parent
entity's financial statements at the lower of cost and
recoverable amount. Dividends and distributions are brought to
account in the statement of financial performance when they
are declared by the controlled entities.
INVENTORIES
Inventories include consumable stores, food and beverages,
finished goods and work in progress and are carried at the
lower of cost and net realisable value. Costs are assigned on
a weighted average basis.
121
EMPLOYEE ENTITLEMENTS
Wages, salaries and annual leave
Liabilities for employee benefits of salaries and wages
expected to be settled within twelve months of the reporting
date and annual leave represent present obligations resulting
from employees' services provided to the reporting date,
calculated at undiscounted amounts based on remuneration rates
the TABCORP Group expects to pay, including related on-costs
when the liability is expected to be settled.
Long service leave
The liability for employee benefits to long service leave
represents the present value of the estimated future cash
outflows to be made by the employer resulting from employees'
services provided up to the balance date. Liabilities for
employee entitlements which are not expected to be settled
within twelve months are discounted using the interest rate
applicable to Commonwealth Government bonds at balance date.
In determining the liability for employee entitlements,
consideration has been given to future increases in wage and
salary rates. Related on-costs have also been included in the
liability.
Employee share plan
A TABCORP employee share plan has been established under which
TABCORP Shares, and loans to acquire those shares, are made
available to eligible employees. The TABCORP Board has
resolved to discontinue this plan and to introduce substitute
plans.
Superannuation
TABCORP and its controlled entities contributed to a number of
employee superannuation funds. Contributions are charged
against income as incurred.
Workers' compensation
Star City Holdings self-insures in relation to workers'
compensation, and a provision has been brought to account.
PROVISIONS
Dividends
A provision for dividends payable is recognised in the
reporting period in which the dividends are declared, for the
entire undistributed amount, regardless of the extent to which
they will be paid in cash.
Surplus lease space
Provision is made for non-cancellable operating lease rentals
payable on surplus leased premises when it is determined that
no substantive future benefit will be obtained from its
occupancy and sub-lease rentals are less. The estimate is
122
calculated based on discounted net future cash flows, using
the interest rate implicit in the lease or an estimate
thereof.
JOINT VENTURE OPERATION
The economic entity's interest in an unincorporated joint
venture operation is brought to account by including the
following appropriate categories in the statement of financial
position and statement of financial performance:
- the economic entity's interest in each of the
individual assets employed and liabilities incurred
in the joint venture operation; and
- the economic entity's share of product and expenses
relating to the joint venture operation.
ROUNDING OF AMOUNTS
TABCORP is a company of a kind referred to in class order
98/100, issued by ASIC, relating to the "rounding off" of
amounts in financial statements. Amounts in the financial
statements from which the Financial Information for the
financial year ended 30 June 2003 is extracted were rounded
off in accordance with that class order to the nearest
thousand dollars.
CHANGES IN ACCOUNTING POLICY
In the financial year ended 30 June 2003, the TABCORP Group
adopted the new Accounting Standard AASB 1044 "Provisions,
Contingent Liabilities and Contingent Assets" resulting in a
change in the accounting for dividend provisions. Previously,
the TABCORP Group recognised a provision for dividend as a
liability based on the amount that was proposed or declared
after the reporting date. In accordance with the requirements
of the new standard, a provision for dividend will only be
recognised at the reporting date where the dividends are
declared, determined or publicly recommended prior to the
reporting date. The effect of the revised policy was to
increase consolidated retained profits and decrease provisions
at the beginning of the financial year ended 30 June 2003 by
$119.408 million. In accordance with the new standard, no
provision for dividend has been recognised for the financial
year ended 30 June 2003. The change in accounting policy had
no effect on basic and diluted earnings per share.
In the financial year ended 30 June 2003, the TABCORP Group
adopted the revised Accounting Standard AASB 1028 "Employee
Benefits" which resulted in a change in the accounting for
annual leave. In accordance with the requirements of the
revised standard, the liability for annual leave is calculated
using the remuneration rates the TABCORP Group expects to pay,
including related on-costs when the liability is expected to
be settled. The effect on the consolidated financial
statements of the revised policy at the beginning of the
financial year ended 30 June 2003 has been to:
- increase the provision for employee benefits by
$0.436 million;
- decrease opening retained profits by $0.305 million;
and
- increase future income tax benefits by $0.131
million.
123
16.8 TABCORP, TABCORP INVESTMENTS AND TABCORP ISSUER
(a) TABCORP
TABCORP was registered as a public company under the
predecessor legislation to the Corporations Act on 13 April
1994.
As at the date of this Scheme Booklet, TABCORP has on issue a
total of 366,853,721 TABCORP Shares.
TABCORP's principal activities are summarised in Section 16.4.
(b) TABCORP INVESTMENTS
TABCORP Investments was registered as a proprietary company
under the Corporations Act on 30 June 2003.
As at the date of this Scheme Booklet, TABCORP Investments has
on issue two fully paid ordinary shares. TABCORP Participant
holds both of those shares. TABCORP Participant is a wholly
owned subsidiary of TABCORP.
If the Ordinary Share Scheme becomes effective, TABCORP
Investments will acquire all Jupiters Ordinary Shares and may
subscribe for RPS in connection with the implementation of the
Ordinary Share Scheme. TABCORP Investments will provide
Jupiters Ordinary Shareholders as at the Implementation Record
Date for the Ordinary Share Scheme cash consideration in
connection with the acquisition of their Jupiters Ordinary
Shares and will provide Jupiters with cash consideration in
connection with any subscription for RPS. See Sections 19.1(e)
and 19.2 for further details.
If the RPS Scheme becomes effective, TABCORP Investments will
acquire all RPS. Broadly speaking, TABCORP Investments will
provide RPS Holders as at the Implementation Record Date for
the RPS Scheme cash consideration in connection with that
acquisition. See Sections 12 and 13 for further details.
If the Ordinary Share Scheme becomes effective, TABCORP
Investments will provide cash consideration to Jupiters
Optionholders for the cancellation of any Jupiters Options
which they hold at the Implementation Date for the Ordinary
Share Scheme (pursuant to individual contracts between those
Jupiters Optionholders, Jupiters and TABCORP Investments). See
Section 21 for further details.
As outlined in Sections 13.4(b) and 19.2, in certain
circumstances TABCORP Investments may acquire RPS presently on
issue or subscribe for new RPS irrespective of whether the
Ordinary Share Scheme is approved. TABCORP Investments will
provide RPS Holders cash consideration in connection with any
such acquisitions and will provide Jupiters with cash
consideration in connection with any such subscriptions.
TABCORP Investments' sole activity is connected with the
acquisitions, subscriptions and payments outlined in this
Section 16.8(b).
124
(c) TABCORP ISSUER
TABCORP Issuer was registered as a proprietary company under
the Corporations Act on 30 June 2003.
As at the date of this Scheme Booklet, TABCORP Issuer has on
issue one hundred fully paid ordinary shares. TABCORP holds
all of those shares.
TABCORP Issuer's sole activity is to issue the Centrebet Notes
in the event that such securities are required to be issued
under the Ordinary Share Scheme. The circumstances in which
the Centrebet Notes will be issued are set out in Section
6.2(d)(ii). Accordingly, TABCORP Issuer has not previously
traded and (except for liabilities in respect of the
maintenance of its corporate existence) it has no external
liabilities and, until such time as it becomes apparent that
Centrebet Notes will not be issued or, having been issued,
until such time as all Centrebet Notes lapse or are redeemed,
TABCORP Issuer is not expected to trade or to have any
external liabilities other than in connection with the
Centrebet Notes.
The following table sets out the capitalisation and
indebtedness of TABCORP Issuer as at the date of this Scheme
Booklet. It also sets out (on a pro-forma adjusted basis) what
TABCORP Issuer's capitalisation and indebtedness would be if
the Ordinary Share Scheme was implemented on the date of this
Scheme Booklet and if TABCORP Issuer issued Centrebet Notes on
that date pursuant to the Ordinary Share Scheme.
FIGURE 16.8.1: FINANCIAL INFORMATION IN RELATION TO TABCORP
ISSUER
- --------------------------------------------------------------------------------------------
AS AT THE DATE OF THIS AS AT THE DATE OF THIS SCHEME BOOKLET
$ (UNAUDITED) SCHEME BOOKLET PRO-FORMA
- --------------------------------------------------------------------------------------------
Share capital 100 100
Indebtedness 0 Net Centrebet Proceeds
Receivables 0 Net Centrebet Proceeds
- --------------------------------------------------------------------------------------------
TABCORP Issuer is not expected to record any profits until
such time as it becomes apparent that Centrebet Notes will not
be issued or, having been issued, until such time as all
Centrebet Notes lapse or are redeemed.
16.9 SOURCES OF CONSIDERATION
(a) TOTAL CONSIDERATION PAYABLE PURSUANT TO THE SCHEMES
JUPITERS ORDINARY SHARES
As at the date of this Scheme Booklet, there were 201,784,202
Jupiters Ordinary Shares on issue. However, certain Jupiters
Options will become exercisable between the date that the
Ordinary Share Scheme is approved by the Court or becomes
unconditional (whichever occurs later) and the Implementation
Record Date for the Ordinary Share Scheme. Accordingly, on the
assumption that the Ordinary Share Scheme becomes
unconditional and is approved by the Court on the expected
date of 31 October 2003, there may be up to 202,879,536
Jupiters
125
Ordinary Shares on issue at the Implementation Record Date for
the Ordinary Share Scheme. Any delay in Court approval for the
Ordinary Share Scheme or the Ordinary Share Scheme becoming
unconditional may result in additional Jupiters Options
becoming exercisable before the Implementation Record Date for
the Ordinary Share Scheme and additional Jupiters Ordinary
Shares being on issue at that date.
If the Ordinary Share Scheme is unconditional and approved by
the Court on 31 October 2003, the maximum total consideration
which will be provided by the TABCORP Group for Jupiters
Ordinary Shares under the Ordinary Share Scheme will depend on
the circumstances, as set out below:
(a) If Centrebet Sale Completion occurs by 31 October
2003, the maximum total consideration which will be
provided by the TABCORP Group for the Jupiters
Ordinary Shares will (subject to the effects of
rounding) be 48,691,089 TABCORP Shares and
$578,206,678 cash.
(b) If Centrebet Sale Completion does not occur by 31
October 2003, the maximum total consideration to be
provided by the TABCORP Group for the Jupiters
Ordinary Shares will be the amount set out in
paragraph (a) plus 202,879,536 Centrebet Notes. The
aggregate consideration to be paid by TABCORP Issuer
on redemption of the Centrebet Notes will equal the
Net Centrebet Proceeds.
RPS
As at the date of this Scheme Booklet, there were 1,901,735
RPS on issue.
If the RPS Scheme becomes effective, the maximum total
consideration which will be provided by the TABCORP Group for
the RPS under the RPS Scheme will be $200,176,626 cash plus an
amount per RPS representing the Accrued Dividend Equivalent.
The actual total consideration to be provided by the TABCORP
Group will depend on the exact timing of the Implementation
Date for the RPS Scheme and whether any RPS Holders exercise
any conversion rights before the RPS Scheme becomes effective.
The exercise of such conversion rights may reduce the number
of RPS subject to the RPS Scheme (for instance, because the
Implementation Record Date for the RPS Scheme may be delayed
beyond the Trigger Event Conversion Date and the RPS in
question may be transferred to TABCORP Investments on the
Trigger Event Conversion Date as set out in Section 13.4(b)).
(b) OTHER CONSIDERATION PAYABLE IN CONNECTION WITH THE MERGER
As set out in Section 21, if the Ordinary Share Scheme becomes
effective, TABCORP Investments will provide cash to Jupiters
Optionholders in consideration for the cancellation of their
Jupiters Options. As at the date of this Scheme Booklet, there
were 1,520,000 Jupiters Options on issue. The maximum total
consideration to be provided by the TABCORP Group for the
cancellation of the Jupiters Options will be $3,149,900 cash.
The actual total consideration to be provided for the
cancellation of Jupiters Options will depend on whether any of
the Jupiters Options are exercised before the Implementation
Record Date for the Ordinary Share Scheme.
126
Sections 19.1(e) and 19.2 set out certain circumstances in
which TABCORP Investments will subscribe for RPS. If the
Ordinary Share Scheme becomes effective, the maximum total
consideration to be provided by TABCORP Investments to
Jupiters by way of subscription for RPS will depend on whether
Centrebet Sale Completion occurs on or before 31 October 2003.
If Centrebet Sale Completion does not occur by 31 October
2003, the maximum cash consideration which TABCORP Investments
will provide to Jupiters by way of subscription for RPS will
be $152,159,652 (subject to the payment of any additional
amount in relation to RPS which are the subject of Special
Conversion Notices as described below).
If Centrebet Sale Completion occurs by 31 October 2003, the
maximum cash consideration which TABCORP Investments will
provide to Jupiters by way of subscription for RPS will be
$209,159,652 (subject to the payment of any additional amount
in relation to RPS which are the subject of Special Conversion
Notices as described below).
The information in the two previous paragraphs assumes that
the Ordinary Share Scheme is unconditional and approved by the
Court on 31 October 2003.
Sections 13.4(b) and 19.2 set out certain circumstances in
which TABCORP Investments will provide consideration in
connection with RPS which are the subject of Conversion
Notices (other than consideration provided under the RPS
Scheme). Depending on the nature of the Conversion Notices
lodged, such consideration might be paid directly to the
relevant RPS Holders or might be paid to Jupiters by way of
subscription for RPS. The maximum consideration to be provided
by TABCORP Investments (other than pursuant to the RPS Scheme)
in respect of RPS which are the subject of Conversion Notices
will depend on the circumstances at, and in the period
preceding, the relevant Conversion Date (including the VWAP
for Jupiters Ordinary Shares during the relevant period). On
the assumption that the VWAP for Jupiters Ordinary Shares in
the relevant period preceding the earlier of the relevant
Conversion Date and the Effective Date for the Ordinary Share
Scheme (that period being 20 Business Days in the case of RPS
which are the subject of a Trigger Event Conversion Notice and
five Business Days in the case of RPS which are the subject of
a Special Conversion Notice) will not exceed $6.77, and in
light of the intentions set out in Section 17.4(h), TABCORP
considers it unlikely that the cash to be provided by TABCORP
Investments (other than pursuant to the RPS Scheme) in
connection with RPS which are the subject of Conversion
Notices will exceed $199,975,704. To the extent that, prior to
implementation of the RPS Scheme, TABCORP Investments provides
consideration in respect of a RPS which is redeemed by
Jupiters, or sold to TABCORP Investments, as a result of,
respectively, a Special Conversion Notice or a Trigger Event
Conversion Notice, TABCORP Investments will not provide
consideration in respect of that RPS pursuant to the RPS
Scheme. On the timetable set out in Section 8, if the RPS
Scheme is implemented, no RPS will be redeemed by Jupiters or
sold to TABCORP Investments as a result of a Conversion Notice
prior to implementation of the RPS Scheme.
If Centrebet Sale Completion does not occur by 31 October
2003, but a Centrebet Sale Agreement is entered into by 30
June 2004 and Centrebet Sale Completion occurs by 30 September
2004, the maximum cash consideration which
127
TABCORP Issuer will provide to Centrebet Noteholders will
equal the Net Centrebet Proceeds.
(c) SOURCES OF CASH CONSIDERATION
TABCORP has irrevocably and unconditionally undertaken to
provide TABCORP Investments with, or procure that TABCORP
Investments receives, the total amount for the cash component
of the consideration payable by TABCORP Investments under the
Schemes and the total amount of cash consideration to be
provided by TABCORP Investments in the circumstances
contemplated by Section 16.9(b). The funding will be provided
to TABCORP Investments through intercompany borrowings and/or
equity contributions from companies within the TABCORP Group
as determined by TABCORP. None of the intercompany borrowings
will be repayable prior to or at the time at which the
relevant cash is provided to the ultimate recipient described
in Sections 16.9(a) and 16.9(b).
TABCORP Investments has irrevocably and unconditionally
undertaken to provide TABCORP Issuer with, or procure that
TABCORP Issuer receives, the total amount payable under the
terms of the Centrebet Notes before such amount falls due for
payment. TABCORP has irrevocably and unconditionally
undertaken to provide TABCORP Investments with, or procure
that TABCORP Investments receives, any monies which TABCORP
Investments is required to provide to TABCORP Issuer under
these arrangements. The funding will be provided to TABCORP
Investments through intercompany borrowings and/or equity
subscriptions from companies within the TABCORP Group as
determined by TABCORP. None of the intercompany borrowings
will be repayable prior to or at the time at which the
Centrebet Notes are redeemed.
TABCORP Participant will obtain the cash required by TABCORP
Investments to pay the cash component of the consideration
payable by it under the Schemes and in the circumstances
contemplated by Section 16.9(b), and any cash required by
TABCORP Issuer to redeem the Centrebet Notes as contemplated
by Section 16.9(b), by making drawings under two Loan
Facilities (the "FACILITIES") which TABCORP Participant and
other TABCORP Group companies will enter into with:
(a) as to the first Facility, National Australia Bank
Limited, Westpac Banking Corporation and Barclays
Bank PLC; and
(b) as to the second Facility, National Australia Bank
Limited,
(the "BANKS").
Binding commitment letters have been signed by TABCORP and
each of the Banks pursuant to which the Banks have agreed to
enter into formal agreements to underwrite Facilities under
which (subject to the terms of the Facilities) TABCORP
Participant will be able to borrow up to:
(a) $1,464 million from National Australia Bank Limited,
Westpac Banking Corporation and Barclays Bank PLC;
and
(b) $600 million from National Australia Bank Limited.
128
As part of the commitment letters, TABCORP and the Banks have
agreed term sheets in respect of each of the Facilities. Each
of the Banks has obtained credit committee approval to the
terms of the Facilities.
The commitment letters are subject to a condition that -
before the execution of the formal agreements in relation to
the Facilities - there is no material adverse change in the
business or financial condition of the TABCORP Group or the
Jupiters Group, or, in the case of the Facility to be provided
by National Australia Bank Limited, Westpac Banking
Corporation and Barclays Bank PLC, the international or
domestic bank debt market. In the case of the Facility to be
provided by National Australia Bank Limited, Westpac Banking
Corporation and Barclays Bank PLC, the change must also
materially impact on the ability of each Bank to syndicate its
position.
Sufficient funds will be available under the Facilities to
fully fund the cash component of the consideration for the
acquisition of Jupiters Ordinary Shares and RPS under the
Schemes by TABCORP Investments and any other cash
consideration required by TABCORP Investments in connection
with the Merger as set out in Section 16.9(b).
The TABCORP Group's current debt facilities will also be
refinanced by the Facilities to enable a lengthened maturity
profile of the TABCORP Group's existing debt. (However, the
Star City Group's current debt facilities (under which the
Star City Group is able to borrow up to $208 million), and the
TABCORP Group's transactional banking facilities with National
Australia Bank Limited, are not being refinanced.)
The availability of funds under the Facilities will be subject
to the following conditions precedent:
- no event of default or potential event of default
under the Facilities is continuing or would result
from the proposed loan;
- the representations and warranties given by TABCORP,
TABCORP Participant and the guarantors under the
Facilities (which are considered by TABCORP to be
normal representations and warranties applicable to
banking arrangements of this type) are correct in all
material respects;
- the Banks are satisfied with this Scheme Booklet and
that a copy of each of the Court orders approving
each of the Schemes has been lodged with ASIC; and
- other conditions precedent, which are considered by
TABCORP to be normal conditions precedent applicable
to banking arrangements of this type.
The "events of default" will include the following:
- failure by TABCORP, TABCORP Participant or a
guarantor to pay any sum payable under the relevant
Facility within three business days after notice of
non-payment has been given;
129
- if any representation or warranty made by TABCORP,
TABCORP Participant or a guarantor is incorrect or
misleading in any material respect and is not
remedied within 15 business days after receiving
notice to do so;
- if any financial covenant given by TABCORP, TABCORP
Participant or a guarantor is breached and is not
remedied within 15 business days after receiving
notice to do so;
- if there is a breach of any obligation by TABCORP,
TABCORP Participant or a guarantor and such breach is
not remedied within 15 business days after receiving
notice to do so;
- if an order is made for the winding-up of, or a
liquidator, receiver or administrator is appointed
to, TABCORP, TABCORP Participant or certain other
companies in the TABCORP Group (and, after the
Merger, in the Merged Group) or if any such company
ceases to pay its debts generally or becomes
insolvent;
- if any financial indebtedness of TABCORP, TABCORP
Participant or certain other companies in the TABCORP
Group (and, after the Merger, in the Merged Group)
becomes payable due to the occurrence of a default
event or has not been paid when due, and such
financial indebtedness exceeds $25 million;
- if any material licence is cancelled or suspended for
a period of 14 consecutive days, or periods
aggregating 30 days, prior to its stated term, and,
if cancelled, is not replaced within 30 days; or
- if any event or circumstance occurs which is
reasonably likely to have a material adverse effect
on the ability of the relevant companies in the
TABCORP Group (and, after the Merger, in the Merged
Group) (taken as a whole) to perform their
obligations under the relevant Facility ("FACILITY
MATERIAL ADVERSE EFFECT").
The Facilities will also include a number of other "events of
default" which are considered normal by TABCORP in banking
arrangements of this type.
By way of exception to the above, the mere occurrence of a
Facility Material Adverse Effect between the date on which an
application is made to the Court for an order approving each
of the Schemes and the earlier of:
(a) the date the Jupiters Ordinary Shareholders are
required to be paid following implementation of the
Ordinary Share Scheme; and
(b) 15 business days after the Effective Date for the
Ordinary Share Scheme,
will not prevent funds being drawn down under the Facilities.
At the date of this Scheme Booklet, TABCORP has no reason to
believe that any event of default will occur under the
Facilities.
130
Under the Facilities, TABCORP will give certain covenants in
favour of the Banks. In particular, it will covenant as
follows:
- the ratio of adjusted net borrowings as at each
reporting date to EBITDA in respect of the 12 month
period ending on that reporting date will be not more
than:
- 3.75:1 for the 12 month period ending on the
first reporting date; and
- 3.5:1 thereafter;
- the net worth of TABCORP will at all times be equal
to or greater than $1,200 million;
- the ratio of EBIT for the 12 month period ending on
each reporting date to net interest expense in
respect of that 12 month period will not be less than
2.5:1; and
- the aggregate financial indebtedness of the members
of the TABCORP Group (and, after the Merger, of the
Merged Group), which are not parties to the
Facilities, must not exceed 5% of the total tangible
assets of the TABCORP Group (and, after the Merger,
the Merged Group). (Certain indebtedness of the
TABCORP Group, and, after the Merger, the Merged
Group, is excluded from this ratio.)
In addition, the Facilities will include a negative pledge,
which will provide that:
- no encumbrance (with certain exceptions) may be
created over any of the assets of the TABCORP Group
(and, after the Merger, the Merged Group) if the
encumbrance, together with all other encumbrances
then existing over the assets of the TABCORP Group
(and, after the Merger, the Merged Group), secures
financial indebtedness the principal amount of which
exceeds:
- 10% of the total tangible assets of the
TABCORP Group (and, after the Merger, the
Merged Group); or
- while the Star City Group's facility remains
secured, 5% of the total tangible assets of
the TABCORP Group (and, after the Merger,
the Merged Group); and
- TABCORP will ensure that no member of the TABCORP
Group (and, after the Merger, of the Merged Group)
sells, assigns, leases, transfers or otherwise
disposes of any asset, except in certain prescribed
circumstances. The prescribed circumstances relate to
any sale, assignment, lease, transfer or other
disposal:
- made in the ordinary course of the casino,
gaming or wagering business of the disposing
entity;
- of assets used in the Centrebet Business;
131
- of obsolete assets made on normal commercial
terms and on an arm's length basis;
- of funds that are not immediately required
in the business of the TABCORP Group (and,
after the Merger, the Merged Group) in the
purchase or making of investments or the
realisation of such investments;
- of the proceeds of an issue of securities
(whether equity or debt) for the purpose
stated in the relevant prospectus or other
offering documents relating to that issue;
- of assets by any company in the TABCORP
Group (and, after the Merger, in the Merged
Group) to any other company in the TABCORP
Group (and, after the Merger, in the Merged
Group), if the consideration for the
disposal does not exceed a normal commercial
consideration;
- with the approval of the Banks; or
- of an asset where the greater of the market
value or consideration receivable (when
aggregated with the greater of the market
value or consideration receivable for the
sale, lease, transfer or disposal of any
other asset, to the extent not permitted
under the above) does not exceed 10% of the
total tangible assets of the TABCORP Group
(and, after the Merger, the Merged Group) in
any financial year.
The amounts owing under the Facilities will be unconditionally
guaranteed by TABCORP, TABCORP Investments and certain other
companies in the TABCORP Group. TABCORP must ensure that at
all times the EBITDA and assets of TABCORP Participant and the
guarantors represent not less than:
(a) 85% of the EBITDA of the TABCORP Group (and, after
the Merger, the Merged Group); and
(b) 85% of the total assets of the TABCORP Group (and,
after the Merger, the Merged Group),
subject to certain exceptions.
If any person or persons obtain voting power in TABCORP of
more than 50%, each of the Facilities will be cancelled within
90 days and TABCORP Participant must repay all loans
outstanding under the Facilities unless either:
(a) all Banks agree; or
(b) the Banks holding a prescribed majority of
outstanding debt under the Facilities agree, and
TABCORP Participant is able to find a substitute
lender or lenders to replace any Bank which does not
form part of the prescribed majority.
132
(d) SOURCES OF NON-CASH CONSIDERATION
TABCORP SHARES
TABCORP has entered into the Deed Poll in favour of the
Jupiters Ordinary Shareholders as at the Implementation Date
for the Ordinary Share Scheme. Under the Deed Poll, TABCORP
covenants to issue TABCORP Shares as contemplated by the
Ordinary Share Scheme.
TABCORP has the capacity to issue the maximum number of
TABCORP Shares which it may be required to issue under the
Ordinary Share Scheme.
CENTREBET NOTES
TABCORP Issuer has entered into the Deed Poll in favour of the
Jupiters Ordinary Shareholders as at the Implementation Date
for the Ordinary Share Scheme. Under the Deed Poll, TABCORP
Issuer covenants to issue Centrebet Notes as contemplated by
the Ordinary Share Scheme.
TABCORP Issuer has the capacity to issue the maximum number of
Centrebet Notes which it may be required to issue under the
Ordinary Share Scheme.
16.10 RIGHTS ATTACHING TO TABCORP SHARES
The TABCORP Shares to be issued under the Ordinary Share Scheme will be
fully paid and will rank equally with existing TABCORP Shares. TABCORP
Shares issued under the Ordinary Share Scheme will not be entitled to
participate in the TABCORP dividend in respect of the financial year
ended 30 June 2003.
TABCORP Shares are quoted by ASX. In the United States of America,
shares in TABCORP are traded in sponsored American Depository Receipt
form.
Application will be made to ASX for official quotation of the TABCORP
Shares to be issued pursuant to the Ordinary Share Scheme. Quotation is
not guaranteed or automatic on such application, but quotation is
expected in the ordinary course as TABCORP is already admitted to the
official list of ASX.
It is expected that the TABCORP Shares issued pursuant to the Ordinary
Share Scheme will commence trading on ASX, initially on a deferred
settlement basis, on 13 November 2003. It is the responsibility of each
Jupiters Ordinary Shareholder to determine their entitlement to TABCORP
Shares under the Ordinary Share Scheme before trading those shares to
avoid the risk of selling shares that they do not own.
Normal trading of the TABCORP Shares issued pursuant to the Ordinary
Share Scheme is expected to commence on 21 November 2003.
Set out below is a summary of the rights attaching to TABCORP Shares.
This summary does not purport to be exhaustive or to constitute a
definitive statement of the rights and liabilities of shareholders of
TABCORP, which can involve complex questions of law arising from the
interaction of TABCORP's constitution and statutory, common law and ASX
Listing Rule requirements.
133
(a) SHARE CAPITAL
Without prejudice to any special rights conferred on the
holders of any shares, and subject to the ASX Listing Rules,
any share in the capital of TABCORP may be issued with
preferred, deferred or other special rights, obligations or
restrictions, whether in regard to dividends, voting, return
of share capital, payment of calls or otherwise, as the
TABCORP Board may from time to time determine.
Except as otherwise provided by TABCORP's constitution, all
unissued shares in TABCORP are under the control of the
TABCORP Board.
(b) SHAREHOLDING RESTRICTIONS
As summarised in Section 16.13(d), the Gaming and Betting Act
imposes limitations on the number of voting shares in TABCORP
in which certain persons can have a relevant interest.
TABCORP's constitution also prohibits persons having voting
power of more than that permitted by the Gaming and Betting
Act without the consent of the NSW Casino Control Authority.
TABCORP must not knowingly permit a contravention of that
prohibition.
In order to assist in the enforcement of the shareholding
restrictions, the constitution confers certain powers on the
TABCORP Board.
- The TABCORP Board may, from time to time, send to a
shareholder a pro-forma statutory declaration (in a
form approved by the TABCORP Board). The statutory
declaration is to make provision for the recipient to
disclose certain information. When a person is sent a
statutory declaration, that person must provide the
required information to TABCORP within the specified
time period (being seven calendar days of the
declaration being sent to the person, though the
TABCORP Board can set a longer period).
- Where a person who is required to provide a statutory
declaration to TABCORP fails to do so as required,
the voting rights in respect of all the shares
registered in the name of that person (or other
shares as the TABCORP Board may specify) are
suspended until that person has provided the
statutory declaration or has ceased to be the
registered owner of those shares (whichever is the
earlier).
- A shareholder who fails to provide a statutory
declaration in the form required or within the
specified time may be given a notice by the TABCORP
Board. If the statutory declaration is not provided
within 14 calendar days of the date of the notice,
the TABCORP Board may give a further notice to the
shareholder requiring the shareholder to dispose of
some or all of its shares in TABCORP within three
months.
- If the shareholder does not dispose of the shares as
required, the TABCORP Board is empowered to appoint a
person to dispose of the shares. In these
circumstances, the net proceeds of the sale of the
shares will be paid to the shareholder, provided that
the shareholder has delivered to TABCORP documents or
information as may be reasonably required by the
TABCORP Board.
134
- If TABCORP becomes aware that a person is breaching
the shareholding restrictions outlined above (whether
through notification from the NSW Casino Control
Authority or otherwise), it must serve a notice on
the holder of any relevant shares to dispose of the
shares which give rise to the breach. At that time
all dividend and voting rights attaching to the
relevant shares will be suspended. That holder must
dispose of all their shares in TABCORP within 30 days
of receiving such notice. If the shareholder does not
dispose of the shares as required, TABCORP is
empowered to dispose of the relevant shares.
In addition, if the NSW Casino Control Authority determines
that a person is a close associate of TABCORP within the
meaning of the Casino Control Act 1992 (NSW), and that that
person is not a suitable person to be concerned in or
associated with the operation or management of a casino, the
NSW Casino Control Authority may notify TABCORP that it
requires that person to dispose of all their shares in
TABCORP. TABCORP must then notify the relevant person of this
requirement. That person must dispose of all their shares in
TABCORP within 30 days of receiving the notice. If the
shareholder does not dispose of the shares as required,
TABCORP is empowered to dispose of the relevant shares.
Broadly speaking, a person will be a close associate of
TABCORP if that person holds an interest, power or position in
relation to the Star City Casino business such that the person
can significantly influence the management or operation of the
Star City Casino business.
Under TABCORP's constitution, all shareholders of TABCORP
acknowledge and recognise that the exercise by the TABCORP
Board of the powers outlined above may cause individual
shareholders disadvantage and that they have no right of
action against the TABCORP Board or TABCORP for any loss or
disadvantage incurred by them as a result of the TABCORP Board
exercising these powers.
(c) VOTING
At a general meeting, subject to the shareholding restrictions
described in Section 16.13(d) and above and to some minor
exceptions, on a show of hands each shareholder present has
one vote and on a poll each shareholder present has one vote
for each fully paid share held. The number of votes that
holders of partly paid shares have on a poll is proportionate
to the amount paid up on the total issue price of those
shares.
Amongst other things, TABCORP shareholders are entitled to
vote on changes to TABCORP's constitution, to certain
elections of directors to the TABCORP Board, to certain
reductions or reconstructions of TABCORP's capital and on the
appointment of the auditor of TABCORP. However, the approval
of the NSW Casino Control Authority is required for the
amendment of certain aspects of TABCORP's constitution, to
appoint a person as a director or alternate director of
TABCORP, an alteration, reduction or reconstruction of
TABCORP's capital or to appoint certain persons as auditor.
(d) DIVIDENDS
The TABCORP Board may, from time to time, declare a dividend
to be paid to TABCORP shareholders. The dividend is (subject
to the rights of, or any
135
restrictions on, the holders of shares created or raised under
any special arrangement as to dividend) payable on all shares
in TABCORP in proportion to the amount of the total issue
price being paid in respect of the shares. No dividend is
payable except out of the profits of TABCORP.
(e) TRANSFER OF SHARES
Subject to the shareholding restrictions described in Section
16.13(d) and above, shares in TABCORP may be transferred by an
instrument (duly stamped, if necessary) in any form which
complies with the usual or common form or which the TABCORP
Board from time to time may prescribe or accept.
The TABCORP Board may refuse to register a transfer of
securities in certain circumstances. For example, if the
transfer of securities:
- would involve a registration which would infringe an
applicable law of the Commonwealth of Australia, a
State or a Territory (including the Corporations
Act);
- would create a shareholding of less than a marketable
parcel (as defined in the ASX Listing Rules);
- would result in more than three transferees being
registered as joint holders of the securities (except
in the case of executors, trustees or administrators
of a deceased shareholder); or
- relates to shares over which TABCORP holds a lien.
Further restrictions apply to transfers of partly paid shares.
(f) GENERAL MEETINGS AND NOTICES
Subject to the shareholding restrictions described in Section
16.13(d) and above, each shareholder is entitled to receive
notice of, and to attend and vote at, general meetings of
TABCORP and to receive all notices, accounts and other
documents required to be sent to shareholders under TABCORP's
constitution or the Corporations Act.
(g) WINDING UP
If TABCORP is wound up, then subject to any special or
preferential rights attaching to any class of shares,
shareholders will be entitled to participate in any surplus
assets of TABCORP in proportion to the capital paid up on
their shares when the winding up begins. If the assets
available for distribution amongst shareholders are
insufficient to repay the whole of the paid up capital, then
those assets will be distributed in proportion to the capital
paid up on shares when the winding up begins.
(h) ISSUE OF FURTHER SHARES
The TABCORP Board may (subject to restrictions imposed by the
constitution, the ASX Listing Rules or the Corporations Act)
allot or otherwise dispose of further shares on such terms and
conditions as they see fit.
136
(i) POTENTIAL CHANGES TO TABCORP'S CONSTITUTION
TABCORP proposes to seek amendments to its constitution at its
next annual general meeting (expected to be held on 30 October
2003) with a view to a corresponding position applying under
its constitution with respect to the Queensland State
Government as currently applies with respect to the NSW Casino
Control Authority (including so that the Queensland Minister
responsible for administering the Casino Control Act 1982
(Qld) has similar powers under TABCORP's constitution as the
NSW Casino Control Authority). The amendment of TABCORP's
constitution to include these provisions may be a condition of
the Regulatory Approvals required from the Queensland State
Government in connection with the Ordinary Share Scheme.
TABCORP expects any such amendments to be approved at its
annual general meeting. However, if the amendments are not
approved by TABCORP's shareholders at its annual general
meeting in circumstances where such approval is a condition of
the Regulatory Approvals from the Queensland State Government,
implementation of the Ordinary Share Scheme may be delayed or
not proceed at all.
16.11 RECENT TRADING OF TABCORP SHARES
For details on the trading history of TABCORP Shares, see Section
6.2(c).
16.12 DIVIDEND REINVESTMENT PLAN
In accordance with TABCORP's constitution, TABCORP has established a
dividend reinvestment plan ("DRP") which provides TABCORP shareholders
with a choice of reinvesting dividends paid on TABCORP Shares rather
than receiving dividends in cash. The DRP has not yet commenced
operation, but will commence operation in respect of any interim
dividend for the financial year ending 30 June 2004.
A summary of the terms of the DRP is set out below.
(a) PARTICIPATION
Participation in the DRP is optional and open to all holders
of TABCORP Shares, except that a shareholder having a
registered address or being resident in a country other than
Australia may not be able to participate in the DRP because of
legal requirements applicable in that country. The directors
of TABCORP have a discretion to determine whether any such
shareholder is excluded from participation in the DRP.
Further, the directors of TABCORP may refuse to permit any
shareholder to participate if, amongst other things, the
shareholder's participation may breach a provision of
TABCORP's constitution or may be contrary to any law, or if
the shareholder elects to participate in respect of a number
of TABCORP Shares which is less than 100 (or such other number
as the TABCORP Board may determine).
An application to participate must be in writing on the
appropriate form. Participation may be either full or partial.
Full participation applies in respect of all TABCORP Shares
registered from time to time in the participant's name
(including shares acquired under the DRP). Partial
participation applies for a specific number of TABCORP Shares
nominated by the participant, with the
137
participant receiving cash dividends on the balance of the
shareholding in the normal way. Under partial participation,
any TABCORP Shares subsequently acquired by the participant
(including under the DRP) will not participate in the DRP,
unless the shareholder subsequently elects that such shares
are to participate.
Participation may be varied or terminated at any time in
accordance with the terms of the DRP.
The TABCORP Board will determine with respect to the operation
of the DRP for any dividend whether to issue new TABCORP
Shares or to cause a transfer of TABCORP Shares to a
participant, or to effect a combination of both. If the
TABCORP Board decides to cause a transfer of TABCORP Shares to
participants, the TABCORP Shares may be acquired on ASX in any
manner the TABCORP Board considers appropriate.
(b) PRICE OF TABCORP SHARES
TABCORP Shares allotted or transferred to participants under
the DRP will be acquired at the arithmetic average (rounded to
the nearest cent) of the daily volume weighted average market
price of TABCORP Shares sold in the ordinary course of trading
on ASX over ten trading days starting on (and including) the
second business day following the record date in respect of
the relevant dividend, less a discount (if any) set by the
directors of TABCORP from time to time. The discount may not
exceed 2.5%.
(c) CALCULATION OF ENTITLEMENT
The dividend payable on TABCORP Shares which are subject to
the DRP (after deducting any amounts, such as withholding tax,
that TABCORP is required or entitled to deduct) will be
credited to a "DRP account" maintained on behalf of the
relevant participant and then applied on the participant's
behalf in subscribing for or acquiring additional TABCORP
Shares. At the time of each dividend payment, the maximum
whole number of additional TABCORP Shares that can be acquired
by each participant will be ascertained by dividing the amount
in the participant's DRP account by the relevant price as
calculated in the manner set out above. Any balance remaining
in a participant's DRP account after TABCORP Shares have been
allotted or acquired will be carried forward in the
participant's DRP account and added to the next dividend
entitlement. No interest will accrue in respect of any balance
in a DRP account.
(d) COSTS
No brokerage, commission or other transaction costs will be
payable by participants on TABCORP Shares acquired under the
DRP. Under the present law, no stamp duty will be payable on
the allotment or acquisition of TABCORP Shares under the DRP.
(e) DIVIDENDS AND OTHER RIGHTS
TABCORP Shares allotted under the DRP will, from the date of
allotment, rank equally in all respects with all other TABCORP
Shares.
138
(f) ASX LISTING
TABCORP will apply for quotation on ASX of TABCORP Shares
allotted under the DRP.
(g) VARIATION, SUSPENSION AND TERMINATION
The DRP may be varied, suspended or terminated by the TABCORP
Board at any time.
(h) UNDERWRITING OF DRP
The DRP may be wholly or partially underwritten from time to
time. TABCORP has entered into an underwriting agreement with
Merrill Lynch International (Australia) Limited (the
"UNDERWRITER") in respect of the operation of the DRP pursuant
to which the Underwriter has agreed to underwrite up to 65%
(as determined by TABCORP) of the amount of any interim and
final dividends for the financial years ending 30 June 2004
and 30 June 2005, up to a maximum amount of $120 million in
respect of each dividend.
TABCORP may determine the percentage of each dividend which is
to be underwritten, provided that the amount of each dividend
underwritten may not exceed 65% of the amount of the relevant
dividend or $120 million. TABCORP may terminate the
underwriting of any one or more of the dividends to which the
underwriting agreement relates at least five business days
prior to the record date for the relevant dividend. The
Underwriter may also terminate its obligations under the
underwriting agreement in certain circumstances, including if
an event occurs which has a material adverse effect on the
assets, liabilities, financial condition or position, earnings
or prospects or general affairs of TABCORP; if TABCORP
receives a takeover bid in respect of its shares; if the DRP
is varied, suspended or terminated or TABCORP's constitution
is amended in any material respect, or if ASX announces that
TABCORP Shares will be suspended from quotation or there is a
trading halt in, or material impediment to, the trading of
TABCORP Shares on ASX for a period of more than three business
days within the 20 business days prior to the record date for
a dividend.
TABCORP considers that the events of termination are not
unusual for an underwriting agreement of this nature.
16.13 REGULATORY BACKGROUND APPLICABLE TO THE TABCORP GROUP
(a) INTRODUCTION
Following is a summary of the regulatory background applicable
to the TABCORP Group. For further information about the
regulatory risks relating to the acquisition of TABCORP Shares
refer to Section 18.
139
(b) LICENCES
WAGERING LICENCE AND GAMING LICENCE
Overview
TABCORP was granted the Wagering Licence and the Gaming
Licence under the Gaming and Betting Act by the Governor in
Council of Victoria on 28 June 1994. The Wagering Licence and
Gaming Licence are for a term of eighteen years and are
neither transferable nor separable. They expire in 2012,
unless earlier cancelled.
The Wagering Licence issued to TABCORP is the sole licence
issued under the Gaming and Betting Act to conduct wagering
and approved betting competitions in Victoria (though
on-course wagering permits are available and the proprietor of
Crown Casino is able to conduct such activities at that
venue). Wagering is defined under the Gaming and Betting Act
as pari-mutuel (that is, totalizator) betting on horse,
harness or greyhound races. Approved betting competitions
means fixed odds or totalizator betting competitions on any
event or contingency approved by the Victorian Minister.
However, the Victorian Minister must not approve a betting
competition that is "wagering", is played on a gaming machine,
is a Club Keno game or in the opinion of the Victorian
Minister is offensive or contrary to the public interest.
The Gaming Licence issued to TABCORP is one of two licences to
conduct gaming in licensed clubs and hotels in Victoria.
TABCORP is also one of two participants authorised to conduct
keno games in licensed clubs and hotels in Victoria under the
Club Keno Act. The proprietor of Crown Casino has a licence to
conduct gaming and keno games at that venue.
The Wagering Licence and Gaming Licence are subject to a
number of conditions.
Prior to the expiry of the Wagering Licence and Gaming Licence
in 2012, or earlier if the Wagering Licence or Gaming Licence
is cancelled, new wagering and gaming licences under the
Gaming and Betting Act may be able to be applied for. TABCORP
will not be permitted to apply for any such new licences if
either the Wagering Licence or the Gaming Licence has been
cancelled. Such new licences may only be granted by the
Governor in Council in Victoria to an applicant recommended by
the VCGA and on payment to the State of Victoria of the
purchase consideration for the new licences. On the grant of
any such new licences under the Gaming and Betting Act,
TABCORP will be entitled to an amount equal to the lesser of
that purchase consideration and the "licence value". That
amount is to be paid by the State of Victoria to TABCORP
within seven days after commencement of the new licences.
The "licence value" will be in the range of 85% to 115% of the
original $597 million paid by TABCORP for the Wagering Licence
and Gaming Licence in 1994.
If TABCORP records compound inflation adjusted annual growth
in its total revenue on gaming machines and wagering on
thoroughbred, harness and greyhound racing (rate of real
growth) of 2% or more from the year ended 14 August 1995 to
the year ending 14 August 2012, the "licence value" will be
140
115% of $597 million. If the rate of real growth is 0% or
less, the "licence value" will be 85% of $597 million. If the
rate of real growth is between 0% and 2%, the "licence value"
will vary between 85% of $597 million and 115% of $597 million
in proportion to the rate of real growth achieved between 0%
and 2%.
The rate of real growth recorded from the year ended 14 August
1995 to the year ended 14 August 2003 was approximately 6%.
Disciplinary action and cancellation
If the VCGA is satisfied that there has been a breach of:
- a condition of the Wagering Licence or Gaming
Licence;
- the betting rules;
- the Gaming and Betting Act or its regulations;
- the Gaming Machine Control Act;
- the Club Keno Act; or
- any other law relating to wagering or gaming,
and, within a specified period, TABCORP does not remedy the
breach or satisfy the VCGA that steps have been taken to
ensure that the breach does not occur again, the VCGA may
reprimand or impose a fine (not exceeding $5 million) on
TABCORP or an operator of the Wagering Licence or the Gaming
Licence or both.
The Wagering Licence and Gaming Licence may only be cancelled
by the Supreme Court of Victoria on an application to it (made
with the consent of the Victorian Minister) by the VCGA.
Grounds for cancellation include:
- a material breach, or persistent breaches, of any of
the items listed in the paragraph above;
- TABCORP or an operator being convicted of an offence
which is of sufficient magnitude to warrant
cancellation;
- TABCORP or an operator being involved in a scheme or
arrangement to avoid paying tax under the Gaming and
Betting Act;
- the Supreme Court being satisfied that, on an
application under the Corporations Act, it would be
required to presume that TABCORP or an operator is
insolvent; and
- TABCORP or an operator being an externally
administered body corporate within the meaning of the
Corporations Act.
The authority to conduct and promote Club Keno games may be
revoked by the Supreme Court of Victoria (on application by
the Victorian Minister) on the ground that the participants
(who are TABCORP and Tattersall's) have wilfully
141
contravened or failed to comply with the Club Keno Act or with
the authorisation granted by that Act.
Investigation, supervision and audit
While TABCORP holds the Wagering Licence and Gaming Licence,
the VCGA may investigate the conduct of operations under the
licences from time to time and report the results of its
investigations to the Victorian Minister. The Director of
Gaming and Betting and inspectors appointed under the Gaming
and Betting Act also exercise supervisory powers over the
conduct of operations under the Wagering Licence and Gaming
Licence.
NSW CASINO LICENCE
Overview
Star City, a wholly owned subsidiary of TABCORP, was granted
the NSW Casino Licence by the NSW Casino Control Authority
pursuant to the Casino Control Act 1992 (NSW) on 14 December
1994. The NSW Casino Licence was granted for a period of 99
years and is not transferable.
Star City has the exclusive right to operate the only casino
in New South Wales until 13 September 2007. Thereafter, the
NSW Casino Licence is non-exclusive. If, during the
exclusivity period, another licensed casino opens in New South
Wales, then the NSW Casino Control Authority will pay to Star
City an amount equal to all damages, costs and expenses
suffered or incurred by Star City as a result of such
occurrence (including loss of profits).
Disciplinary action and cancellation
The NSW Casino Control Authority may, in certain
circumstances, require Star City to show cause why
disciplinary action should not be taken against it within 14
days after receiving a notice to that effect. The relevant
circumstances include where the NSW Casino Control Authority
is satisfied that:
- there has been a breach of the Casino Control Act
1992 (NSW) or the NSW Casino Licence;
- the Star City Casino premises are no longer suitable
for the conduct of casino operations;
- Star City is no longer a suitable person to give
effect to the NSW Casino Licence; or
- it is no longer in the pubic interest that the NSW
Casino Licence should remain in force.
If the NSW Casino Control Authority determines to take
disciplinary action, it may cancel or suspend the NSW Casino
Licence, impose a fine (not exceeding $1 million), amend the
terms of the NSW Casino Licence or reprimand Star City.
142
Investigation, supervision and audit
The NSW Casino Control Authority may investigate the
operations of Star City Casino, Star City or any person who
is, in the opinion of the NSW Casino Control Authority, an
associate of Star City or in a position to affect the exercise
of functions in or in relation to Star City Casino. The NSW
Casino Control Authority may report the results of its
investigations to the Minister responsible for administering
the Casino Control Act 1992 (NSW). The NSW Casino Control
Authority may require Star City or any persons directly or
indirectly associated with Star City to provide information in
connection with such investigations.
In addition, at intervals not exceeding three years, the NSW
Casino Control Authority must investigate and form an opinion
as to whether or not:
- Star City is a suitable person to continue to give
effect to the NSW Casino Licence; and
- it is in the public interest that the NSW Casino
Licence should continue in force.
The NSW Casino Control Authority last completed such a review
in relation to Star City in 2000. It is currently undertaking
such a review.
Inspectors appointed under the Casino Control Act 1992 (NSW)
also exercise investigative and supervisory powers over the
operations of Star City Casino.
(c) RESTRICTIONS ON OPERATIONS
The TABCORP Group's wagering, gaming and casino operations are
all highly regulated. In each case, in addition to specific
statutory restrictions, the relevant regulator or State
Minister has broad powers which affect or can affect the way
in which the relevant businesses are operated.
Some examples of the restrictions which apply to each of the
three areas of operations are set out below.
WAGERING OPERATIONS
- Operations must be conducted in accordance with
approved betting rules.
- Certain employees are required to hold an approved
technician's licence.
VICTORIAN GAMING OPERATIONS
- A maximum of 13,750 gaming machines may be
distributed across all gaming venues for which
TABCORP is responsible. No such venue can contain
more than 105 gaming machines. These restrictions
also apply to Tattersall's. A maximum of 2,500 gaming
machines may be operated at Crown Casino.
- At least 20% of all non-casino gaming machines must
be located outside metropolitan Melbourne and there
are caps on the total number of gaming machines
permitted in certain regions of Victoria.
143
- Smoking is not permitted in gaming areas at gaming
machine venues.
- A bet limit of $10 applies to all gaming machine
games approved after 1 January 2003. That bet limit
will apply to all gaming machine games from 1 January
2008.
- Clocks must be affixed to gaming machines.
- The Victorian State Government announced in November
2002 that it would enact legislation to prohibit the
advertising of poker machines through media outlets
or unsolicited mail. To date this legislation has not
been passed and no further details are currently
available.
- Since 1 July 2000, TABCORP has had to pay an annual
levy in respect of each gaming machine which it
operates. That levy was increased to $1,533.33 on 1
July 2001. The levy operates in addition to taxes on
gaming revenue.
CASINO OPERATIONS
- The NSW Casino Control Authority must approve all
games to be played in Star City Casino and the rules
under which such games are played.
- Star City Casino must open for gaming at the hours
and times specified by the NSW Casino Control
Authority (and at no other times). Presently, Star
City Casino is required to be open for gaming at all
times.
- The NSW Casino Control Authority must approve the
plans, diagrams and specifications of the casino
facilities relating to the conduct and monitoring of
casino operations.
- Star City may not offer cash prizes in connection
with a gaming machine loyalty scheme. In addition,
Star City must provide on request each participant in
any such loyalty scheme with statements setting out
information concerning their wins from, expenditure
on and time spent playing gaming machines.
- Star City cannot publish any advertisement in
relation to gaming machines or permit such an
advertisement to be published. There are also
restrictions on casino advertising by Star City.
- Broadly speaking, Star City is precluded from
entering into or becoming a party to, or varying, a
contract that relates wholly or partly to the supply
of goods or services to Star City Casino unless Star
City has notified the NSW Casino Control Authority of
the details of the proposed contract or variation and
the NSW Casino Control Authority has not objected to
the proposed contract or variation. Certain contracts
are excluded from this requirement, including
contracts in relation to certain back office services
or in relation to which the amount payable is less
than $330,000.
144
(d) OTHER RESTRICTIONS
Certain members of the TABCORP Group are also regulated in so
far as their shareholders and corporate activity are
concerned.
SHAREHOLDING RESTRICTIONS
Under the Gaming and Betting Act, it is unlawful for a person
to have a "prohibited shareholding interest" in TABCORP. A
person will have a "prohibited shareholding interest" in
TABCORP if the person has voting power of more than 10% in
TABCORP. For so long as TABCORP Shares are the only voting
shares in TABCORP, a person's voting power will be determined
in accordance with the following formula:
Number of TABCORP Shares in which the person
and the person's associates have
a relevant interest
Voting Power = ------------------------------------- x 100%
Total number of TABCORP Shares
In general terms, a person will have a relevant interest in a
TABCORP Share if the person has the power to vote in respect
of, or the power to dispose of, the TABCORP Share, whether or
not the person is the registered holder of the share. A
relevant interest may exist even if a person has indirect
control over the TABCORP Share through interconnected
shareholdings, company chains or shareholder agreements.
In order to control persons acquiring, holding or voting
prohibited shareholding interests in TABCORP, the Gaming and
Betting Act confers certain powers on the Victorian Minister,
including the following.
- The Victorian Minister can require persons to furnish
certain information to determine whether that person
or any other person has, or is taking action to
acquire, a prohibited shareholding interest in
TABCORP.
- If a person fails to provide the required information
within the specified time or provides information
which (in the Victorian Minister's opinion) is false
or misleading in a material particular, the Victorian
Minister can make a declaration declaring that the
person is an associate of another person, suspending
the voting rights attaching to specified shares in
TABCORP or declaring that a person has a prohibited
shareholding interest in TABCORP.
- Where the Victorian Minister declares that a person
has a prohibited shareholding interest in TABCORP,
the Victorian Minister can require that some or all
of the relevant shares be disposed of, other than to
an associate, within a period of not less than three
months.
- If a person fails to dispose of the relevant shares
within the period set by the Victorian Minister, the
specified shares are forfeited to the State of
Victoria.
- Where a person would acquire a prohibited
shareholding interest in TABCORP as a result of a
transaction, the Victorian Minister can declare
145
that any voting shares transferred pursuant to that
transaction are forfeited to the State of Victoria.
- Where shares in TABCORP are forfeited to the State of
Victoria, the VCGA must sell the shares and is not
bound by any restriction on the sale of shares
contained in TABCORP's constitution. It must
distribute the net proceeds of the sale to the person
from whom the shares were forfeited.
The Gaming and Betting Act also contains provisions regulating
the exercise of voting rights by persons with prohibited
shareholding interests. For example, the Victorian Minister
has the power under the Gaming and Betting Act to declare a
resolution of a general meeting of TABCORP null and void where
the Victorian Minister is of the opinion that the resolution
has been passed as a result of the exercise of voting rights
that have been suspended under the Gaming and Betting Act or
that cannot be exercised by virtue of the Gaming and Betting
Act.
TABCORP's constitution confers certain powers on the TABCORP
Board in order to assist in the enforcement of the
shareholding restrictions under the Gaming and Betting Act and
to enable TABCORP to comply with the Wagering and Gaming
Licences. These are discussed in Section 16.10.
TABCORP's constitution also prohibits TABCORP from knowingly
permitting a person to have voting power of more than 10% in
TABCORP without the consent of the NSW Casino Control
Authority. TABCORP proposes to seek amendments to its
constitution at its next annual general meeting (expected to
be held on 30 October 2003) with a view to a corresponding
position applying under its constitution with respect to the
Queensland State Government as currently applies with respect
to the NSW Casino Control Authority (including so that the
Queensland Minister responsible for administering the Casino
Control Act 1982 (Qld) has similar powers under TABCORP's
constitution as the NSW Casino Control Authority). The
amendment of TABCORP's constitution to include these
provisions may be a condition of the Regulatory Approvals
required from the Queensland State Government in connection
with the Ordinary Share Scheme.
TABCORP expects any such amendments to be approved at its
annual general meeting. However, if the amendments are not
approved by TABCORP's shareholders at its annual general
meeting in circumstances where such approval is a condition of
the Regulatory Approvals from the Queensland State Government,
implementation of the Ordinary Share Scheme may be delayed or
not proceed at all.
PROHIBITIONS ON DIRECTORS AND OTHER ACTIVITIES
TABCORP will be in breach of the Gaming and Betting Act if a
director of TABCORP or of an operator of the Wagering Licence
or Gaming Licence:
- is a director of, or is entitled to 5% or more of the
voting shares in, the holder of a casino licence
under the Casino Control Act 1991 (Vic) or the holder
of a gaming operator's licence under the Gaming
Machine Control Act; or
146
- is a Trustee of the Will and Estate of the late
George Adams or a beneficiary in that Estate.
Further, TABCORP, its related bodies corporate and its
associates (as defined in section 3(1) of the Gaming and
Betting Act) are not permitted, amongst other things:
- to hold a casino licence under the Casino Control Act
1991 (Vic) or to be employed by or significantly
associated with the holder of such a licence;
- to hold a gaming operator's licence under the Gaming
Machine Control Act or to be employed by or
significantly associated with the holder of such a
licence (except for the purposes of the Club Keno
Act); or
- subject to certain exceptions, to hold a venue
operator's licence under the Gaming Machine Control
Act.
PROHIBITIONS ON CERTAIN ISSUES AND DISPOSALS OF SHARES
Under its constitution, TABCORP must obtain the written
approval of the NSW Casino Control Authority before issuing
shares in a new class of shares or disposing of any shares in
certain subsidiaries - in particular, TABCORP Investments Pty
Ltd and TABCORP Participant. TABCORP Investments Pty Ltd owns
all the shares in Star City Holdings, which in turn owns all
the shares in Star City. TABCORP Participant, amongst other
things, holds shares in TABCORP Investments and TABCORP
Investments Pty Ltd.
MAJOR CHANGES (INCLUDING IN RELATION TO ASSOCIATES)
It is a condition of the NSW Casino Licence that, except with
the prior written approval of the NSW Casino Control
Authority, Star City must not allow a major change in the
state of affairs existing in relation to it if it is within
Star City's power to prevent that change. Star City must also
notify the NSW Casino Control Authority in writing of the
likelihood of any change in such state of affairs.
A major change in the state of affairs existing in relation to
Star City includes, amongst other things, any change in the
state of affairs which results in a person becoming a close
associate of Star City. Broadly speaking, a person will be a
close associate of Star City if that person holds an interest,
power or position in relation to the Star City Casino business
such that the person can significantly influence the
management or operation of the Star City Casino business.
Similarly, TABCORP and an operator under the Wagering and
Gaming Licences are required to notify the VCGA of any change
which results in a person becoming an associate of either of
them and the approval of the VCGA may be required before such
a change occurs.
16.14 CONTRACTUAL ARRANGEMENTS WITH THE VICTORIAN RACING INDUSTRY
As set out in Section 16.5, on 25 May 1994, TABCORP and certain of its
subsidiaries entered into a Joint Venture Agreement, a Racing Program
Agreement and a Product Supply Agreement with companies controlled by
the Victorian Racing Industry.
147
(a) JOINT VENTURE AGREEMENT
The Joint Venture Agreement establishes an unincorporated
joint venture between TABCORP Participant, a wholly owned
subsidiary of TABCORP, and VicRacing Pty Ltd and entitles
VicRacing Pty Ltd to a 25% interest in the income generated
from and the expenses incurred in TABCORP's conduct of the
activities under its Wagering Licence and Gaming Licence.
A wholly owned subsidiary of TABCORP carries out the day to
day management of the joint venture in accordance with the
terms of the Joint Venture Agreement, approved operating plans
and budgets and the lawful directions of a management
committee established under the Joint Venture Agreement. One
representative of TABCORP Participant and one representative
of VicRacing Pty Ltd are entitled to vote on the management
committee. In general, each voting representative must vote in
favour of a resolution for it to be approved by the management
committee.
The TABCORP Group owns the principal assets (other than
certain jointly-generated intellectual property) used in the
conduct of the joint venture and employs the employees engaged
in the conduct of the joint venture. The actual costs to the
TABCORP Group of providing such assets and the services of the
employees are charged to the joint venture. The TABCORP Group
also provides (by way of loan) working capital required for
the joint venture's day to day operations if, from time to
time, there is a shortfall in money available from joint
venture activities for that purpose. The provision of such
working capital does not attract a funding charge and loans
are repayable when sufficient money is available.
The joint venture management company is authorised to make a
call on each of TABCORP Participant and VicRacing Pty Ltd if a
loss occurs in any quarter. The amount called will be the
amount necessary to cover the loss and will be made on each
joint venturer in proportion to their relevant percentage
interest in the joint venture.
If a joint venturer fails to pay a call, the other joint
venturer is obliged to pay the relevant amount to the
management company. That amount, plus a surcharge or interest
charge, is a debt due and payable from the defaulting joint
venturer to the other joint venturer. The Joint Venture
Agreement contains a detailed regime pursuant to which such
debts are repayable out of a defaulting joint venturer's
income from the joint venture and, in the case of VicRacing
Pty Ltd, also from product supply fees payable to Racing
Products Victoria Pty Limited (see below).
The amount which is able to be recovered by TABCORP
Participant in any one financial year is limited to the extent
that the aggregate payments made to VicRacing Pty Ltd (as
income from the joint venture) and Racing Products Victoria
Pty Limited (as fees) otherwise would total less than $100
million in any financial year. This limitation is a timing
limitation only and does not reduce the quantum recoverable.
Subject to two exceptions, a joint venturer may not grant
security over or sell or transfer any of its interest in the
joint venture without the consent of the other joint venturer
(which may be granted or withheld by the other joint venturer
in its absolute discretion). The first exception is the
granting of certain security in favour of the other joint
venturer. The second exception would allow VicRacing
148
Pty Ltd to sell or transfer the whole or part of its interest
in the joint venture to one or more of the principal Victorian
racing bodies.
The joint venture will terminate automatically if TABCORP
ceases to hold wagering and gaming licences. In addition, the
joint venture may be terminated:
- by agreement between the joint venturers;
- by a joint venturer on 60 days' notice, if certain
insolvency events occur in relation to the other
joint venturer; or
- by TABCORP Participant on 60 days' notice, if any one
or more of the Victoria Racing Club, the Moonee
Valley Racing Club Inc., the Victoria Amateur Turf
Club or the Melbourne Racing Club ceases for at least
ninety days to have the right to conduct races and as
a result the racing program (see below) is materially
affected.
TABCORP guarantees the performance by TABCORP Participant and
the joint venture management company of their respective
obligations under the Joint Venture Agreement.
(b) RACING PROGRAM AGREEMENT AND PRODUCT SUPPLY AGREEMENT
The Racing Program Agreement and the Product Supply Agreement
are agreements whereby the major Victorian racing bodies have
undertaken to provide services and information to the TABCORP
Group, including an annual program of race meetings in
Victoria and information required to conduct totalizators in
Victoria on racing within the state, interstate and overseas.
Fees payable to Racing Products Victoria Pty Limited for the
services under the Product Supply Agreement are calculated as
18.8% of turnover less dividends paid to bettors (that is,
revenue) on totalizator betting on thoroughbred, harness and
greyhound racing.
Under the Racing Program Agreement, Racing Products Victoria
Pty Limited receives a minimum payment of $50 million per
annum for the supply of the racing program in Victoria. Under
the Product Supply Agreement, it also receives a minimum of
$2.5 million per annum for developing a marketing program.
Both of these payments to Racing Products Victoria Pty Limited
are indexed to the growth in off-course net wagering revenue
from the 1996/97 financial year.
In general, until at least 24 hours after the running of each
race, the TABCORP Group may only use the racing program
provided under the Racing Program Agreement and information
concerning thoroughbred, harness and greyhound racing provided
under the Product Supply Agreement for the purposes of the
joint venture between TABCORP Participant and VicRacing Pty
Ltd.
In general, the joint venturers will not be permitted to
obtain information relating to thoroughbred, greyhound and
harness racing other than from Racing Products Victoria Pty
Limited. However, if Racing Products Victoria Pty Limited were
to default under the Product Supply Agreement, TABCORP
Participant would be permitted to negotiate with interstate
racing bodies for the supply of such
149
information. The fee to be paid to Racing Products Victoria
Pty Limited would be reduced by the amounts paid to any
interstate racing body.
The Racing Program Agreement and the Product Supply Agreement
will terminate only upon termination of the Joint Venture
Agreement.
TABCORP guarantees the performance by TABCORP Participant and
the joint venture management company of their respective
obligations under the Racing Program Agreement and the Product
Supply Agreement.
16.15 LITIGATION
Legal proceedings arise from time to time in the course of the TABCORP
Group's business. TABCORP does not believe that the outcome of any
current proceedings (as at the date of this Scheme Booklet) involving
the TABCORP Group will have a material adverse effect on the business
or financial position of the Merged Group.
150
SECTION 17 - INFORMATION ABOUT THE MERGED GROUP
17.1 OVERVIEW OF THE MERGED GROUP
If the Merger proceeds, the Merged Group will be the largest gaming
company in Australia with substantial earnings and an investment grade
credit rating, and will be well positioned to pursue strategic
opportunities in Australia and abroad. The Merged Group will operate
approximately 18,000 gaming machines, with four casino and hotel
facilities in Queensland and New South Wales, off-course wagering and
sportsbetting operations in Victoria, Keno operations on the east coast
of Australia, gaming machine monitoring operations in Victoria and
Queensland, the AWA technology servicing business and an international
monitoring, gaming and totalizator sales business.
FIGURE 17.1.1: OPERATING STRUCTURE OF THE MERGED GROUP
[TABCORP LOGO]
[TABCORP STRUCTURE CHART]
17.2 DESCRIPTION OF OPERATING DIVISIONS
Jupiters' core businesses will be integrated within the three existing
TABCORP operating divisions of wagering, gaming and casinos.
WAGERING
The Merged Group's wagering division will comprise TABCORP's existing
Victorian wagering operations, TABCORP's Keno operations in Victoria
(through the joint venture with Tattersall's) and incorporate Jupiters'
existing keno businesses in New South Wales and Queensland, and
Jupiters' electronic gaming machine monitoring business in Queensland.
It will also include Jupiters International and sales of the Trackside
system.
151
GAMING
The Merged Group's gaming division will comprise TABCORP's existing
gaming machine operations in 271 venues throughout metropolitan and
country Victoria.
CASINOS
The Merged Group's casinos division will comprise TABCORP's existing
Star City Casino in Sydney and incorporate Jupiters three casino
businesses, namely Conrad Jupiters, Conrad Treasury and Jupiters
Townsville. The Gold Coast Entertainment and Convention Centre will
also operate within the casinos division.
TECHNICAL SERVICES
The Merged Group's technical services division will comprise systems
operations and field services and installation (including AWA
Technology).
17.3 PROSPECTS OF THE MERGED GROUP
The Merger will enhance TABCORP's position as Australia's premier
gambling and entertainment company. The combined strengths of TABCORP
and Jupiters, with four casino properties, in excess of 18,000 gaming
machines across three states of Australia, approximately 400 casino
tables, over 1,400 hotel rooms and apartments, Keno in nearly 2,000
venues across the eastern coast of Australia, gaming machine monitoring
operations in Victoria and Queensland, and gaming technology sales and
maintenance through Jupiters International and AWA, will consolidate
TABCORP's position as the world's fifth largest publicly listed casino
gambling and entertainment company.
The Merger is expected to combine and leverage the considerable
expertise in casino operations of both TABCORP and Jupiters and to
enable greater operational scale to extract synergies across all areas
of the combined business.
The combined entity will be able to combine and leverage Jupiters' Keno
expertise with TABCORP's Trackside business and further extract
benefits from the Merged Group's expertise in information technology
and maintenance services through AWA Technology Services and Jupiters
International.
The Merger will reduce the dependency of the combined business on any
particular regulatory jurisdiction, broaden the skill base and
expertise of both TABCORP and Jupiters and position the Merged Group
for future opportunities.
17.4 TABCORP'S INTENTIONS IN RELATION TO JUPITERS
(a) INTRODUCTION
This Section 17.4 sets out TABCORP's intentions, on the basis
of the facts and information concerning Jupiters which are
known to it and the existing circumstances affecting the
business of Jupiters, in relation to the following:
- the continuation of the business of Jupiters;
- changes to the business of Jupiters and any
redeployment of the fixed assets of Jupiters;
152
- the future employment of the present employees of
Jupiters;
- Jupiters' Casino Management Agreements with BI Gaming
Corporation;
- the composition of the Jupiters Board;
- the inclusion of Jupiters in the official list of
ASX;
- the RPS and US Notes; and
- US reporting obligations.
The intentions of TABCORP Investments concerning the above are
the same as the intentions of TABCORP as set out in this
Section 17.4.
The intentions and statements of future conduct set out in
this Section 17.4 must be read as being subject to:
- the law (including the Corporations Act) and the ASX
Listing Rules, including in particular the
requirements of the Corporations Act and the ASX
Listing Rules in relation to "related party"
transactions and conflicts of interest. In this
regard, certain exceptions to the "related party"
transaction requirements will not apply if the
Ordinary Share Scheme is implemented, but the RPS
Scheme does not become effective (until either all of
the RPS are acquired by TABCORP Investments through
other means or all of the RPS have been redeemed);
and
- the legal obligations of the Jupiters directors at
the time and the requirements and policies from time
to time of various governments (including under
legislation regulating gambling) in relation to the
activities and operations of the Merged Group.
(b) CONDUCT OF BUSINESS AND DEPLOYMENT OF FIXED ASSETS
On the basis of the information concerning Jupiters known to
TABCORP as at the date of this Scheme Booklet and subject to
the matters set out below, it is the intention of TABCORP
that, if the Ordinary Share Scheme becomes effective:
- the business of Jupiters will be continued in
substantially the same manner as it is presently
being conducted;
- no substantial changes will be made to the business
of Jupiters and there will not be any redeployment of
the fixed assets of Jupiters; and
- TABCORP will work with the Jupiters management team
towards enhancing the operations of Jupiters'
existing businesses.
The key exception concerns the Centrebet Business. As set out
in Section 7.1, Jupiters is pursuing a process to sell the
Centrebet Business. If Centrebet Sale Completion does not
occur by 31 October 2003, however, Jupiters may still own the
Centrebet Business at the Implementation Date for the Ordinary
Share Scheme. In these circumstances, TABCORP will continue to
pursue the signing of a Centrebet Sale Agreement until 30 June
2004 (with Centrebet Sale
153
Completion to occur at any time before 30 September 2004).
Pending such sale, TABCORP Issuer is required under the terms
of the Centrebet Note Deed in relation to the Centrebet Notes
to procure that the Centrebet Business is conducted in a
manner that has due regard to potential economic interests of
Centrebet Noteholders under the Centrebet Notes and so that
any changes made to the Centrebet Business by TABCORP that are
likely to have a material adverse effect on the performance of
the Centrebet Business are based on legal advice to the effect
that the changes are necessary for probity or licensing
purposes or to comply with any law or regulation in a
jurisdiction in which the Merged Group operates or proposes to
operate. Given the TABCORP Group's current operations in, or
immediate plans to expand its operations into, Denmark, Norway
and the United States of America (as set out in Section
16.7(c)), at or about the time at which the Merger is
implemented, TABCORP intends to seek legal advice in relation
to those jurisdictions and Centrebet's then current
operations. TABCORP may also seek legal advice in relation to
other jurisdictions. If necessary, following implementation of
the Merger, TABCORP would procure the implementation of such
changes as it considered necessary based on that legal advice.
TABCORP intends to develop and maintain the business of the
Jupiters Group through combining Jupiters' three casino
businesses with the Star City Casino business as part of a
combined casino operations division. The casino operations
will initially be based out of Jupiters' Gold Coast premises.
TABCORP also intends that Jupiters will continue to develop
and, once it is completed, will operate the Gold Coast
Convention and Exhibition Centre.
TABCORP expects to retain Jupiters' rebate play program. This
segment of the business will be sufficiently small as a
percentage of the Merged Group's business that any effects
from volatility inherent in this segment are not anticipated
to materially impact the Merged Group's total business.
TABCORP intends to combine its knowledge and expertise in
casino, club and hotel gaming and wagering with Jupiters'
casino knowledge and experience and to leverage off Jupiters'
considerable expertise in Keno to enhance the Merged Group's
businesses, and in a manner consistent with applicable
regulatory requirements.
All Keno businesses will be combined into the Keno group,
which will be a sub-division of the wagering division.
Jupiters' existing gaming machine monitoring business will
become a sub-division of the wagering division.
The Jupiters International business will also form a
sub-division of the wagering division and will incorporate the
international sales arm of the TABCORP Group's existing
Trackside business.
AWA Technology Services will become a sub-division of the
technical services division drawing on the combined expertise
of Merged Group.
TABCORP will undertake a detailed review of the assets,
liabilities, business activities, remuneration practices and
operating performance of the Jupiters Group with a view to
determining how the performance of all operations can be
enhanced.
154
(c) EMPLOYEES
In undertaking its review of the assets, business and
operations of the Jupiters Group, TABCORP will review the
position generally of Jupiters' employees. However, given the
nature of Jupiters' business and TABCORP's current operations,
TABCORP would not anticipate significant redundancies at an
operational level as a result of the Merger.
TABCORP also intends to review the corporate office,
administrative, information technology and finance functions
of the Merged Group. This review will be conducted to assess
opportunities for obtaining efficiency gains in these areas
and, if appropriate, to avoid any duplication of functions. A
consequence of this review may be that a number of employees
are made redundant, although this will ultimately depend on
the outcome of the review.
The sale of the Centrebet Business or the changes to that
business described above may involve the transfer of employees
of the Centrebet Business to a purchaser and/or some of those
employees being made redundant.
(d) SHAREHOLDER DISCOUNT CARD
Jupiters Ordinary Shareholders are currently entitled to
certain discounts at the Jupiters casinos located in Brisbane,
Gold Coast and Townsville.
TABCORP is currently reviewing its policy in regard to
offering shareholders discounts and expects to put in place a
program that will reward shareholders for their loyalty to the
company.
Until the introduction of such a program, TABCORP intends to
procure that Jupiters continues to provide the benefits
contemplated by the existing Jupiters shareholder discount
plan to Jupiters Ordinary Shareholders who receive TABCORP
Shares under the Ordinary Share Scheme, for so long as they
continue to hold those TABCORP Shares.
(e) CASINO MANAGEMENT AGREEMENTS
While BI Gaming Corporation holds the Casino Management
Agreements in relation to the Conrad Jupiters and Conrad
Treasury casinos, TABCORP intends to work with BI Gaming
Corporation to develop those casino businesses. The Merged
Group will also seek to acquire BI Gaming Corporation's
interest in those management agreements at an appropriate
price, or procure the agreed termination of those management
agreements for an appropriate price, if the Ordinary Share
Scheme becomes effective. TABCORP has had preliminary
discussions with BI Gaming Corporation to that end. The Merger
is not conditional on TABCORP acquiring or procuring the
termination of the Casino Management Agreements.
The Casino Management Agreements expire on 10 April 2010
(unless they are terminated earlier in accordance with their
terms). TABCORP does not intend that Jupiters will seek to
renew either management agreement.
155
(f) JUPITERS BOARD
If the Ordinary Share Scheme becomes effective, TABCORP will
procure that the Jupiters Board is reconstituted so that it
comprises persons nominated by TABCORP. It is proposed that,
shortly after the Ordinary Share Scheme becomes effective, the
Jupiters Board will comprise Matthew Slatter, David Elmslie
and Peter Caillard. Any appointment to the Jupiters Board
requires the approval of the Treasurer of Queensland.
(g) ASX
If the Ordinary Share Scheme becomes effective, an application
will be made to remove Jupiters from the official list of ASX.
(h) RPS
If the Ordinary Share Scheme becomes effective, but the RPS
Scheme does not become effective:
- If it is entitled to do so, TABCORP Investments will
seek to compulsorily acquire all the RPS which it
does not own under the general compulsory acquisition
provisions of chapter 6A of the Corporations Act.
TABCORP Investments would first need to have full
beneficial interests in at least 90% by value of all
of the securities of Jupiters which are shares or
convertible into shares. It is possible that as a
result of the combination of any or all of the
subscription for RPS by TABCORP Investments as
contemplated by Sections 19.1(e) and 19.2, and the
acquisition of RPS by TABCORP Investments as a result
of RPS Holders giving Trigger Event Conversion
Notices (as described in Section 13.4(b)), TABCORP
Investments would have full beneficial interests in
at least 90% by value of all of the securities of
Jupiters which are shares or convertible into shares
upon or shortly after implementation of the Ordinary
Share Scheme.
Under the compulsory acquisition provisions, TABCORP
Investments would be required to offer cash and
provide to RPS Holders an independent expert's report
stating whether the terms offered by TABCORP
Investments give a fair value for the RPS and whether
TABCORP Investments satisfied this "90% by value"
test. Without ASIC's consent, TABCORP Investments may
only exercise this compulsory acquisition power
within six months after becoming entitled to do so.
In this respect, if TABCORP Investments considers it
necessary and appropriate in particular
circumstances, TABCORP Investments may apply to ASIC
for a modification to the Corporations Act so that
the six month period is halted. By way of example, if
TABCORP Investments is required to apply to the Court
in order to implement compulsory acquisition of the
RPS which it does not own, TABCORP Investments may
apply for an ASIC modification to the Corporations
Act so that time stops running between the time of
that application and the end of all proceedings in
relation to that application (including appeals).
156
- TABCORP will procure that Jupiters exercises its
rights under the RPS Terms to elect to redeem, or (if
applicable) arrange for the sale to TABCORP
Investments of, any RPS which are the subject of a
conversion notice under the RPS Terms. TABCORP's
intention is to procure that Jupiters does not allow
RPS to convert into Jupiters Ordinary Shares
following the lodgment of any such conversion notice.
If a conversion date under the RPS Terms occurs after
the Implementation Date for the Ordinary Share
Scheme, because certain dividends will have been paid
by Jupiters (including the Special Dividend and,
potentially, the Centrebet Dividend) before the
conversion date, and because Jupiters Ordinary Shares
will have ceased trading on ASX on the Effective Date
for the Ordinary Share Scheme (and therefore before
the relevant conversion date), the new Jupiters Board
will likely exercise its discretion under the RPS
Terms to adjust the Conversion Minimum or the VWAP
for Jupiters Ordinary Shares so that RPS Holders
receive an appropriate cash amount on that conversion
date by way of consideration for the redemption of
the relevant RPS or the transfer of the relevant RPS
to TABCORP Investments (as applicable). The Jupiters
Board will be required to take into account the
prevailing circumstances in determining what
constitutes an appropriate amount and, in particular,
will take into account the fact that the VWAP for
Jupiters Ordinary Shares over a period before the
Effective Date for the Ordinary Share Scheme will
likely incorporate some value in recognition of the
proposed Special Dividend and, potentially, the
Centrebet Dividend. In the case where the Trigger
Event Conversion Date is after the Effective Date for
the Ordinary Share Scheme, it is expected that the
relevant amount would equal the greater of the
Minimum Trigger Event Repurchase Amount, being
$100.16, and the amount determined by multiplying the
current Conversion Minimum by the VWAP for Jupiters
Ordinary Shares over the 20 Business Days immediately
before the cessation of trading of those shares. The
Independent Expert's estimate of this value is
$101.12. This amount would reflect what the RPS
Holder would have received had the Trigger Event
Conversion Date occurred prior to the Effective Date
for the Ordinary Share Scheme.
- If RPS remain on issue on 9 January 2007, TABCORP
will procure that Jupiters exercises its right to
elect to redeem all RPS on 9 March 2007. Given that
it is expected that Jupiters Ordinary Shares will
cease trading on ASX from the Effective Date for the
Ordinary Share Scheme, it is expected that the
Jupiters Board will exercise its discretion under the
RPS Terms to ensure that the consideration received
by each RPS Holder on redemption will be an
appropriate amount in light of the prevailing
circumstances.
(i) US NOTES
If the Ordinary Share Scheme becomes effective, TABCORP will
procure that Jupiters complies with its existing obligations
under Jupiters' US Note Deed.
As a result of the Ordinary Share Scheme becoming effective,
Jupiters will be obliged to offer to repurchase all the US
Notes issued under that US Note Deed, in each case at a
purchase price equal to 101% of their principal amount plus
accrued
157
and unpaid interest (if any) to the purchase date nominated by
Jupiters. That date cannot be later than 90 days following the
date on which TABCORP Investments becomes the beneficial owner
of all the Jupiters Ordinary Shares. For this purpose, TABCORP
Investments will be deemed to have beneficial ownership of
shares which it has the right to acquire (whether exercisable
immediately or only after the passage of time).
Given the interest rate applicable to the US Notes, TABCORP
considers it unlikely that many such offers will be accepted.
However, TABCORP will procure that Jupiters has available to
it the funds required to satisfy any payment obligations
arising from the acceptance of such offers. The maximum amount
of funds which would be required if all holders of US Notes
were to accept the offer would be US$136.35 million plus
accrued interest. The funding will be provided to Jupiters
through Jupiters' existing facilities, intercompany borrowings
and/or equity contributions from companies within the Merged
Group as determined by TABCORP.
(j) US REPORTING OBLIGATIONS
Jupiters is a reporting company under the United States
Exchange Act of 1934 (the "Exchange Act") and as such is
required to file its annual reports with the Securities and
Exchange Commission (the "SEC"). It is not intended that
TABCORP will be a reporting company. Rather, TABCORP is
included in the list of foreign private issuers that claim
exemption from the registration requirements of section 12(g)
of the Exchange Act. This exemption requires TABCORP to submit
certain information to the SEC pursuant to Rule 12g3-2(b)
under the Exchange Act.
17.5 MERGER BENEFITS
(a) INTRODUCTION
This Section 17.5 outlines possible merger benefits which may
flow to the Merged Group as a result of the Merger and
carrying into effect the intentions set out in Section 17.4.
The identification and quantification of synergies has been
based on due diligence enquiries undertaken by TABCORP of
Jupiters. At this stage, high-level and provisional estimates
of potential Merger cost savings and the impact on the
earnings of the Merged Group have been made. The achievement
of the Merger cost savings within the timeframe contemplated
or at all is subject to the integration risks set out in
Section 18.5.
The purpose of this Section is to provide a guide to TABCORP's
expectations as to the Merger cost savings, based on
information available to it to date. This Section 17.5 is
intended to assist Jupiters Ordinary Shareholders in reaching
their own conclusions as to the benefits likely to be
realised.
(b) SUMMARY OF PROJECTED MERGER COST SAVINGS
Assuming the successful completion of the Merger, TABCORP
estimates annual pre-tax profit enhancement as a result of
cost synergies of approximately $10.2 million. The majority of
these enhancements are expected to be achieved
158
by the anniversary of the Merger and relate to the
rationalisation of corporate office, administrative,
information technology and finance functions, and, utilising
some of the Merged Group's purchasing power.
In addition to the above cost synergies, incremental cost
savings will be available in relation to integration of some
activities between the Star City and Jupiters casino
operations. Because most of the Jupiters casino operations are
currently managed by BI Gaming Corporation, such cost
synergies will require the close co-operation of TABCORP and
BI Gaming Corporation (on the assumption that BI Gaming
Corporation does not sell to the TABCORP Group its interest in
the Casino Management Agreements or agree to the early
termination of these agreements). Given that discussions
between TABCORP and BI Gaming Corporation are not advanced,
such cost savings are not included in the $10.2 million figure
set out above.
(c) SUMMARY OF PROJECTED MERGER IMPLEMENTATION COSTS
In order to realise the Merger cost savings quantified above,
the TABCORP Board believes that incremental one-off Merger
implementation costs (excluding transaction fees) of
approximately $15.4 million (pre tax) are likely to be
incurred. The majority of these expenses are expected to be
incurred during the first six months following completion of
the Merger.
17.6 MERGED GROUP PRO-FORMA FINANCIAL INFORMATION FOR THE YEAR ENDED 30 JUNE
2003
(a) OVERVIEW
Set out below is selected information which has been derived
from:
- the audited consolidated statements of financial
performance and cashflows of TABCORP for the year
ended 30 June 2003, adjusted consolidated statements
of financial performance and cashflow of Jupiters for
the year ended 30 June 2003 and pro-forma statements
of financial performance and cashflows of the Merged
Group for the year ended 30 June 2003 (assuming that
the Merger was effective as at 30 June 2002); and
- the audited statement of financial position of
TABCORP as at 30 June 2003, an adjusted statement of
financial position of Jupiters as at 30 June 2003 and
a pro-forma statement of financial position of the
Merged Group as at 30 June 2003 (assuming that the
Merger was effective as at 30 June 2003).
The unaudited pro-forma combined financial information is for
illustrative purposes only. If the transaction had occurred in
the past, the Merged Group's financial position and operating
results would likely have been different from that presented
in the pro-forma statement of financial performance, pro-forma
statement of cashflows and the pro-forma statement of
financial position.
(b) KEY ASSUMPTIONS
The following key assumptions have been used to compile the
pro-forma statements of financial performance, cashflows and
financial position.
159
A. PRICING OF THE TRANSACTION
The price of TABCORP Shares has been assumed to be $10.75, the
volume weighted average sale price of TABCORP Shares on ASX
for the three months prior to 31 August 2003. This implies an
average value for Jupiters Ordinary Shares of $5.43 for the
cash and shares component provided by the TABCORP Group and,
taking into account the Special Dividend to be paid by
Jupiters, implies an average value of $6.18 per Jupiters
Ordinary Share (exclusive of any value attributable to
franking credits or to the Centrebet Component). This implied
value of $6.18 has been used in calculating the acquisition
cost.
This implied value will vary depending on the price of TABCORP
Shares in the period up to the Implementation Date for the
Ordinary Share Scheme.
B. RPS
Both the Ordinary Share Scheme and the RPS Scheme are
implemented.
If the RPS Scheme is not implemented then the pro-forma
statement of financial performance would be adjusted
marginally to reflect a change in interest rate assumptions
with the consequential tax effects. The pro-forma statement of
financial performance would be adjusted to reflect the
reduction in the Merged Group's borrowings.
C. JUPITERS OPTIONS
All Jupiters Options are cancelled pursuant to the Option
Cancellation Deeds (that is, no Jupiters Option is exercised
before the Implementation Record Date for the Ordinary Share
Scheme).
D. ACQUISITION COSTS AND FINANCING THE PURCHASE
The purchase of Jupiters Ordinary Shares will be financed by
the issue of new TABCORP Shares ($520.6 million based on the
$10.75 price referred to above) and cash ($575.1 million).
The purchase of RPS ($200.2 million) and the cancellation of
Jupiters Options ($3.3 million) will be financed by cash.
The value of the Special Dividend ($151.4 million) is
incorporated in the incremental "Non current borrowings" in
the pro-forma statement of financial position.
Having regard to the underwriting agreement that has been
entered into by TABCORP with respect to its dividend
reinvestment plan, it is assumed that 65% of the dividends
paid by TABCORP in respect of the year ended 30 June 2003 are
reinvested in a new issue of TABCORP Shares and the number of
TABCORP Shares used in the calculation of earnings per share
has been adjusted accordingly.
E. TRANSACTION COSTS
For the purposes of the pro-forma statements of financial
performance, cashflows and financial position, it has been
assumed that the estimated transaction costs of
160
$30.5 million are paid in cash at the Implementation Date for
the Ordinary Share Scheme.
The estimated transaction costs of $30.5 million in relation
to the acquisition have been capitalised as part of the
acquisition cost.
Transaction costs of $4.0 million after tax incurred by
Jupiters prior to 30 June 2003 have been excluded from
Jupiters' adjusted audited statements of financial performance
and cashflows.
F. SYNERGIES
Cost synergies of $10.2 million (pre tax) relating to the
rationalisation of corporate office, administrative,
information technology and finance functions and utilising
some of the Merged Group's purchasing power have been
incorporated in the pro-forma statements of financial
performance and cashflows.
The above amounts have been tax effected where applicable.
No revenue synergies are assumed.
G. RESTRUCTURING COSTS
One-off Merger implementation costs (excluding transaction
costs) of $15.4 million (pre tax) have been estimated.
Of the total one-off Merger implementation costs estimated,
costs of $9.4 million (pre tax) (relating to preliminary plans
associated with the restructure of the Merged Group) have been
provided for in a pre-acquisition account and are incorporated
in the pro-forma statement of financial position.
Of the total one-off Merger implementation costs estimated,
costs of $6.0 million (pre tax) (relating to the delivery of
the synergies) have been expensed and are incorporated in the
pro-forma statements of financial performance (and are
identified as non-recurring items) and the pro-forma statement
of cashflows.
The above amounts have been tax effected where applicable.
H. FAIR VALUE ADJUSTMENTS
TABCORP has undertaken limited due diligence and has
identified the following fair value adjustments at
acquisition.
Net fair value adjustments of $90.0 million have been
incorporated in the pro-forma statement of financial position,
resulting in a decrease in net assets.
161
The table below outlines the key adjustments:
($m) ADJUSTMENTS
- -----------------------------------------------------------------------
H1 Prepaid rental on Conrad Treasury 41.9
H2 Carrying value of US Notes and cross currency swaps 21.5
H3 Provision for restructure and other provisions 9.6
H4 Deferred borrowing costs 5.8
H5 Other asset revaluations 14.5
H6 Movements in deferred tax balances (3.3)
----
TOTAL 90.0
----
There may be revisions of the amounts or further fair value
adjustments identified at a later stage, which would have an
offsetting adjustment to goodwill. Furthermore, movements in
the assumed price of TABCORP Shares at the Implementation Date
for the Ordinary Share Scheme (assumed at $10.75 - see
assumption A above) would have a similar impact on goodwill.
H1. PREPAID RENTAL ON CONRAD TREASURY
The adjustment of $41.9 million to prepaid rent incorporated
in "Intangibles and other assets" in the pro-forma statement
of financial position is to bring Jupiters' accounting
policies into line with TABCORP's policies.
The pro-forma statement of financial performance also reflects
this change in accounting policy, with the change negatively
impacting the pro-forma EBITDA by $4.3 million. See Section
16.7(g) for details of TABCORP's accounting policies.
H2. CARRYING VALUE OF US NOTES AND CROSS CURRENCY SWAPS
The adjustment to the carrying value of the US Notes and cross
currency swaps of $21.5 million is to reflect the
mark-to-market impact of derivatives at 30 June 2003 and is
incorporated in "Non current borrowings" in the pro-forma
statement of financial position.
H3. PROVISION FOR RESTRUCTURE AND OTHER PROVISIONS
Of the $9.6 million, $9.4 million relates to the provision for
restructure described above under restructuring costs and the
preliminary plans associated with the restructure of the
Merged Group. The remaining $0.2 million relates to an
adjustment to employee entitlements.
H4. DEFERRED BORROWING COSTS
The adjustment of $5.8 million to the deferred borrowing costs
incorporated in "Intangibles and other assets" in the
pro-forma statement of financial position reflects the assumed
write off of the deferred borrowing costs applicable to RPS
(since RPS are assumed to be acquired by TABCORP Investments
under the RPS Scheme - see assumption B above).
162
H5. OTHER ASSET REVALUATIONS
"Other asset revaluations" includes an adjustment to the
carrying value of the Jupiters Townsville casino and write
downs of certain other assets incorporated in "Land and
buildings" in the pro-forma statement of financial position,
totalling $14.5 million.
H6. MOVEMENTS IN DEFERRED TAX BALANCES
The deferred tax liability has been reduced by the tax effect
of $0.5 million on deferred borrowing costs and is
incorporated in "Non current liabilities" in the pro-forma
statement of financial position. The future income tax benefit
has increased by $2.8 million ($0.1 million in respect of
employee entitlements and $2.7 million in respect of the
provision for restructure) and is incorporated in "Intangibles
and other assets" in the pro-forma statement of financial
position.
I. CENTREBET
Centrebet Sale Completion is assumed to have occurred before
implementation of the Merger and no adjustments are made for
the retention by the Merged Group of $500,000 from the gross
Centrebet Sale proceeds.
The revenue, expenses and consequential profits of the
Centrebet Business have been excluded from the audited
statements of financial performance and cashflow of Jupiters
and, together with the adjustments relating to the $4.0
million (after tax) in Merger costs incurred by Jupiters, form
the adjusted audited statements of financial performance and
cashflows for Jupiters.
The assets and associated liabilities relating to the
Centrebet Business have been excluded from the audited
statement of financial position of Jupiters to form the
adjusted statement of financial position for Jupiters.
Refer to Section 7 for details in relation to the sale of the
Centrebet Business.
J. GOODWILL
The pro-forma statement of financial position eliminates the
assumed cost of the acquisition of Jupiters Ordinary Shares
and RPS, the payment of the Special Dividend and the
cancellation of the Jupiters Options, of $1,481.1 million
which is $902.0 million in excess of the net assets to be
acquired as at 30 June 2003 after making the fair value
adjustments referred to above.
The excess of $902.0 million has been designated as goodwill
subject to amortisation over the period in which the benefit
is expected to be realised and is amortised over 20 years such
that goodwill amortisation of $45.1 million is incurred per
annum in the pro-forma statement of financial performance.
The pro-forma statement of financial performance aggregates
historical results of TABCORP (excluding non-recurring items)
and the historical results of Jupiters (excluding the
Centrebet Business) and an adjustment has been made for the
amortisation of goodwill on the basis described above.
163
K. NET INTEREST EXPENSE
The pro-forma statement of financial performance assumes a
6.2% interest rate on the pro-forma gross debt of $1,992.6
million and that the gross debt remained unchanged throughout
the year.
The pro-forma statement of financial performance also assumes
an effective interest rate of 3.1% for the cash and deposits
and that the cash and deposits remain unchanged throughout the
year. The rate reflects the requirement to maintain cash on
hand at the casino facilities in Queensland and in New South
Wales.
The pro-forma statement of cashflows assumes that the
additional net interest expense is a cash item.
Net interest expense has been tax effected.
(c) PRO-FORMA STATEMENT OF FINANCIAL PERFORMANCE OF THE MERGED
GROUP
Figure 17.6.1 sets out selected information which has been
derived from the audited consolidated statement of financial
performance of TABCORP for the year ended 30 June 2003, an
adjusted consolidated statement of financial performance of
Jupiters for the year ended 30 June 2003 and a pro-forma
statement of financial performance for the Merged Group
(assuming that the Merger was effective as at 30 June 2002).
It is a summary only.
FIGURE 17.6.1: PRO-FORMA CONSOLIDATED STATEMENT OF FINANCIAL
PERFORMANCE FOR THE MERGED GROUP
($m) TABCORP JUPITERS ADJUSTMENTS NOTES MERGED GROUP
- ---------------------------------------------------------------------------------------------
Net revenue* 1,900.7 710.4 - 2,611.1
EBITDA 540.5 173.2 6.4 F,H1,K 720.1
EBITA 453.3 129.2 6.4 588.9
EBIT 435.3 123.4 (38.7) J 520.0
Interest expense (48.5) (36.1) (33.4) (118.0)
-----------------------------------------------------
PBT (EXCLUDING NON-RECURRING ITEMS) 386.8 87.3 (72.1) 402.0
Tax expense (123.6) (27.5) 7.1 (144.0)
-----------------------------------------------------
NPAT (EXCLUDING NON-RECURRING
ITEMS AND PRE GOODWILL
AMORTISATION) 281.0 65.5 (19.7) 326.8
NPAT (EXCLUDING NON-RECURRING
ITEMS AND POST GOODWILL
AMORTISATION) 263.2 59.8 (65.0) 258.0
NON-RECURRING ITEMS 10.6 4.0 6.0 20.6
-----------------------------------------------------
NPAT (post goodwill amortisation) 252.6 55.8 (71.0) 237.4
EPS (excluding non-recurring items
and pre goodwill amortisation) 76.4 na na 76.9
- ---------------------------------------------------------------------------------------------
* Net revenue is defined as revenue after payment of rebates on table games
commission play and cash back on electronic gaming machines at casinos.
The notes above refer to the assumptions set out in Section
17.6(b).
164
(d) PRO-FORMA STATEMENT OF CASHFLOWS FOR THE MERGED GROUP
Figure 17.6.2 sets out selected information which has been
derived from the audited consolidated statement of cashflows
for TABCORP for the year ended 30 June 2003, an adjusted
consolidated statement of cashflows for Jupiters for the year
ended 30 June 2003 and a pro-forma statement of cashflows for
the Merged Group for the year ended 30 June 2003 (assuming
that the Merger was effective as at 30 June 2002). It is a
summary only.
FIGURE 17.6.2: PRO-FORMA CONSOLIDATED STATEMENT OF CASHFLOWS
FOR THE MERGED GROUP
($m) TABCORP JUPITERS ADJUSTMENTS NOTES MERGED GROUP
- -----------------------------------------------------------------------------------------
EBITDA 540.5 173.2 6.4 F,H1,K, 720.1
Income tax paid (121.8) (45.5) 7.1 (160.2)
Other cashflow from operations* (52.4) (41.1) (33.4) (126.9)
---------------------------------------------------
TOTAL CASHFLOW FROM OPERATIONS 366.3 86.6 (19.9) 433.0
---------------------------------------------------
* Comprises borrowing costs paid and interest received.
The notes above refer to the assumptions set out in Section
17.6(b).
(e) PRO-FORMA STATEMENT OF FINANCIAL POSITION OF THE MERGED GROUP
Figure 17.6.3 sets out selected information which has been
derived from the audited consolidated statement of financial
position of TABCORP as at 30 June 2003, an adjusted
consolidated statement of financial position of Jupiters as at
30 June 2003 and a pro-forma statement of financial position
of the Merged Group as at 30 June 2003 (assuming the Merger
was effective as at 30 June 2003). It is a summary only.
165
FIGURE 17.6.3: PRO-FORMA CONSOLIDATED STATEMENT OF FINANCIAL
POSITION OF THE MERGED GROUP
($m) TABCORP JUPITERS ADJUSTMENTS NOTES MERGED GROUP
- ------------------------------------------------------------------------------------------
Cash and deposits 118.8 63.4 - 182.2
Other current assets 39.6 44.9 - 84.5
------------------------------------------------------
TOTAL CURRENT ASSETS 158.4 108.3 - 266.7
Land and buildings 759.2 756.5 (14.5) H5 1,501.2
Licences and casino management
contract 1,081.8 9.7 - 1,091.5
Intangibles and other assets 400.1 146.8 857.2 H1,H4, 1,404.1
H6, J
------------------------------------------------------
TOTAL ASSETS 2,399.5 1,021.3 842.7 4,263.5
Current borrowings 450.9 42.7 - 493.6
Current liabilities 238.2 97.7 9.6 H3,H5,H6 345.5
Non current borrowings 315.0 392.3 791.7 D,H2 1,499.0
Non current liabilities 75.5 9.7 (0.5) 84.7
------------------------------------------------------
TOTAL LIABILITIES 1,079.6 542.4 800.8 2,422.8
SHAREHOLDERS' FUNDS 1,319.9 478.9 41.9 1,840.7
------------------------------------------------------
The notes above refer to the assumptions set out in Section
17.6(b).
17.7 DIVIDENDS
On 13 August 2003, TABCORP announced a fully franked dividend of 34
cents per share in respect of the six months ended 30 June 2003.
TABCORP paid a fully franked dividend of 33 cents in respect of the six
months ended 31 December 2002.
TABCORP paid a fully franked dividend of 63 cents per share in respect
of the financial year ended 30 June 2002, being 31 cents in respect of
the six months to December 2001 and 32 cents in respect of the six
months to 30 June 2002. This compared to 51 cents for the year ended 30
June 2001.
TABCORP's history of paying increasing fully franked dividends is
currently expected to continue post-Merger, subject to the availability
of sufficient profits and franking credits.
17.8 FINANCIAL FORECASTS OF THE MERGED GROUP
Section 17.6 sets out pro-forma financial information for the year
ended 30 June 2003 to provide Jupiters Ordinary Shareholders with
information as to the profile and performance of the Merged Group
(assuming that the Merger was effective as at 30 June 2002). The
TABCORP Board has determined not to include information in relation to
the financial performance of the Merged Group beyond 30 June 2003 as it
is not able to provide forecast information which is sufficiently
meaningful and reliable to include in this Scheme Booklet. The TABCORP
Board considers that the pro-forma financial information for the year
ended 30 June 2003 provides Jupiters Ordinary Shareholders with a more
meaningful and reliable profile of the performance and financial
position of the Merged Group than would forecasts.
166
In this regard, the Merged Group's performance in any period will
reflect a number of factors that cannot be predicted with a high level
of confidence and are outside its control. These factors include
general economic factors, such as the extent of consumer confidence,
the size of average household disposable income and the level of
tourism and specific factors, such as the degree of change in the
regulatory environment. Relevant considerations to the performance of
the Merged Group's business are outlined in Section 18.
17.9 CREDIT RATING
As at the date of this Scheme Booklet and having been briefed on the
proposed Merger, Standard & Poor's has assigned TABCORP an investment
grade credit rating of BBB+ with a negative outlook.
167
SECTION 18 - RISK FACTORS
18.1 INTRODUCTION
If the Ordinary Share Scheme becomes effective, TABCORP Shares will be
issued to Jupiters Ordinary Shareholders, or in respect of their
Jupiters Ordinary Shares, as part of the consideration for their
Jupiters Ordinary Shares. The value of the entitlements which Jupiters
Ordinary Shareholders receive under the Ordinary Share Scheme may
therefore be dependent on the value of TABCORP Shares.
There are many factors that may influence the price of TABCORP Shares
and future dividends paid on TABCORP Shares, including those that apply
to investments generally, those that apply, and will continue to apply,
specifically to the business of the Jupiters Group and those that
apply, and will continue to apply, specifically to the business of the
TABCORP Group. Some of the specific risks can be mitigated by the use
of safeguards and appropriate controls but some are likely to remain
outside the control of the TABCORP Group and the Merged Group.
It is therefore important to be aware of risks that may affect the
value of TABCORP Shares and the future performance of the Merged Group,
which include those set out below.
The Independent Expert's Report also refers to a number of risk
factors. These are found in Appendix A, in particular in paragraph
19(b)(ii) of the Independent Expert's letter to Jupiters' Directors and
Table 7.10 and appendix A to the Independent Expert's Report itself.
18.2 GENERAL RISK FACTORS
The value of TABCORP Shares and the performance of the Merged Group
depend upon discretionary spending by businesses and individuals.
Changes in economic factors such as interest rates and inflation,
employment levels and consumer costs, consumer spending, consumer
sentiment and market volatility, can be expected to impact, either
favourably, or unfavourably, on the business of the TABCORP Group and
of the Merged Group and the market price of TABCORP Shares.
For instance, recent terrorist activity and SARS is reported to have
impacted upon consumer spending, air travel and the general economy,
which could affect the financial performance of the TABCORP Group and
the Merged Group and the market price of TABCORP Shares.
The financial performance of the TABCORP Group and the Merged Group and
the market price of TABCORP Shares could fluctuate in response to
factors such as actual or anticipated variations in the operating
results of the TABCORP Group and the Merged Group, the introduction of
new products or services by the TABCORP Group and the Merged Group or
by competitors, conditions or trends in the casino, gaming and wagering
industries, government or public action adverse to those industries,
changes in market valuations of other gaming companies, additions or
departures of key personnel, high volume sales of TABCORP Shares
(including, in the immediate term, as a result of the sale of TABCORP
Shares issued in respect of Ineligible Overseas Shareholders under the
Ordinary Share Scheme). Many such factors will be beyond the control of
the TABCORP Group and the Merged Group.
168
18.3 SPECIFIC RISK FACTORS RELATING TO THE JUPITERS GROUP
There are risks currently relevant to the businesses of the Jupiters
Group which will continue to be relevant to those businesses after the
Merger. Such risks have been disclosed to Jupiters Ordinary
Shareholders previously, including under the prospectus for the offer
of RPS dated 28 February 2002. Those risks may affect the value of
TABCORP Shares and the future financial performance of the Merged
Group.
One such risk is the risk that Centrebet's operations could be found to
violate laws outside the Northern Territory and the United Kingdom.
While legal in the Northern Territory and the United Kingdom, where
Centrebet's licences were granted, gambling on the internet is
generally considered to be illegal under the federal laws of the United
States of America, some US state laws and the laws of some other
jurisdictions.
If the Ordinary Share Scheme becomes effective, and Centrebet Sale
Completion has not occurred by that time, TABCORP is entitled to make
changes to the Centrebet Business if it receives legal advice to the
effect that the changes are necessary for probity or licensing purposes
or to comply with any law or regulation in any jurisdiction in which
the Merged Group (including Centrebet) operates or proposes to operate.
There is a risk that Centrebet's internet operations could be found to
violate, or have violated, laws outside the jurisdictions in which the
operations may be licensed. Any such past, present or future violations
by Centrebet could have an adverse effect on the Merged Group's
business, financial condition, results or operations.
Some of the other risks relating to the Jupiters Group which may affect
the value of TABCORP Shares and the future financial performance of the
Merged Group correspond to the specific risk factors in relation to the
TABCORP Group which are set out in Section 18.4, including risks
relating to the dependence of the Jupiters Group on government policy,
to the licences granted to it, to its computer systems and to the
competitive environment in which the Jupiters Group operates.
18.4 SPECIFIC RISK FACTORS RELATING TO THE TABCORP GROUP
(a) WAGERING AND GAMING LICENCES
TABCORP's operations in Victoria are carried out under two
licences, the Wagering Licence and the Gaming Licence, each of
which expires in 2012 (unless earlier cancelled). Prior to the
expiry of the licences, the Gaming and Betting Act
contemplates that new wagering and gaming licences will be
able to be applied for and may be granted. TABCORP will be
able to apply for any such new licences (unless the Wagering
Licence or the Gaming Licence has been cancelled).
TABCORP intends to apply to renew the Wagering and Gaming
Licences. However, it is possible that a person other than
TABCORP may successfully acquire new licences under the Gaming
and Betting Act. It is also possible that new licences may be
issued on terms different to the terms of the existing
licences.
Under the Gaming and Betting Act, new licences may only be
granted by the Governor in Council to an applicant recommended
by the VCGA and on payment to the State of Victoria of the
purchase consideration for any such new licences. On the grant
of any such new licences under the Gaming and Betting Act,
169
TABCORP will be entitled to an amount equal to the lesser of
the purchase consideration for the new licences and an amount
between 85% and 115% of the original $597 million paid by
TABCORP for the Wagering and Gaming Licences. It is possible
that factors such as those set out in Section 18.4(d) might
result in the purchase consideration for the new licences
being less than 85% of the original amount paid for TABCORP's
existing licences or the value of the above entitlement being
reduced.
The Victorian Government has indicated that it wishes to
resolve licence arrangements for the Victorian gaming and
betting industries in its current term and that it will review
all options available to it in that regard. TABCORP has not
yet entered into negotiations with the Victorian Government
regarding the terms on which any future wagering and gaming
licences might be granted. However, TABCORP is committed to
working with the Victorian Government to reach an outcome
which is in the interests of all stakeholders. The next
Victorian election is scheduled for 25 November 2006.
The outcome of the licence renewal process may have an adverse
effect on the operations and future financial performance of
the Merged Group and the market price of TABCORP Shares.
(b) NSW CASINO LICENCE
Star City has a casino licence which permits it to operate
Star City Casino in Sydney, New South Wales, with a
non-exclusive licence to operate 1,500 gaming machines and an
exclusive licence to operate certain table games using
gambling chips in New South Wales until 13 September 2007
(with that licence becoming non-exclusive from then until
2094).
After 13 September 2007, the New South Wales State Government
may or may not issue further licences to conduct the relevant
table games with gambling chips. If one or more additional
licences are issued after 13 September 2007, then operators of
such casino table games may compete in the New South Wales
market currently held exclusively by Star City. This would
adversely impact on the Merged Group's financial performance
and may adversely affect the market price of TABCORP Shares.
(c) DISCIPLINARY ACTION AND CANCELLATION OF LICENCES
In certain situations, the Wagering Licence and Gaming
Licence, and the NSW Casino Licence may be cancelled.
Information in relation to these situations is set out in
Section 16.13(b). Neither TABCORP nor Star City has been
advised of the existence of any circumstance which could give
rise to the cancellation of those licences.
Pursuant to the Casino Control Act 1992 (NSW), the NSW Casino
Control Authority is required to conduct, at intervals of no
greater than three years, a review of Star City pursuant to
which the NSW Casino Control Authority must investigate and
form an opinion as to whether or not Star City is a suitable
person to hold the NSW Casino Licence and as to whether or not
it is in the public interest that the NSW Casino Licence
continue in force. If the NSW Casino Control Authority found
that Star City was not a suitable person to continue to hold
the NSW Casino Licence, or that it was not in the public
interest that the
170
NSW Casino Licence continue in force, Star City could lose the
ability to operate the Star City Casino. Such a triennial
review is currently under way. TABCORP and Star City have no
reason to believe that the NSW Casino Control Authority will
find Star City to be an unsuitable person to continue to hold
the NSW Casino Licence or that it will not be in the public
interest for the NSW Casino Licence to continue in force.
If any of the licences referred to above are cancelled, this
would have an adverse impact on the operations and financial
performance of the Merged Group.
(d) REGULATION
The TABCORP Group and the Merged Group operate, and will
operate, in a highly regulated industry, and the gambling
activities that they conduct, and will conduct, and the level
of competition that they experience, and will experience,
depend, and will depend, primarily on government policy and
the licences granted to the TABCORP Group and the Merged
Group.
Changes in legislation, regulation or government policy may
impact adversely on the operations and financial performance
and position of the TABCORP Group and the Merged Group and the
market price of TABCORP Shares.
Potential changes which will affect the profitability of the
TABCORP Group and the Merged Group and the value of the
licences granted to them include:
- changes in State casino, wagering and gaming tax
rates and levies;
- the grant of additional gambling licences;
- variations to permitted deduction rates and returns
to players on gaming machines and table games;
- changes to the restrictions on the number, type and
location of gaming machines and gaming venues; and
- changes to the conditions in which venues offering
products of the TABCORP Group and the Merged Group
must operate.
By way of example, a recent change that has adversely impacted
on TABCORP's operations and financial performance is the
introduction of smoking bans in Victoria on 1 September 2002,
which resulted in gaming revenue declining 7.6% for the year
ended 30 June 2003 relative to the prior year. In the second
half, revenue from gaming machines was down 13.0% relative to
the prior comparative period.
The introduction of similar smoking bans in other
jurisdictions in which the Merged Group operates may adversely
impact on the performance of the TABCORP Group and the Merged
Group.
Further changes to the regulatory environment in Victoria
which have been made or foreshadowed and which may adversely
impact on TABCORP's operations and financial performance
include:
171
- a prohibition on 24 hour gaming, except in limited
circumstances;
- regional capping, which limits the number of gaming
machines in certain regional areas;
- measures such as banning $100 note acceptors on
gaming machines (a ban applies to all new games
approved after 1 January 2003 and will apply to all
games from 1 January 2008), limiting spin rates, the
introduction of bet limits of $10 (the limit applies
to all new games approved after 1 January 2003 and
will apply to all games from 1 January 2008) and the
regulation of loyalty card schemes, for example, to
allow participants to set spend limits (effective
from 1 July 2003); and
- the introduction of further restrictions on
advertising in relation to gaming machines and
venues.
The New South Wales government has indicated that it will
review the taxes and levies applicable to the Star City Casino
business on 13 September 2007 in accordance with the Casino
Duty and Community Benefit Levy Agreement. This may result in
an increase in the taxes or levies payable by Star City in
respect of the Star City Casino business. Such an increase
would adversely impact on the Merged Group's financial
performance and may adversely affect the market price of
TABCORP Shares.
(e) SYSTEM RISK
The TABCORP Group and the Merged Group place, and will
continue to place, significant reliance on their computer
systems for their ongoing operations. A prolonged failure of
the computer systems supporting or operated by the TABCORP
Group or the Merged Group would result in a significant and
immediate loss of revenue and profit to the TABCORP Group or
the Merged Group and potential further losses in respect of
any longer term negative impacts on customer satisfaction.
This would likely impact on the market price of TABCORP
Shares. The TABCORP Group is in the process of upgrading its
disaster recovery systems to mitigate this risk for some of
its existing operations.
(f) COMPETITION
In general, gambling competes with other consumer products for
consumers' discretionary expenditure and in particular with
other forms of leisure and entertainment including cinema,
restaurants, sporting events and pay television.
TABCORP's wagering division competes with licensed bookmakers
and interstate TABs as well as Crown Casino and other
providers of Victorian based gambling products such as gaming
machines and lotteries. TABCORP's wagering division also
competes with local and international providers of fixed odds
sportsbetting who distribute their products via the internet.
TABCORP's gaming division competes with Crown Casino,
Tattersall's and providers of other Victorian based gambling
products such as wagering and lotteries, as well as internet
gambling providers.
172
Star City Casino competes in different markets on a number of
levels. Its gambling operations compete with interstate and
overseas casinos and gambling providers, pubs and clubs which
offer electronic gaming machines, internet gambling providers
and other providers of gambling products such as wagering and
lotteries. Star City Casino also competes with other venues in
New South Wales in respect of hotel accommodation,
entertainment, and food and beverages.
If the TABCORP Group or the Merged Group does not adequately
respond to competition in the markets in which it operates,
there may be a change in consumer spending patterns and an
adverse effect on the financial performance of the TABCORP
Group or the Merged Group and on the market price of TABCORP
Shares.
(g) RACING PRODUCT
TABCORP's wagering division is reliant on the Victorian and
interstate racing industries providing a program of events for
the purposes of wagering. A significant decline in the quality
or number of horses, or number of events, would have a
significant adverse effect on wagering revenue.
(h) GAMING MACHINE PRODUCT
The TABCORP Group's casino and gaming divisions are, and the
Merged Group's casino and gaming divisions will be, dependent
on third party gaming machine suppliers for gaming machines.
Consequently, any delay in the supply of gaming machines, or
change in customer tastes that are not reflected in the gaming
machine offering, may have a negative impact on the
performance of the casino and gaming divisions.
(i) SHAREHOLDING LIMITATIONS
The Gaming and Betting Act and TABCORP's constitution contain
provisions restricting any person acquiring voting power of
more than 10% in TABCORP (see Section 16.10). This restriction
could impede any merger, consolidation, takeover or other
business combination involving the Merged Group or discourage
a potential acquirer from making a takeover bid for or
otherwise attempting to gain control of TABCORP.
(j) SARS AND OTHER GLOBAL EVENTS
TABCORP's results for the year ended 30 June 2003 were
impacted by the war in Iraq and the SARS virus, and, in
particular, the performance of the international business in
the Star City Casino private gaming room was impacted with
revenue being down 6.5% for the year ended 30 June 2003.
Due to its effect on the number of international visitors to
Australia (and to Australian gambling venues), the risk of a
further outbreak or further escalation of the SARS epidemic
has the potential to adversely affect the financial
performance of the TABCORP Group and the Merged Group and the
market price of TABCORP Shares. So does the potential for
further terrorist activity.
173
On 5 July 2003, the World Health Organisation advised that the
contagious form of SARS had been contained in Taiwan and that
there are no areas remaining listed by the World Health
Organisation as SARS-affected.
18.5 RISKS RELATING TO THE MERGER PROCESS
(a) ISSUE OF TABCORP SHARES
Pursuant to the Ordinary Share Scheme, TABCORP will issue a
significant number of new TABCORP Shares. Some Jupiters
Ordinary Shareholders may not wish to continue to hold TABCORP
Shares which they receive and may sell them on ASX. Further, a
nominee appointed by TABCORP will be issued any TABCORP Shares
attributable under the Ordinary Share Scheme to Ineligible
Overseas Shareholders and will sell them on market as soon as
practicable after the Implementation Date for the Ordinary
Share Scheme (see Section 6.2(e)). If a significant number of
Jupiters Ordinary Shareholders sell their TABCORP Shares, or
there is a significant number of Jupiters Ordinary Shares held
by Ineligible Overseas Shareholders, this may adversely impact
the price of TABCORP Shares.
(b) INTEGRATION RISKS
There are risks associated with integrating the cultures and
operations of the Jupiters Group and the TABCORP Group.
Specific areas of these risks include:
- integrating accounting and financial systems;
- integrating information technology and support
functions;
- integrating new management (including human resource
management) systems and styles; and
- implementing new strategic goals.
There is also a risk that, if the integration of the Merged
Group is not completed in a timely manner, it will negatively
affect key stakeholders such as customers, employees or
suppliers.
Whilst extensive planning has taken place and will continue to
take place to ensure that the integration of the Merged Group
proceeds as smoothly as possible, there remains a risk that
difficulties will arise in combining the operations of the
Jupiters Group and the TABCORP Group and realising some of the
synergies and cost savings expected from the Merger as set out
in Section 17.5. This may impact on the financial performance
of the Merged Group and the market price of TABCORP Shares.
(c) LOSS OF KEY STAFF
It is possible that there will be some unintended loss of key
staff leading up to and following the implementation of the
Merger. This has the potential to impact on the performance of
the Merged Group until any skills that are lost are adequately
replaced.
174
(d) LEVERAGE OF THE MERGED GROUP
Following implementation of the Ordinary Share Scheme, it is
estimated that the Merged Group will have gross borrowings of
$1,992.6 million, assuming the Merger was effective as at 30
June 2003. This represents an adjusted net debt to EBITDA
ratio of 2.5 times for the Merged Group based on the pro-forma
consolidated statement of financial position compared with 1.2
times for the TABCORP Group on a stand alone basis. Higher
levels of leverage may potentially:
- restrict the ability of the Merged Group to borrow in
the future; and
- increase the sensitivity of the Merged Group's
earnings to movements in interest rates.
(e) WARRANTY CLAIMS IN RELATION TO THE CENTREBET SALE
If Centrebet Sale Completion occurs on or before 30 September
2004 pursuant to a Centrebet Sale Agreement entered into
before 30 June 2004, the Net Centrebet Proceeds will be
distributed for the benefit of those persons who held Jupiters
Ordinary Shares as at the Implementation Record Date for the
Ordinary Share Scheme (or the successors in title to their
Centrebet Notes). If the purchaser of the Centrebet Business
were to make a claim against Jupiters or Centrebet in
connection with the Centrebet Sale, Jupiters or Centrebet
would need to meet that claim out of resources other than the
proceeds of the Centrebet Sale. If any such claim were
successful, it may adversely impact on the financial
performance of the Merged Group and the market price of
TABCORP Shares.
18.6 RISKS RELATED TO THE CENTREBET DIVIDEND
If the Centrebet Dividend is paid, the value of the attached franking
credits will vary depending upon each Jupiters Ordinary Shareholder's
individual circumstances.
Jupiters believes that the Independent Expert's estimate of the range
of Net Centrebet Proceeds is reasonable.
18.7 RISKS RELATED TO THE CENTREBET NOTES
If the Ordinary Share Scheme becomes effective, Centrebet Notes may be
issued to Jupiters Ordinary Shareholders, or in respect of their
Jupiters Ordinary Shares, as part of their entitlements under the
Ordinary Share Scheme. The value of the entitlements which Jupiters
Ordinary Shareholders receive under the Ordinary Share Scheme may
therefore be dependent on the value of the Centrebet Notes.
Centrebet Notes will be unsecured, but TABCORP Issuer's obligations
(including its payment obligations) are guaranteed by TABCORP.
The following specific risks may affect the value of Centrebet Notes.
(a) LIQUIDITY
Although Centrebet Notes are generally transferable, it is not
expected that Centrebet Notes will be liquid securities
because they will not be quoted by ASX and because of the
contingent nature of their value (see below). Holders of
175
Centrebet Notes may face difficulties in realising value for
those Centrebet Notes before their redemption date (or at
all).
(b) CONTINGENT NATURE OF CENTREBET NOTES
Jupiters has undergone an international tender process
designed to ensure that the sale of the Centrebet Business
occurs on the best achievable terms and is currently
negotiating sale terms with preferred bidders. Pursuant to the
Merger Implementation Agreement, if Centrebet Sale Completion
occurs by 31 October 2003, Jupiters Ordinary Shareholders will
receive a proportion of the Net Centrebet Proceeds in the form
of a cash dividend from Jupiters pursuant to the Ordinary
Share Scheme. If Centrebet Sale Completion does not occur
before 31 October 2003, Centrebet Notes will instead be issued
to, or in respect of, Jupiters Ordinary Shareholders pursuant
to the Ordinary Share Scheme, and the Merged Group will
continue to pursue a Centrebet Sale after the Merger for a
limited period.
If a Centrebet Sale Agreement is then entered into on or
before 30 June 2004, and Centrebet Sale Completion occurs on
or before 30 September 2004, Jupiters Ordinary Shareholders
will subsequently receive part of the proceeds of that sale by
means of the redemption of the Centrebet Notes. If Centrebet
Sale Completion does not occur by 31 October 2003, there is a
real risk that the Merged Group will be unable to sell the
Centrebet Business by entering into a Centrebet Sale Agreement
before 30 June 2004 and proceeding to Centrebet Sale
Completion by 30 September 2004, in which case Jupiters
Ordinary Shareholders will receive no value for the Centrebet
Business. TABCORP and TABCORP Issuer are under obligations to
use reasonable endeavours to procure the sale of the Centrebet
Business by procuring the entry into and completion of a
Centrebet Sale Agreement within the above timeframes. There
is, however, a real risk that any Centrebet Notes issued by
TABCORP Issuer will lapse without any payment being made.
If a Centrebet Sale is completed on terms which lead to the
Centrebet Notes being redeemed, there is a real risk that the
amount for which the notes are redeemed will be considerably
less than the Independent Expert's valuation of the Centrebet
Dividend.
The amount for which the Centrebet Notes will be redeemed will
depend on the proceeds which the Merged Group is able to
realise for the Centrebet Business. This will largely depend
upon factors outside the control of the Merged Group, such as
those set out in Section 18.2 as impacting on the market price
of TABCORP Shares and on the TABCORP Group and the Merged
Group. In particular, the value of the Centrebet Business will
be affected by changes in regulatory policy or practice in
Australia and internationally. The proceeds which the Merged
Group are able to realise for the Centrebet Business are
likely to be less than what the Jupiters Group might otherwise
have been able to achieve by 31 October 2003 as changes are
likely to be made by TABCORP to the Centrebet Business. While
legal in the Northern Territory and the United Kingdom, where
Centrebet's licences were granted, certain jurisdictions, such
as Denmark, have passed legislation to prevent certain persons
targeting their residents with offers of gambling services
over the internet. TABCORP is entitled, after the Ordinary
Share Scheme becomes effective, to make changes to the
Centrebet Business if it receives legal advice to the effect
that the changes are necessary for probity or
176
licensing purposes or to comply with any law or regulation in
any jurisdiction in which the Merged Group (including
Centrebet) operates or proposes to operate. In the financial
year ended 30 June 2003, approximately 59% of Centrebet's
turnover was derived from residents of Denmark, Norway,
Finland and Sweden. The payment of a sale commission to
TABCORP as outlined in Section 6.2(d) will also affect any
amount payable on redemption of the Centrebet Notes.
If Centrebet Sale Completion does not occur by 31 October
2003, Jupiters Ordinary Shareholders may receive no value for
the Centrebet Business.
(c) UNSECURED NATURE OF CENTREBET NOTES
The Centrebet Notes will constitute unsecured obligations of
TABCORP Issuer and the obligations of TABCORP (including its
guarantee obligations) under the Centrebet Note Deed are
unsecured obligations of TABCORP. If TABCORP Issuer or TABCORP
were to be wound up, Centrebet Noteholders would only have a
right to receive a proportion of the Net Centrebet Proceeds
after all secured creditors have been paid, but ahead of any
distribution to the holders of shares in TABCORP Issuer or
TABCORP.
In the event of a shortfall of funds on a winding-up, there is
a risk that Centrebet Noteholders will not receive the full
amount of the proportion of the Net Centrebet Proceeds
represented by a Centrebet Note.
TABCORP and TABCORP Issuer may issue other securities that
rank for interest or payment in a winding-up of TABCORP or
TABCORP Issuer equally, ahead or behind the Centrebet Notes,
without the approval of the Centrebet Noteholders.
177
SECTION 19 - ADDITIONAL INFORMATION
19.1 STEPS IN IMPLEMENTING THE SCHEMES
Following are the key steps in the implementation of the Ordinary Share
Scheme and the RPS Scheme.
(a) Jupiters and TABCORP entered into the Merger Implementation
Agreement on 12 June 2003, the key terms of which are
summarised in Section 20.
(b) TABCORP, TABCORP Investments and TABCORP Issuer executed a
Deed Poll on 3 September 2003 in favour of Jupiters Ordinary
Shareholders and RPS Holders, covenanting to perform their
respective obligations under the Schemes. The Deed Poll is set
out in Appendix I.
(c) The Court ordered that:
(i) Jupiters convene a Scheme Meeting for Jupiters
Ordinary Shareholders at 10.00am on 24 October 2003
at the Hotel Conrad and Jupiters Casino, Broadbeach,
Gold Coast for the purposes of considering and, if
thought fit, approving the Ordinary Share Scheme; and
(ii) Jupiters convene a Scheme Meeting for RPS Holders at
2.00pm on 24 October 2003 at the Hotel Conrad and
Jupiters Casino, Broadbeach, Gold Coast for the
purposes of considering and, if thought fit,
approving the RPS Scheme.
(d) If the Ordinary Share Scheme is approved by the requisite
majorities at the Ordinary Share Scheme Meeting and all other
conditions to the Ordinary Share Scheme have been satisfied or
waived, then Jupiters will apply to the Court for orders
approving the Ordinary Share Scheme.
Each Jupiters Ordinary Shareholder has the right to appear at
the Court hearing in respect of the application by Jupiters
for orders approving the Ordinary Share Scheme. Details of the
procedure which Jupiters Ordinary Shareholders must follow to
exercise this right will be published in The Australian and
The Courier-Mail newspapers, expected to be on 25 October
2003. See also the "Important Notices" section at the front of
this Scheme Booklet.
(e) If the Court orders approving the Ordinary Share Scheme are
obtained, the Directors and the directors of TABCORP, TABCORP
Investments and TABCORP Issuer will take or procure the taking
of the steps required for the Ordinary Share Scheme to
proceed. These will include the following:
(i) Jupiters will lodge with ASIC office copies of the
Court orders approving the Ordinary Share Scheme
under section 411 of the Corporations Act;
(ii) in consideration for the transfer of the Jupiters
Ordinary Shares to TABCORP Investments, TABCORP
Investments will pay to each Jupiters Ordinary
Shareholder (as at the Implementation Record Date for
the Ordinary Share Scheme) the cash which it is
required to pay, TABCORP will issue TABCORP Shares,
and TABCORP Issuer will (potentially) issue Centrebet
Notes, to or in respect of that Jupiters
178
Ordinary Shareholder, in each case as required under
the provisions of the Ordinary Share Scheme;
(iii) in the case of Ineligible Overseas Shareholders,
TABCORP will issue TABCORP Shares, and TABCORP Issuer
will (potentially) issue Centrebet Notes, to a
nominee of TABCORP as required under the provisions
of the Ordinary Share Scheme. The nominee will sell
the TABCORP Shares as soon as practicable and the net
cash proceeds will be remitted to the Ineligible
Overseas Shareholders. The nominee will hold any
Centrebet Notes until they lapse or are redeemed. If
they are redeemed, the nominee will remit the
consideration paid on redemption to the Ineligible
Overseas Shareholders;
(iv) Jupiters will enter the name of TABCORP Investments
in Jupiters' Share Register as the holder of the
Jupiters Ordinary Shares;
(v) TABCORP Investments will subscribe for such RPS in
Jupiters as are necessary to enable Jupiters to
comply with certain covenants in the US Note Deed in
the context of the declaration and payment of the
Special Dividend and (if applicable) the Centrebet
Dividend. Those covenants, which will continue while
the US Notes remain on issue, were given by Jupiters
for the benefit of the holders of the US Notes, and
impose restrictions on the ability of Jupiters to
declare and pay dividends above certain levels.
Dividends will be able to be declared and paid in a
manner consistent with the covenants if TABCORP
Investments subscribes for new RPS on a "dollar for
dollar basis" with each dollar of dividend to be
declared and paid by Jupiters under the Ordinary
Share Scheme being matched by a dollar of capital
subscribed by TABCORP Investments for RPS, up to a
maximum of $152,159,652 (in the case of the Special
Dividend) and $57 million (in the case of the
Centrebet Dividend). The subscriptions will take
place after the Effective Date for the Ordinary Share
Scheme but before the declaration of any dividends
required to be paid under the Ordinary Share Scheme;
(vi) the Jupiters Board will declare, and Jupiters will
pay, any dividends required to be paid under the
Ordinary Share Scheme (that is, the Special Dividend
and, potentially, the Centrebet Dividend); and
(vii) Jupiters will apply to be removed from the official
list of ASX.
The Court may refuse to grant the orders referred to in
Section 19.1(d) even if the Ordinary Share Scheme is approved
by the requisite majorities at the Ordinary Share Scheme
Meeting.
(f) If the RPS Scheme is approved by the requisite majorities of
RPS Holders at the RPS Scheme Meeting, and the Ordinary Share
Scheme is approved by the requisite majorities at the Ordinary
Share Scheme Meeting, and all other conditions to the RPS
Scheme have been satisfied or waived (other than approval of
the Ordinary Share Scheme by the Court), then Jupiters will
apply to the Court for orders approving the RPS Scheme.
Each RPS Holder has the right to appear at the Court hearing
in respect of the application by Jupiters for orders approving
the RPS Scheme. Details of the
179
procedure which RPS Holders must follow to exercise this right
will be published in The Australian and The Courier-Mail
newspapers, expected to be on 25 October 2003. See also the
"Important Notices" section at the front of this Scheme
Booklet.
(g) If the Court orders approving the RPS Scheme are obtained, the
Directors and the directors of TABCORP and TABCORP Investments
will take or procure the taking of the steps required for the
RPS Scheme to proceed. These will include the following:
(i) Jupiters will lodge with ASIC an office copy of the
Court orders approving the RPS Scheme under section
411 of the Corporations Act;
(ii) in consideration for the transfer of the RPS to
TABCORP Investments, TABCORP Investments will pay to
each RPS Holder (as at the Implementation Record Date
for the RPS Scheme) the cash which it is required to
pay under the provisions of the RPS Scheme; and
(iii) Jupiters will enter the name of TABCORP Investments
in Jupiters' Share Register as holder of the RPS.
The Court may refuse to grant the orders referred to in
Section 19.1(f) even if the RPS Scheme is approved by the
requisite majorities at the RPS Scheme Meeting.
19.2 SUBSCRIPTION FOR RPS BY TABCORP INVESTMENTS
In addition to the subscriptions to be made in connection with the
implementation of the Ordinary Share Scheme (described in Section
19.1(e)), TABCORP has agreed to procure that TABCORP Investments will
subscribe for RPS in certain circumstances irrespective of whether the
Ordinary Share Scheme becomes effective. In this regard, TABCORP
Investments will subscribe for such new RPS as are necessary for
Jupiters to be able to redeem any existing RPS which are the subject of
a Special Conversion Notice out of the proceeds of a fresh issue of new
shares (as contemplated by section 254K of the Corporations Act).
Jupiters will issue and allot new RPS to TABCORP Investments pursuant
to such subscriptions. Jupiters has applied for, and obtained, all
Regulatory Approvals required from the Queensland State Government.
The obligations described in the previous paragraph will apply even if
the Merger Implementation Agreement is terminated, in respect of RPS
which are the subject of a Special Conversion Notice and which Jupiters
has elected to redeem before termination. Exceptions apply if TABCORP
terminates the Merger Implementation Agreement because of a material
and unremedied breach by Jupiters or because the Jupiters Board has
withdrawn its recommendation in relation to the Ordinary Share Scheme,
and if Jupiters terminates the agreement because it is pursuing a third
party proposal which it is entitled to pursue under the terms of the
Merger Implementation Agreement (see Sections 20.5 and 20.7).
19.3 AGREEMENTS RELEVANT TO THE PROPOSED SCHEMES
Pursuant to the Merger Implementation Agreement (a summary of the key
terms of which is set out in Section 20), Jupiters and TABCORP have
undertaken certain obligations, and TABCORP has undertaken to procure
that TABCORP Investments and TABCORP Issuer perform certain
obligations.
180
TABCORP Investments, Jupiters and the Jupiters Optionholders have
entered into individual agreements for the cancellation of the Jupiters
Options for consideration payable by TABCORP Investments (a summary of
the key terms of the agreements is set out in Section 21).
TABCORP, TABCORP Investments and TABCORP Issuer have undertaken certain
obligations in favour of Jupiters Ordinary Shareholders and RPS Holders
pursuant to the Deed Poll (set out in Appendix I).
Under the Deed Poll, each of TABCORP, TABCORP Investments and TABCORP
Issuer covenant in favour of Jupiters Ordinary Shareholders and RPS
Holders to perform their respective obligations under the Schemes.
The Deed Poll may be relied on and enforced by Jupiters Ordinary
Shareholders and RPS Holders who are registered in Jupiters' Share
Register as such at the Implementation Date for, respectively, the
Ordinary Share Scheme and the RPS Scheme.
19.4 INTERESTS OF DIRECTORS, SECRETARIES AND EXECUTIVE OFFICERS
Except as set out below, no Director has any material interest in
relation to the Ordinary Share Scheme or the RPS Scheme.
(a) JUPITERS MARKETABLE SECURITIES
The number, description and amount of Jupiters marketable
securities held by or on behalf of each Director as at the
date of this Scheme Booklet are:
JUPITERS ORDINARY SHARES IN RPS IN WHICH RELEVANT
DIRECTOR WHICH RELEVANT INTEREST HELD INTEREST HELD
Mr Lawrence Willett AO 10,163 Nil
Mr Robert Hines 30,125 30
Sir Francis Moore AO 41,868 500
Mr John Story 32,500 Nil
Mrs Penelope Morris AM Nil Nil
In addition, spouses of the Directors hold the following
relevant interests in Jupiters marketable securities:
JUPITERS ORDINARY SHARES IN RPS IN WHICH
WHICH DIRECTOR'S SPOUSE HOLDS DIRECTOR'S SPOUSE
DIRECTOR RELEVANT INTEREST HOLDS RELEVANT INTEREST
Mr Lawrence Willett AO 7,000 500
Sir Francis Moore AO 12,260 Nil
181
In addition to the above, Mr Robert Hines holds 500,000
Jupiters Options, exercisable at $4.54 and expiring on 30
August 2011. Pursuant to an Option Cancellation Deed, if the
Ordinary Share Scheme becomes effective, Mr Hines will receive
from TABCORP Investments $2.07 for each Jupiters Option which
he does not exercise before the Implementation Record Date for
the Ordinary Share Scheme, in return for the cancellation of
those Jupiters Options. Mr Hines does not intend to exercise
any of these Jupiters Options before the Implementation Record
Date for the Ordinary Share Scheme.
No Jupiters Options are held by or on behalf of any other
Director as at the date of this Scheme Booklet.
(b) INTENTION OF DIRECTORS VOTING WITH RESPECT TO JUPITERS
ORDINARY SHARES HELD
Each Director who holds Jupiters Ordinary Shares (or on whose
behalf Jupiters Ordinary Shares are held) intends to vote (or
procure that such Jupiters Ordinary Shares are voted) in
favour of the Ordinary Share Scheme in respect of those
Jupiters Ordinary Shares.
(c) INTENTION OF DIRECTORS VOTING WITH RESPECT TO RPS HELD
Each Director who holds RPS (or on whose behalf RPS are held)
intends to vote (or procure that such RPS are voted) in favour
of the RPS Scheme in respect of those RPS.
(d) TABCORP MARKETABLE SECURITIES
There are no marketable securities of TABCORP Investments or
TABCORP held by or on behalf of any Directors as at the date
of this Scheme Booklet.
(e) PAYMENTS OR OTHER BENEFITS TO DIRECTORS, SECRETARIES OR
EXECUTIVE OFFICERS
Each non-executive Director has entered into a retirement deed
with Jupiters which provides for the payment of a retirement
allowance equivalent to the remuneration paid by Jupiters to
the Director in the three years prior to retirement.
Jupiters will make the following payments to the non-executive
Directors as retirement benefits in accordance with the terms
of the retirement deeds (assuming a retirement date of 10
November 2003). The payments do not exceed the amounts
permitted to be paid under the Corporations Act.
PAYMENT IN CONNECTION
DIRECTOR WITH RETIREMENT
Mr Lawrence Willett AO $517,788.70
Sir Francis Moore AO $238,461.64
Mr John Story $248,461.64
Mrs Penelope Morris AM $263,461.64
These amounts may be slightly higher if the retirement date
referred to above is delayed.
182
Jupiters has entered into an employment contract with its
chief executive officer, Mr Robert Hines, which expires in
July 2006. TABCORP and Mr Hines have agreed that Mr Hines'
employment contract will be terminated following
implementation of the Merger. Mr Hines will become entitled to
a payment of an amount of $1,331,614.40, equivalent to 12
months' salary and 12 months' maximum bonus in accordance with
the terms of the contract. Mr Robert Hines will not receive
any payments in connection with his retirement as a Director.
Breakwater Island Limited, a wholly-owned subsidiary of
Jupiters, will make the following payments to its
non-executive directors in accordance with retirement deeds
between Breakwater Island Limited and each of them (assuming a
retirement date of 10 November 2003). The payments do not
exceed the amounts permitted to be paid under the Corporations
Act.
PAYMENT IN CONNECTION
BREAKWATER ISLAND LIMITED DIRECTOR WITH RETIREMENT
Mr Lawrence Willett AO $82,385.25
Sir Francis Moore AO $60,098.63
Mr John Story $59,144.96
These amounts may be slightly lower if the retirement date
referred to above is delayed.
TABCORP is expected to agree with certain members of Jupiters'
management that they will be made redundant following
implementation of the Ordinary Share Scheme. Those officers
will become entitled to redundancy payments in accordance with
Jupiters' policy.
Other than as stated above, no payment or other benefit is
proposed to be made or given to any Director, secretary or
executive officer of Jupiters or of its Related Entities as
compensation for loss of or as consideration for or in
connection with their retirement from office in Jupiters or in
a related body corporate.
(f) ARRANGEMENTS WITH DIRECTORS IN CONNECTION WITH OR CONDITIONAL
UPON OUTCOME OF THE ORDINARY SHARE SCHEME
TABCORP will invite Mr Lawrence Willett AO and Mr John Story
to join the TABCORP Board if the Ordinary Share Scheme is
implemented assuming all necessary Regulatory Approvals
required for their appointment to the TABCORP Board are
obtained. The payments and other benefits to be given to Mr
Lawrence Willett AO and Mr John Story as a consequence of
their appointment are detailed in Section 19.16.
Mrs Penelope Morris AM has been appointed Chairman of
Jupiters' due diligence committee in respect of the Merger and
in this regard will receive a one-off payment of $25,000 in
addition to her director's fees on the earlier of completion
of the Merger or 19 December 2003.
183
Mr John Story has been appointed Chairman of the Jupiters'
committee overseeing the Centrebet Sale and in this regard
will receive a one-off payment of $10,000 in addition to his
director's fees on the earlier of the Centrebet Sale
Completion and 19 December 2003.
Except as referred to above or elsewhere in this Scheme
Booklet, there are no other agreements or arrangements made
between any Director and another person in connection with or
conditional upon the outcome of the Ordinary Share Scheme.
(g) ARRANGEMENTS WITH DIRECTORS IN CONNECTION WITH OR CONDITIONAL
UPON OUTCOME OF RPS SCHEME
Other than as referred to in paragraph (f) above or elsewhere
in this Scheme Booklet, there are no other agreements or
arrangements made between any Director and another person in
connection with or conditional upon the outcome of the RPS
Scheme.
(h) INTERESTS OF DIRECTORS IN CONTRACT ENTERED INTO BY TABCORP
Mr John Story is a Partner and Chairman of the board of the
national law firm Corrs Chambers Westgarth. TABCORP engages
Corrs Chambers Westgarth to provide legal services in the
normal course of TABCORP's business. The services are provided
by Corrs Chambers Westgarth on normal commercial terms. In the
12 months to 30 June 2003 TABCORP spent approximately $49,000
in legal fees with Corrs Chambers Westgarth.
Mr Robert Hines is a non-executive director of VeCommerce Ltd
which has entered into contracts in the ordinary course of
business with TABCORP.
No Director has any other interest in a contract entered into
by TABCORP.
19.5 MATERIAL CHANGE IN FINANCIAL POSITION
Within the knowledge of the Directors, there has been no material
change to the financial position of Jupiters since the date the last
balance sheet was laid before Jupiters in general meeting or sent to
shareholders in accordance with sections 314 and 317 of the
Corporations Act, except as disclosed elsewhere in this Scheme Booklet
and, in particular, as disclosed in Section 15.
19.6 INTERESTS OF INDEPENDENT EXPERT AND CONSENTS
The Independent Expert, PricewaterhouseCoopers Securities Ltd, prepared
the Independent Expert's Reports on the Ordinary Share Scheme and the
RPS Scheme set out in Appendices A and F. In respect of this work,
PricewaterhouseCoopers Securities Ltd will be paid a fee of
approximately $715,000 plus out of pocket expenses.
PricewaterhouseCoopers Securities Ltd has provided and has not
withdrawn its written consent for the Independent Expert's Reports on
the Ordinary Share Scheme and the RPS Scheme to be included in this
Scheme Booklet in the form and context in which they are included.
Ernst & Young has provided and not withdrawn its written consent for
the opinions on tax consequences set out in Appendices B and G to be
included in this Scheme Booklet in the
184
form and context in which they are included. In respect of this work,
Ernst & Young will be paid a fee of approximately $90,000 plus out of
pocket expenses.
19.7 FORMULA WITH RESPECT TO SHARE AND NOTES ENTITLEMENTS UNDER THE ORDINARY
SHARE SCHEME
The formula to be applied with respect to the issue of TABCORP Shares
and Centrebet Notes which may be provided to Jupiters Ordinary
Shareholders under the Ordinary Share Scheme are as set out below.
These formula were agreed through arm's length negotiations between
Jupiters and TABCORP.
(a) IF CENTREBET SALE COMPLETION OCCURS BY 31 OCTOBER 2003
In this case, no Centrebet Notes will be issued in respect of
Jupiters Ordinary Shares. The number of TABCORP Shares which
will be issued to each Jupiters Ordinary Shareholder (and in
respect of each Ineligible Overseas Shareholder) will be
determined in accordance with the formula described below.
As the consideration to be provided under the Ordinary Share
Scheme may involve Jupiters Ordinary Shareholders receiving
TABCORP Shares, some Jupiters Ordinary Shareholders will be
able to elect scrip for scrip rollover for the disposal of
some of their Jupiters Ordinary Shares. Jupiters Ordinary
Shareholders may be able to identify which Jupiters Ordinary
Shares have been disposed of for cash and which have been
disposed of for TABCORP Shares. In this regard, the Ordinary
Share Scheme is expressed in such a way that cash
consideration is paid for a certain proportion of the Jupiters
Ordinary Shares held by a Jupiters Ordinary Shareholder, while
TABCORP Shares are provided in respect of the remaining
proportion of their Jupiters Ordinary Shares. Specifically,
the Ordinary Share Scheme provides that the following
consideration will be provided in respect of each Jupiters
Ordinary Shareholder to whom the Standard Cash and Shares
Offer applies:
- $5.25 cash per Jupiters Ordinary Share, in relation
to 54.286% of the Jupiters Ordinary Shareholder's
Jupiters Ordinary Shares; and
- 0.525 TABCORP Shares per Jupiters Ordinary Share, in
relation to 45.714% of the Jupiters Ordinary
Shareholder's Jupiters Ordinary Shares.
Where applying the above proportions would otherwise result in
cash and TABCORP Shares being provided in respect of a
fraction of a Jupiters Ordinary Share, the numbers of shares
in relation to which $5.25 cash will be provided and 0.525
TABCORP Shares will be provided will both be rounded to the
nearest whole number of shares (with fractions of 0.5 or more
being rounded up). The number of TABCORP Shares to be provided
by TABCORP will also be rounded to the nearest whole number of
TABCORP Shares (with fractions of 0.5 or more being rounded
up).
The result of applying the above formula is that a Jupiters
Ordinary Shareholder (other than an Ineligible Overseas
Shareholder) will receive, on average, for every 100 Jupiters
Ordinary Shares held, $285 in cash and 24 TABCORP Shares from
the TABCORP Group. The effects of rounding are such that this
will not necessarily be the case for each individual
shareholder, however.
185
For example, a Jupiters Ordinary Shareholder who holds 100
Jupiters Ordinary Shares will receive $5.25 for each Jupiters
Ordinary Share in relation to 54 of their Jupiters Ordinary
Shares (54.286% x 100 = 54.286, rounded to the nearest share)
and 0.525 TABCORP Shares for each Jupiters Ordinary Share in
relation to 46 of their Jupiters Ordinary Shares (45.714% x
100 = 45.714, rounded to the nearest share). The total cash
and shares component consideration received would therefore be
$283.50 cash ($5.25 x 54 = $283.50) and 24 TABCORP Shares
(0.525 x 46 = 24.15). This is obviously slightly different to
the average consideration across all Jupiters Ordinary Shares
of $285 and 24 TABCORP Shares per 100 Jupiters Ordinary
Shares.
A Jupiters Ordinary Shareholder who holds 1000 Jupiters
Ordinary Shares will receive slightly more than the `average'
consideration of $285 and 24 TABCORP Shares per 100 Jupiters
Ordinary Shares. Such a Jupiters Ordinary Shareholder will
receive $5.25 for each Jupiters Ordinary Share in relation to
543 of their Jupiters Ordinary Shares (54.286% x 1000 =
542.86, rounded to the nearest share) and 0.525 TABCORP Shares
in respect of 457 of their Jupiters Ordinary Shares (45.714% x
1000 = 457.14, rounded to the nearest share). The total cash
and shares component consideration received will therefore be
$2850.75 cash ($5.25 x 543 =$2850.75) and 240 TABCORP Shares
(0.525 x 457 = 239.925).
Subject to the "scale backs" discussed below, each Jupiters
Ordinary Shareholder who makes a Maximum Cash Election will
receive $5.25 cash per Jupiters Ordinary Share in respect of
which 0.525 TABCORP Shares would otherwise have been issued
under the Standard Cash and Shares Offer, and, conversely, in
the case of a Jupiters Ordinary Shareholder who makes a
Maximum Shares Election, 0.525 TABCORP Shares will be issued
in respect of each of the Jupiters Ordinary Shares for which
$5.25 cash would otherwise have been provided under the
Standard Cash and Shares Offer.
The maximum amount of cash to be provided by the TABCORP Group
as cash consideration under the Ordinary Share Scheme is
limited by the Cash Consideration Cap of approximately $575
million, and the maximum number of TABCORP Shares to be
provided under the Ordinary Share Scheme is limited by the
Share Consideration Cap of approximately 48.4 million TABCORP
Shares. If any Jupiters Options are exercised before the
Implementation Record Date for the Ordinary Share Scheme, the
Cash Consideration Cap will be increased by $2.85 for every
new Jupiters Ordinary Share issued and the Share Consideration
Cap will be increased by 0.24 TABCORP Shares for every new
Jupiters Ordinary Share issued.
If the total amount of cash consideration or share
consideration which the TABCORP Group would otherwise have
been required to pay or issue to satisfy elections made by
Jupiters Ordinary Shareholders exceeds the Cash Consideration
Cap or the Share Consideration Cap, the amount of cash or the
number of TABCORP Shares to be provided in respect of those
shareholders who have made the relevant election will be
scaled back on a pro rata basis.
If a scale back occurs for Jupiters Ordinary Shareholders who
make Maximum Cash Elections, the percentage of each such
Jupiters Ordinary Shareholder's Jupiters Ordinary Shares in
respect of which they will receive cash consideration will be
determined by subtracting from the Cash Consideration Cap the
cash
186
amount attributable to the Standard Cash and Shares Offer
which is payable to those Jupiters Ordinary Shareholders who
did not make a valid election, and dividing the result by the
amount of cash which would, but for the Cash Consideration
Cap, have been payable to Jupiters Ordinary Shareholders who
have made Maximum Cash Elections.
If a scale back occurs for Jupiters Ordinary Shareholders who
make Maximum Shares Elections, the percentage of each such
Jupiters Ordinary Shareholder's Jupiters Ordinary Shares in
respect of which TABCORP Shares will be issued is determined
by subtracting from the Share Consideration Cap the number of
TABCORP Shares to be issued in respect of those Jupiters
Ordinary Shareholders who did not make a valid election, and
dividing the result by the number of TABCORP Shares which
would, but for the Share Consideration Cap, have been issued
in respect of Jupiters Ordinary Shareholders who have made
Maximum Shares Elections.
If the result of applying either percentage is that cash and
TABCORP Shares would be provided in respect of a fraction of a
Jupiters Ordinary Share, the number of Jupiters Ordinary
Shares in relation to which $5.25 cash and 0.525 TABCORP
Shares will be provided will both be rounded to the nearest
whole number of shares (with fractions of 0.5 or more being
rounded up). The number of TABCORP Shares to be provided by
TABCORP will also be rounded to the nearest whole number of
TABCORP Shares (with fractions of 0.5 or more being rounded
up).
Examples 1 and 2 show how the scale back formula would be
applied in two specific cases. Each example assumes that no
Jupiters Options are exercised before the Ordinary Share
Scheme is implemented.
Example 1
If Jupiters Ordinary Shareholders holding 25% of Jupiters
Ordinary Shares did not make a valid election, Jupiters
Ordinary Shareholders holding 45% of Jupiters Ordinary Shares
made Maximum Cash Elections and Jupiters Ordinary Shareholders
holding 30% of the Jupiters Ordinary Shares made Maximum
Shares Elections then:
- the amount of cash required to pay Jupiters Ordinary
Shareholders who did not make a valid election would
be approximately $144 million; and
- the amount of cash required to satisfy the elections
of Jupiters Ordinary Shareholders who made Maximum
Cash Elections would, but for the Cash Consideration
Cap, have been approximately $477 million.
In that case:
- Jupiters Ordinary Shareholders who made Maximum Cash
Elections would receive the cash consideration of
$5.25 per Jupiters Ordinary Share in respect of
90.48% of their Jupiters Ordinary Shares ({$575
million - $144 million}/ $477 million = 0.9048)
(subject to the effects of rounding). Those Jupiters
Ordinary Shareholders would also be
187
issued 0.525 TABCORP Shares in respect of the
remaining 9.52% of their Jupiters Ordinary Shares
(subject to the effects of rounding).
For example, a Jupiters Ordinary Shareholder who
holds 100 Jupiters Ordinary Shares will receive $5.25
per share for 90 of those shares (90.48% x 100 =
90.48, rounded to the nearest whole number), and will
receive 0.525 TABCORP Shares per share in respect of
10 of their Jupiters Ordinary Shares (9.52% x 100 =
9.52, rounded to the nearest whole number). The total
cash and shares component consideration would
therefore be $472.50 cash ($5.25 x 90 shares =
$472.50) and 5 TABCORP Shares (0.525 x 10 shares =
5.25, rounded to the nearest TABCORP Share).
- Jupiters Ordinary Shareholders who made Maximum
Shares Elections would receive the share
consideration of 0.525 TABCORP Shares per share in
respect of all their Jupiters Ordinary Shares. A
Jupiters Ordinary Shareholder who holds 100 Jupiters
Ordinary Shares will receive 53 TABCORP Shares (0.525
x 100 Shares = 52.5, rounded to the nearest TABCORP
Share).
- Jupiters Ordinary Shareholders who did not make a
valid election would receive the Standard Cash and
Shares Offer (being $285 and 24 TABCORP Shares for
every 100 Jupiters Ordinary Shares, on average and
subject to the effects of rounding).
Example 2
If Jupiters Ordinary Shareholders holding 30% of Jupiters
Ordinary Shares did not make a valid election, Jupiters
Ordinary Shareholders holding 45% of Jupiters Ordinary Shares
made Maximum Shares Elections and Jupiters Ordinary
Shareholders holding 25% of the Jupiters Ordinary Shares made
Maximum Cash Elections, then:
- the number of TABCORP Shares required to be issued in
respect of Jupiters Ordinary Shareholders who did not
make a valid election would be approximately 14.5
million TABCORP Shares; and
- the number of TABCORP Shares required to satisfy the
elections of Jupiters Ordinary Shareholders who made
Maximum Shares Elections would, but for the Share
Consideration Cap, have been approximately 47.7
million TABCORP Shares.
In that case:
- 0.525 TABCORP Shares would be issued in respect of
71.1% ({48.4 million - 14.5 million} / 47.7 million =
0.711) of the Jupiters Ordinary Shares of Jupiters
Ordinary Shareholders who made Maximum Shares
Elections (subject to the effects of rounding). Those
Jupiters Ordinary Shareholders will also receive
$5.25 per Jupiters Ordinary Share for the remaining
28.9% of their Jupiters Ordinary Shares (subject to
the
188
effects of rounding).
For example, in the case of a Jupiters Ordinary
Shareholder who holds 100 Jupiters Ordinary Shares,
0.525 TABCORP Shares per share would be issued in
respect of 71 of their Jupiters Ordinary Shares
(71.1% x 100 = 71.1, rounded to the nearest share)
and $5.25 cash per share would be provided in respect
of 29 of their Jupiters Ordinary Shares (28.9% x 100
= 28.9, rounded to the nearest share). The total cash
and shares component consideration provided would
therefore be 37 TABCORP Shares (0.525 x 71 = 37.275,
rounded to the nearest TABCORP Share) and $152.25
($5.25 x 29 = $152.25).
- Jupiters Ordinary Shareholders who made Maximum Cash
Elections would receive cash consideration of $5.25
per share in respect of all their Jupiters Ordinary
Shares. A Jupiters Ordinary Shareholder who holds 100
Jupiters Ordinary Shares would receive $525 ($5.25 x
100 = $525).
- Jupiters Ordinary Shareholders who did not make a
valid election would receive the Standard Cash and
Shares Offer (being $285 and 24 TABCORP Shares for
every 100 Jupiters Ordinary Shares, on average and
subject to the effects of rounding).
(b) IF CENTREBET SALE COMPLETION DOES NOT OCCUR BY 31 OCTOBER 2003
In this case, one Centrebet Note will be issued to each
Jupiters Ordinary Shareholder (and in respect of each
Ineligible Overseas Shareholder) in respect of each Jupiters
Ordinary Share held. The number of TABCORP Shares which will
be issued to each Jupiters Ordinary Shareholder (and in
respect of each Ineligible Overseas Shareholder) will be
determined in the same manner as set out in Section 19.7(a)
above.
19.8 INTENTIONS OF DIRECTORS
If the Ordinary Share Scheme is implemented, it will be a matter for
the directors of TABCORP and TABCORP Investments to formulate their
intentions as to:
(a) the continuation of the business of Jupiters;
(b) any major changes to be made to the business of Jupiters,
including any redeployment of the fixed assets of Jupiters;
and
(c) the future employment of the present employees of Jupiters.
These issues are discussed further in Section 17.4.
If the Ordinary Share Scheme is not implemented, Jupiters will:
- continue as a separate entity and will continue to
pursue its operational and growth objectives; and
189
- if the Centrebet Business is sold, make a number of employees
associated with the Centrebet Business redundant.
The sale of the Centrebet Business will not be subject to the
implementation of the Ordinary Share Scheme.
19.9 OTHER INFORMATION MATERIAL TO THE MAKING OF A DECISION IN RELATION TO
THE SCHEMES
Except as set out in this Scheme Booklet, there is no other information
material to the making of a decision in relation to the Ordinary Share
Scheme or the RPS Scheme, being information that is within the
knowledge of any Director or of any Related Entity of Jupiters which
has not previously been disclosed to Jupiters Ordinary Shareholders and
RPS Holders (as appropriate).
19.10 LODGMENT OF THIS SCHEME BOOKLET
This Scheme Booklet was lodged with ASIC on 5 September 2003 in
accordance with section 411(2)(b) of the Corporations Act.
19.11 ASX WAIVERS
(a) ASX LISTING RULE 7.1
ASX has granted a waiver of ASX Listing Rule 7.1 to the extent
necessary to permit Jupiters to issue up to 16 million RPS to
TABCORP or a Related Entity of TABCORP for the purposes of
funding distributions under the Ordinary Share Scheme,
including:
- the payment by Jupiters of the Special Dividend; and
- the payment by Jupiters of the Centrebet Dividend (if
any).
The circumstances in which such subscriptions might be made
are summarised in Section 19.1(e).
ASX has also granted a waiver of ASX Listing Rule 7.1.4 to the
extent necessary to permit Jupiters, for the purposes of
determining the number of equity securities that may be issued
without security holder approval and the number of equity
securities to be included in "C" in the formula in ASX Listing
Rule 7.1, to count a proposed issue of RPS to fund the
repurchase of any RPS pursuant to a Special Conversion Notice,
as the number of ordinary shares into which RPS would
notionally convert at the average of the daily VWAP for
Jupiters Ordinary Shares in the 20 Business Days prior to the
date on which Jupiters announces its intention to issue RPS.
(b) ASX LISTING RULE 6.23.2
ASX has granted a waiver of ASX Listing Rule 6.23.2 to permit
the cancellation of Jupiters Options for consideration without
obtaining prior shareholder approval on the basis that the
cancellation is conditional upon the Ordinary Share Scheme
proceeding.
190
(c) APPENDIX 6A TO THE ASX LISTING RULES
ASX has granted a waiver of ASX Listing Rule 6.24 to relieve
Jupiters from the requirement to comply with clause 1 of
Appendix 6A to the ASX Listing Rules to the extent necessary
to permit Jupiters to announce the Special Dividend and the
Centrebet Dividend (if any), five Business Days prior to the
record date for those dividends.
19.12 RELEVANT INTERESTS IN JUPITERS SECURITIES
As at the date of this Scheme Booklet:
- neither TABCORP nor TABCORP Investments has a relevant
interest in any of the 201,784,202 Jupiters Ordinary Shares on
issue;
- TABCORP and TABCORP Investments have a relevant interest in
all the 1,901,735 RPS on issue; and
- TABCORP and TABCORP Investments have a relevant interest in
all the 1,520,000 Jupiters Options on issue.
19.13 VOTING POWER IN JUPITERS
As at the date of this Scheme Booklet, neither TABCORP nor TABCORP
Investments has any voting power in Jupiters.
19.14 DEALINGS IN JUPITERS SECURITIES
Except as disclosed elsewhere in this Scheme Booklet, neither TABCORP
Investments nor any associate of TABCORP Investments has provided, or
agreed to provide, consideration for any Jupiters Ordinary Shares or
RPS under a purchase or agreement during the four months ended on the
day immediately before the date of this Scheme Booklet.
Except as disclosed elsewhere in this Scheme Booklet, during the period
of four months ended on the day immediately before the date of this
Scheme Booklet, neither TABCORP Investments nor any associate of
TABCORP Investments has given or offered to give or agreed to give a
benefit to another person where the benefit was likely to induce the
other person, or an associate, to:
- vote in favour of the Ordinary Share Scheme or the RPS Scheme;
or
- dispose of Jupiters Ordinary Shares or RPS.
19.15 INTERESTS IN JUPITERS SECURITIES
As at the date of this Scheme Booklet, no Jupiters Ordinary Shares, RPS
or Jupiters Options are held by or on behalf of any of the directors of
TABCORP.
191
19.16 INTERESTS OF DIRECTORS OF TABCORP
(a) INTERESTS IN THE MERGER
Except as disclosed elsewhere in this Scheme Booklet, no
director of TABCORP holds at the date of this Scheme Booklet,
or has held in the two years before the date of this Scheme
Booklet, an interest in the Merger or Jupiters.
Except as disclosed elsewhere in this Scheme Booklet, no one
has paid or agreed to pay any amount, and no one has given or
agreed to give any benefit, to any director of TABCORP to
induce that person to become or to qualify as a director of
TABCORP.
(b) REMUNERATION
TABCORP's constitution contains the following provisions as to
remuneration of executive and non-executive directors:
73. Remuneration of directors
Each non-executive Director is to be paid
remuneration for services which will be a sum
determined by the Board payable at the time and in
the manner determined by the Board but the aggregate
remuneration paid to all the non-executive Directors
in any year may not exceed an amount fixed by the
Company in general meeting. The expression
"remuneration" in this Rule does not include any
amount which may be paid by the Company under Rules
74, 75, 76 and 132 (concerning indemnity of
officers).
74. Remuneration of directors for extra services
Any Director who devotes special attention to the
business of the Company, or who otherwise performs
services which in the opinion of the Board are
outside the scope of the ordinary duties of a
Director, may be paid a fee for the services as
determined by the Board.
75. Travelling and other expenses
Every Director is, in addition to any other
remuneration provided for in this Constitution,
entitled to be paid from Company funds all reasonable
travel, accommodation and other expenses incurred by
the Director in attending meetings of the Company or
of the Board or of any Committees or while engaged on
the business of the Company.
76. Retirement benefits
Any Director may be paid a retirement benefit, as
determined by the Board, in accordance with the Law.
The Board may make arrangements with any director
with respect to the payment of retirement benefits in
accordance with this Rule.
TABCORP in general meeting has fixed the maximum aggregate
remuneration which can be paid to all non-executive directors
of TABCORP in any year pursuant to Rule 73 of TABCORP's
constitution at $1.2 million. The TABCORP
192
Board may seek an increase in this limit at its annual general
meeting in October 2003 given the proposed appointment of two
additional directors to the TABCORP Board if the Merger is
implemented.
The TABCORP Board has determined that the following annual
base fees (before superannuation guarantee contributions) are
payable to individual non-executive directors of TABCORP:
$295,000 to the Chairman, $137,750 to the Deputy Chairman and
$120,750 to other non-executive directors. In addition,
non-executive directors receive fees in relation to each Board
Committee on which they serve. If they are appointed to the
TABCORP Board, Mr Lawrence Willett AO and Mr John Story will
be entitled to receive an annual base fee as non-executive
directors of TABCORP.
The TABCORP Board has decided to terminate retirement benefits
for all non-executive directors, effective 30 June 2003.
Retirement benefits accrued until that time have been paid
into the TABCORP Staff Superannuation Fund. The fund will pay
those benefits and any accrued entitlement on them to each
director on their retirement from the Board.
(c) INDEMNITY, INSURANCE AND ACCESS
TABCORP has executed a Director's Deed with each director of
TABCORP. In summary each Director's Deed provides:
- an ongoing indemnity to the director against
liability incurred by the director in or arising out
of the conduct of the business of, or the discharge
of their duties as a director of, TABCORP, or, if the
TABCORP Board in its discretion specifically
determines in a particular case for the purposes of
the Director's Deed, the conduct of the business of
another corporation, including a subsidiary of
TABCORP;
- that TABCORP will maintain an insurance policy for
the benefit of the director which insures the
director against liability for acts or omissions of
the director in the director's capacity (or former
capacity) as a director of TABCORP during the period
during which the director holds office as a director
of TABCORP and for a period of seven years
thereafter, or, if a proceeding is bought against a
director within the seven years after they cease to
be a director of the company, until that proceeding
is determined; and
- the director with a limited right to access, and to
take copies of, TABCORP Board papers relating to the
period during which the director holds office as a
director of TABCORP.
TABCORP's constitution provides for the entry into of these
Director's Deeds.
(d) DIRECTORS' INSURANCE
TABCORP maintains an insurance policy for the benefit of the
directors of TABCORP which insures them against liability for
their conduct as directors of TABCORP and as a director of any
subsidiary of TABCORP to the extent permitted by law. This
insurance policy also may insure the directors on the
193
terms and subject to the conditions of the policy against
civil liabilities which they may incur in relation to the
Merger.
19.17 INTERESTS OF DIRECTORS OF TABCORP ISSUER
(a) DIRECTORS OF TABCORP ISSUER
The directors of TABCORP Issuer are Matthew Slatter, David
Elmslie and Peter Caillard. The positions which those three
persons hold in the TABCORP Group are described in Sections
16.6(a) and 16.6(b).
(b) INTERESTS IN JUPITERS SECURITIES
As at the date of this Scheme Booklet, no Jupiters Ordinary
Shares, RPS or Jupiters Options are held by or on behalf of
any of the directors of TABCORP Issuer.
(c) INTERESTS IN THE MERGER
Except as disclosed elsewhere in this Scheme Booklet, no
director of TABCORP Issuer holds at the date of this Scheme
Booklet or has held in the two years before the date of this
Scheme Booklet, an interest in the Merger or Jupiters.
Except as disclosed elsewhere in this Scheme Booklet, no one
has paid or agreed to pay any amount, and no one has given or
agreed to give any benefit, to any director of TABCORP Issuer
to induce that person to become or to qualify as a director of
TABCORP Issuer.
(d) REMUNERATION
The directors of TABCORP Issuer receive remuneration in
connection with their executive positions in the TABCORP
Group. That remuneration was not increased in connection with
their respective appointments as directors of TABCORP Issuer.
(e) INDEMNITY AND INSURANCE
Each director of TABCORP Issuer is engaged by TABCORP as an
executive of the TABCORP Group. TABCORP maintains an insurance
policy for the benefit of the director which insures the
director against liability for acts or omissions of the
director in the director's capacity (or former capacity) as an
executive of the TABCORP Group during the period during which
the director holds office as an executive of the TABCORP
Group.
Each director of TABCORP Issuer holds office as a director of
TABCORP Issuer in their capacity as an executive of the
TABCORP Group. Accordingly, insurance arrangements will extend
to certain liabilities incurred in or arising out of each
director's role as a director of TABCORP Issuer.
19.18 INFORMATION DISCLOSED TO ASX AND DOCUMENTS LODGED WITH ASIC
TABCORP is a "disclosing entity" for the purposes of the Corporations
Act and as such is subject to continuous reporting and disclosure
obligations. Specifically, as a listed company, TABCORP is subject to
the ASX Listing Rules which require continuous
194
disclosure of any information TABCORP has concerning it that a
reasonable person would expect to have a material effect on the price
or value of its shares.
ASX maintains files containing publicly disclosed information about all
listed companies. TABCORP's file is available for inspection at ASX
during normal business hours.
In addition, TABCORP is also required to lodge various documents with
ASIC. Copies of documents lodged with ASIC by TABCORP may be obtained
from, or inspected at, an ASIC office.
TABCORP will provide free of charge, to any holder of Jupiters Ordinary
Shares who requests it before the Scheme Meetings, a copy of:
- TABCORP's constitution;
- the Centrebet Note Deed;
- the annual financial report of TABCORP for the year ended 30
June 2002 (being the annual financial report most recently
lodged with ASIC before this Scheme Booklet was lodged for
registration with ASIC);
- any half-year financial report lodged with ASIC by TABCORP
after the lodgment of the annual financial report referred to
above and before lodgment for registration of this Scheme
Booklet with ASIC;
- the annual financial report of TABCORP for the year ended 30
June 2003 once that annual report has been lodged with ASIC;
and
- any continuous disclosure notice given to ASX by TABCORP after
the lodgment with ASIC of the annual report of TABCORP for the
year ended 30 June 2002 referred to above and before lodgment
for registration of this Scheme Booklet by ASIC.
Copies of any of the documents referred to above can be obtained by
writing to:
The Company Secretary
Level 12
5 Bowen Crescent
Melbourne VIC 3004
or
GPO Box 1943R
Melbourne VIC 3001
The TABCORP 2002 Annual Report, the TABCORP 2003 preliminary final
report and other information is also available on the TABCORP website:
www.tabcorp.com.au.
195
SECTION 20 - KEY TERMS OF THE MERGER IMPLEMENTATION AGREEMENT
20.1 INTRODUCTION
TABCORP and Jupiters entered into the Merger Implementation Agreement
on 12 June 2003. The Merger Implementation Agreement establishes the
framework for the parties' agreement to pursue the Merger. Each of
TABCORP and Jupiters has, subject to the satisfaction of certain
conditions and other provisos, agreed to do all things within its power
as may be necessary or desirable for the implementation of the Merger.
This Section 20 sets out the material terms of the Merger
Implementation Agreement (as amended by the parties on 4 September
2003).
20.2 MERGER
The Merger Implementation Agreement contemplates that the Merger will
be implemented by way of a scheme of arrangement, namely the Ordinary
Share Scheme. The Merger Implementation Agreement also contemplates
that Jupiters will propose the RPS Scheme.
Details of each of those Schemes is set out in Sections 5, 6, 12 and
13. The Schemes are set out in full in Appendices C (Ordinary Share
Scheme) and H (RPS Scheme).
In addition, TABCORP Investments and Jupiters have entered into
separate arrangements with the Jupiters Optionholders for the
cancellation of the Jupiters Options. Details of these arrangements are
set out in Section 21.
20.3 CONDITIONS TO THE MERGER
As discussed in Sections 5 and 12, each Scheme requires the approval of
the relevant security holders and the Court for it to be implemented.
If the Ordinary Share Scheme is not approved by Jupiters Ordinary
Shareholders or the Court, neither the Merger nor the RPS Scheme will
proceed. If the RPS Scheme is not approved by RPS Holders or the Court,
the RPS Scheme will not proceed. However, the Ordinary Share Scheme may
still proceed if it is approved (and all other conditions, as discussed
below, are satisfied or waived).
The implementation of the Merger is (and therefore the implementation
of the Schemes and the separate arrangements with Jupiters
Optionholders are) also subject to the following conditions being
satisfied or waived:
(a) (REGULATORY APPROVALS) All necessary Regulatory Approvals
required to implement the Ordinary Share Scheme, including
approval of the Queensland State Government under relevant
gaming legislation, being obtained prior to the Second Court
Date. The required Regulatory Approvals are briefly described
in Section 20.4.
(b) (NO PROHIBITIONS) No legal restraint existing on the Second
Court Date which prevents the Ordinary Share Scheme from
proceeding.
(c) (QUOTATION OF TABCORP SHARES) Approval for official quotation
of the TABCORP Shares to be issued under the Ordinary Share
Scheme being obtained from ASX before the Second Court Date.
196
(d) (JUPITERS PRESCRIBED OCCURRENCE) No Jupiters Prescribed
Occurrence having occurred prior to the Second Court Date. The
Jupiters Prescribed Occurrences are described in Section
20.13.
(e) (JUPITERS MATERIAL ADVERSE CHANGE) No Jupiters Material
Adverse Change having occurred prior to the Second Court Date.
The concept of a Jupiters Material Adverse Change is described
in Section 20.14.
(f) (JUPITERS REPRESENTATIONS) The representations made by
Jupiters under the Merger Implementation Agreement being
materially correct as at 12 June 2003 (the date of execution
of the Merger Implementation Agreement) and also on the Second
Court Date. The key representations are set out in Section
20.15.
(g) (TABCORP PRESCRIBED OCCURRENCE) No TABCORP Prescribed
Occurrence having occurred prior to the Second Court Date. The
TABCORP Prescribed Occurrences are described in Section 20.16.
(h) (TABCORP MATERIAL ADVERSE CHANGE) No TABCORP Material Adverse
Change having occurred prior to the Second Court Date. The
concept of a TABCORP Material Adverse Change is described in
Section 20.17.
(i) (TABCORP REPRESENTATIONS) The representations made by TABCORP
under the Merger Implementation Agreement being materially
correct as at 12 June 2003 (the date of execution of the
Merger Implementation Agreement) and also on the Second Court
Date. The key representations are set out in Section 20.18.
(j) (CENTREBET BUSINESS) At all times up to the Second Court Date,
Jupiters having complied in all material respects with its
obligations under the Merger Implementation Agreement in
relation to the Centrebet Business. These are described in
Section 20.9.
(k) (FINANCING CONDITIONS) Each condition to the commitment
letters described in Section 16.9(c) and to the availability
of funds under the loan facilities to be entered into pursuant
to those commitment letters (excluding conditions which are
procedural and in the sole control of TABCORP) being satisfied
or waived by the relevant lenders prior to the Second Court
Date.
Both parties have the benefit of the conditions described in paragraphs
(a) to (c) above, and those conditions may only be waived jointly.
TABCORP alone has the benefit of, and may waive, the conditions in
paragraphs (d), (e),(f), (j) and (k). Jupiters alone has the benefit
of, and may waive, the conditions in paragraphs (g), (h) and (i).
The RPS Scheme is also subject to the following conditions being
satisfied or waived:
(l) All necessary Regulatory Approvals required to implement the
RPS Scheme, including approval of the Queensland State
Government under relevant gaming legislation, being obtained
prior to the Second Court Date. The required Regulatory
Approvals are briefly described in Section 20.4.
(m) No legal restraint existing on the Second Court Date which
prevents the RPS Scheme from proceeding.
Both parties have the benefit of those conditions, and they may only be
waived jointly.
197
Both TABCORP and Jupiters are obliged to use their best endeavours to
procure the satisfaction of the conditions.
If either party proposes to terminate the Merger Implementation
Agreement on the basis of a Material Adverse Change in respect of the
other party, the other party may refer the matter to
PricewaterhouseCoopers Securities Ltd for an expert determination as to
whether such a Material Adverse Change has in fact occurred.
20.4 REGULATORY APPROVALS
Implementation of the Merger is dependent upon a number of Regulatory
Approvals having been obtained. In particular, a number of approvals
from the Queensland State Government under relevant gaming legislation
are necessary, including approvals relating to:
(a) the acquisition by the TABCORP Group of interests, above
certain threshold amounts, in securities in Jupiters and
certain of its Related Entities;
(b) the suitability of the TABCORP Group, the TABCORP Board and
the senior executives of TABCORP to be associated with the
Queensland gaming activities of the Jupiters Group; and
(c) the appointment of TABCORP nominees to the Jupiters Board and
the board of various other Related Entities of Jupiters.
The Merger Implementation Agreement provides that the Regulatory
Approval condition is satisfied even if a Regulatory Approval is
granted subject to conditions, provided that those conditions are
essentially of a procedural nature or impose other non-material
requirements incidental to the Regulatory Approval.
TABCORP has made applications for each of the required Queensland
Regulatory Approvals. TABCORP has been in ongoing discussions with the
Queensland Office of Gaming Regulation in relation to those
applications and has no reason to believe that the required Regulatory
Approvals will not be forthcoming or will be subject to any material
conditions.
In this regard, TABCORP proposes to seek amendments to its constitution
at its next annual general meeting (expected to be held on 30 October
2003) with a view to a corresponding position applying under its
constitution with respect to the Queensland State Government as
currently applies with respect to the NSW Casino Control Authority
(including so that the Queensland Minister responsible for
administering the Casino Control Act 1982 (Qld) has similar powers
under TABCORP's constitution as the NSW Casino Control Authority). The
amendment of TABCORP's constitution to include these provisions may be
a condition of the Regulatory Approvals required from the Queensland
State Government in connection with the Ordinary Share Scheme.
TABCORP expects any such amendments to be approved at its annual
general meeting. However, if the amendments are not approved by
TABCORP's shareholders at its annual general meeting in circumstances
where such approval is a condition of the Regulatory Approvals from the
Queensland State Government, implementation of the Ordinary Share
Scheme may be delayed or not proceed at all.
198
If Centrebet Sale Completion has not occurred by 31 October 2003
Regulatory Approvals may also be required from the Northern Territory
Racing Commission relating to the ownership of Centrebet. TABCORP has
written to the Northern Territory Racing Commission in this regard.
The required Regulatory Approvals (referred to above) may not be
obtained before the Ordinary Share Scheme Meeting.
20.5 JUPITERS' OBLIGATIONS
In addition to its general obligation to do all things necessary to
implement the Merger, Jupiters has provided a number of specific
undertakings in the Merger Implementation Agreement in relation to the
key steps in the process.
Jupiters has agreed to conduct its business in the ordinary and usual
course substantially consistent with the manner in which the business
has been conducted in the past, complying with all laws and using
reasonable endeavours to preserve intact its key business
relationships. The Merger Implementation Agreement gives Jupiters the
flexibility, however, to operate in accordance with its general
business plans, as disclosed to TABCORP prior to the signing of the
agreement. Given Jupiters' intention to sell the Centrebet Business
prior to implementation of the Merger, the Merger Implementation
Agreement does not generally seek to constrain Jupiters' operation of
that business, subject to certain constraints as discussed in Section
20.9(c).
The Directors are required to recommend both of the Schemes unless:
(a) a bona fide third party proposal is announced which the
Directors, acting in good faith after having taken financial
and legal advice, determine is capable of being valued and
completed and is more favourable from a financial point of
view than the Ordinary Share Scheme, and the Directors
publicly recommend that such a proposal is in the interests of
Jupiters and its members; or
(b) in relation to the RPS Scheme, the Directors form the view,
after having taken advice, that the VWAP for Jupiters Ordinary
Shares for the 20 Business Days prior to the Trigger Event
Conversion Date will be more than $6.77 (which will result in
the Repurchase Amount under the RPS Terms being greater than
$105.26).
In the circumstances set out in paragraph (a) above, however, TABCORP
will have termination rights under the Merger Implementation Agreement
and will be entitled to costs reimbursement. See Sections 20.11 and
20.12.
Under the Merger Implementation Agreement, the Directors were also
entitled not to recommend the Ordinary Share Scheme if the Independent
Expert formed the opinion that it was not in the best interests of
Jupiters and Jupiters Ordinary Shareholders. As the Independent Expert
has provided a favourable opinion on the Ordinary Share Scheme (namely
that it is in the best interests of Jupiters Ordinary Shareholders and
is fair and reasonable), this entitlement is no longer relevant.
In relation to the RPS Scheme, the Merger Implementation Agreement also
entitled the Directors to not recommend the RPS Scheme if either:
199
(a) the Independent Expert was of the opinion that the RPS Scheme
is not in the best interests of the RPS Holders; or
(b) the Offer Price (under the RPS Terms) determined by the
Independent Expert was more than $7.66 (which would result in
the Repurchase Amount being greater than $105.26).
The Independent Expert has not reached either of those conclusions. On
that basis, this entitlement is also no longer relevant.
20.6 TABCORP'S OBLIGATIONS
Like Jupiters, TABCORP has, in addition to its general obligation to do
all things necessary to implement the Merger, provided a number of
specific undertakings in the Merger Implementation Agreement in
relation to the key steps in the process.
The Deed Poll has been executed by TABCORP, TABCORP Investments and
TABCORP Issuer pursuant to these obligations.
20.7 TREATMENT OF RPS
The parties have agreed under the Merger Implementation Agreement how
requests for conversion of RPS prior to implementation of the Merger
will be dealt with by Jupiters. Sections 13.4(b) and 13.4(c) describe
the proposed treatment. In summary:
- for those RPS subject to a Trigger Event Conversion Notice,
Jupiters will elect under the RPS Terms for them to be
acquired by TABCORP Investments (unless it is legally
prevented from doing so). TABCORP has agreed that TABCORP
Investments will purchase the RPS and pay the Repurchase
Amount calculated under the RPS Terms; and
- for those RPS subject to a Special Conversion Notice, Jupiters
will elect under the RPS Terms for them to be redeemed (unless
it is legally prevented from doing so). Jupiters will pay the
cash redemption amount calculated under the RPS Terms. TABCORP
has agreed that TABCORP Investments will subscribe for new RPS
in Jupiters to allow the redemption of any existing RPS.
Jupiters may only consent to RPS Holders withdrawing their requests for
conversion of RPS on or before the Business Day immediately preceding
the time and date to determine who is entitled to vote on the RPS
Scheme.
TABCORP's obligations to procure TABCORP Investments to purchase RPS,
and to subscribe for new RPS in Jupiters to allow for the redemption of
any existing RPS, will continue even if the Merger Implementation
Agreement is terminated, unless that termination occurs:
(a) prior to Jupiters making the relevant election to sell or
redeem the RPS; or
(b) as a result of a material breach by Jupiters of the Merger
Implementation Agreement, or the Jupiters Board withdrawing
its recommendation of the Merger, or the Jupiters Board
recommends a bona fide competing proposal in the circumstances
permitted by the Merger Implementation Agreement (see Section
20.5).
200
In those circumstances, Jupiters may elect to allow the RPS to convert
into Jupiters Ordinary Shares.
If Jupiters does not apply the RPS Terms in a manner consistent with
their terms, this Scheme Booklet and the Trigger Event Notification
sent to RPS Holders on 8 September 2003, TABCORP will be entitled to
terminate the Merger Implementation Agreement.
20.8 TREATMENT OF JUPITERS OPTIONS
The Merger Implementation Agreement restricts the ability of Jupiters
to take specified actions in relation to the Jupiters Options which may
prejudice the position of TABCORP if the Merger is implemented. Such
actions include extending the period of exercise of Jupiters Options,
bringing forward the date of exercise of any Jupiters Option, or
reducing the exercise price or increasing the number of shares to be
issued on exercise of any Jupiters Option.
Under the Jupiters Option Plan, certain of the Jupiters Options will
become exercisable once the Court approves the Ordinary Share Scheme
and it is unconditional. The Merger Implementation Agreement requires
Jupiters to exercise its powers under the Jupiters Option Plan to
determine that those Jupiters Options will cease to be exercisable
after the Implementation Record Date for the Ordinary Share Scheme.
These Jupiters Options can be exercised by Jupiters Optionholders
during the period from the date that the Court approves the Ordinary
Share Scheme and it is unconditional to the Implementation Record Date
for the Ordinary Share Scheme. No Jupiters Options will lapse before
the Implementation Date for the Ordinary Share Scheme. Jupiters Options
on issue at the Implementation Date for the Ordinary Share Scheme will
be cancelled pursuant to the separate arrangements agreed between
Jupiters Optionholders, Jupiters and TABCORP Investments and the
Jupiters Optionholders will receive the cash consideration due to them
under those arrangements.
20.9 CENTREBET BUSINESS
The intention of the parties is that the Centrebet Business will be
divested by Jupiters prior to the Merger being effected. The Merger
Implementation Agreement provides that Jupiters must use all reasonable
endeavours to sell and complete a sale of the Centrebet Business as
soon as possible, and in any event no later than 31 October 2003. At
the date of this Scheme Booklet a Centrebet Sale Agreement has not been
executed. See Section 7 for further information on the sale process.
The parties have agreed a number of matters relating to that proposed
disposal of the Centrebet Business, and in relation to the operation of
the Centrebet Business in the period leading up to that sale. Those
matters relate to:
(a) the terms on which the Centrebet Sale can occur. Jupiters has
agreed to certain parameters regarding the assets and
liabilities to be sold, the ongoing commercial arrangements
with the purchaser that can be agreed, the warranties that can
be provided, and the indemnities that can be offered;
(b) the involvement of TABCORP in the sale process, which includes
the review by TABCORP of draft sale documentation;
(c) the operation of the Centrebet Business by Jupiters. Jupiters
must have regard to the fact that, if the Centrebet Sale is
not completed in time, the Merged Group will
201
own the Centrebet Business upon implementation of the Merger.
In addition, the Centrebet Business cannot be operated in a
manner that could incur material liability for a member of the
Jupiters Group other than Centrebet. There are carve-outs that
apply to these obligations - in particular, Jupiters is
generally able to operate the Centrebet Business in a manner
consistent with past practice; and
(d) the operation of the Centrebet Business by TABCORP. Where
Centrebet Sale Completion does not occur by 31 October 2003,
so that the Centrebet Business will be owned by the Merged
Group upon implementation of the Merger, TABCORP must have
regard in good faith to the potential economic interests of
Centrebet Noteholders under the Centrebet Notes. It must also
procure that until 30 September 2004 (or 30 June 2004 if a
Centrebet Sale Agreement has not been entered into by that
date) any changes made to the Centrebet Business by TABCORP or
its Related Entities that are reasonably likely to have a
material adverse effect on the financial performance or the
value of the Centrebet Business are based on legal advice to
the effect that the changes are necessary for probity or
licensing purposes or to comply with any law or regulation in
a jurisdiction in which the Merged Group operates or proposes
to operate (see also Sections 17.4(b) and 18.3 in this
regard).
The Merger Implementation Agreement also details how net value
attributable to the Centrebet Sale (if any) will be distributed to
Jupiters Ordinary Shareholders in connection with the Merger. Section 7
sets out detailed information regarding the manner in which the
Centrebet Business, and potential value attributable to that business,
is proposed to be dealt with in connection with the Merger.
20.10 EXCLUSIVITY
Jupiters has agreed that it will not during the term of the Merger
Implementation Agreement solicit or initiate any proposals that might
compete with the Merger, or enter into any discussions or agreements in
relation to any such proposal.
Jupiters is obliged to inform TABCORP of any approaches made to it by a
third party in relation to a competing proposal and any requests for
information. If it provides any information to a third party in
connection with a competing proposal (whether or not solicited), it
must also notify TABCORP of that.
Jupiters' exclusivity obligations do not prevent it from taking action
in relation to an unsolicited bona fide competing proposal made by a
person of reputable commercial standing, where the Jupiters Board
determines (upon appropriate advice) that the proposal is, or is likely
to be, reasonably capable of being valued and completed and is more
favourable from a financial point of view to Jupiters Ordinary
Shareholders than the Merger. However, it must notify TABCORP if it
takes or intends to take any such action, and TABCORP may be entitled
in those circumstances to costs reimbursement.
202
20.11 COSTS REIMBURSEMENT
In certain circumstances, the Merger Implementation Agreement
contemplates that TABCORP or Jupiters may recover from the other party
certain of the costs incurred by it in pursuing the Merger. Each party
was, and remains, of the view that such compensation rights are a
critical condition of its willingness to pursue the Merger.
The compensation rights are intended to cover the advisory costs
incurred by each party, financing costs, the costs of the Independent
Expert and other reasonable out of pocket expenses. They do not extend
to advisers' success fees or opportunity costs.
In the case of TABCORP, the relevant costs have been determined to be
$12.2 million (exclusive of GST), while Jupiters' costs have been
determined to be $7.5 million (exclusive of GST). Jupiters will be
liable to compensate TABCORP for the relevant amount in circumstances
where:
(a) a competing proposal is announced on or before 19 December
2003 and successfully proceeds within the 12 months after
announcement;
(b) the Jupiters Board fails to recommend, or withdraws its
recommendation of, the Merger, or publicly recommends a third
party proposal;
(c) the Jupiters Board fails to recommend, or withdraws its
recommendation of, the RPS Scheme, other than because the
likely VWAP for Jupiters Ordinary Shares prior to the Trigger
Event Conversion Date indicates that the cash consideration
which a RPS Holder would receive on transfer of their RPS
following the giving of a Trigger Event Conversion Notice is
more valuable to a RPS Holder than the consideration offered
under the RPS Scheme; or
(d) the Merger does not proceed because:
- TABCORP terminates the agreement;
- the Court fails to approve the Ordinary Share Scheme;
or
- the Ordinary Share Scheme does not proceed by the
agreed deadline of 19 December 2003,
in each of those cases, as a result of a material breach of
the Merger Implementation Agreement by Jupiters.
Under the Merger Implementation Agreement, the Jupiters Board was
entitled, without being liable as a consequence to reimburse TABCORP's
costs, to not recommend or to withdraw its recommendation of the
Merger, if the Independent Expert had given an unfavourable opinion on
the Ordinary Share Scheme (provided that Jupiters was able to
demonstrate that the dominant reason for that opinion was not the
existence of a third party proposal). Given that the Independent Expert
has given a favourable opinion on the Ordinary Share Scheme (namely
that it is in the best interests of Jupiters Ordinary Shareholders and
is fair and reasonable), this entitlement is no longer relevant.
Similarly, the Merger Implementation Agreement entitled the Jupiters
Board, without being liable as a consequence to reimburse TABCORP's
costs, to not recommend or to withdraw its recommendation of the RPS
Scheme, either because:
203
(a) the Independent Expert gave an unfavourable opinion in
relation to the RPS Scheme; or
(b) the valuation of the Offer Price by the Independent Expert
indicated that the cash consideration which a RPS Holder would
receive on transfer of their RPS following the giving of a
Trigger Event Conversion Notice was more valuable to a RPS
Holder than the consideration offered under the RPS Scheme.
Given that neither event has occurred (that is, the Independent Expert
has provided a favourable opinion on the RPS Scheme, and its valuation
of the Offer Price indicates that RPS Holders will receive more under
the RPS Scheme than in respect of the transfer of their RPS following
the giving of a Trigger Event Conversion Notice - see Section 13.4(b)),
this entitlement is also no longer relevant.
TABCORP will be liable to compensate Jupiters for the relevant amount
in circumstances where:
(a) the Merger does not proceed because:
- Jupiters terminates the agreement;
- the Court fails to approve the Ordinary Share Scheme;
or
- the Ordinary Share Scheme does not proceed by the
agreed deadline of 19 December 2003,
in each of those cases, as a result of a material breach of
the Merger Implementation Agreement by TABCORP;
(b) a condition to the commitment letters described in Section
16.9(c) or to the availability of funds under the loan
facilities to be entered into pursuant to those commitment
letters is not satisfied or waived by the relevant lenders,
except where TABCORP can demonstrate that the dominant reason
for that is a material adverse change in the business or
financial condition of the Jupiters Group.
20.12 TERMINATION RIGHTS
Either party may terminate the Merger Implementation Agreement, and
accordingly abandon the Merger, prior to the Second Court Date if :
(a) the Ordinary Share Scheme does not become effective by 19
December 2003;
(b) the other party is in material breach of the Merger
Implementation Agreement and does not rectify the breach
within five Business Days;
(c) the Ordinary Share Scheme is not approved by the Jupiters
Ordinary Shareholders; or
(d) any court or Regulatory Authority has taken any action to
prevent the Ordinary Share Scheme from proceeding.
TABCORP may also terminate the Merger Implementation Agreement prior to
the Second Court Date if the Directors withdraw their recommendation of
the Ordinary Share Scheme.
204
Jupiters may terminate the agreement prior to the Second Court Date if
it receives a bona fide competing proposal (on the terms described in
Section 20.10), and the Directors publicly recommend that the competing
proposal is in the interests of Jupiters and its members.
TABCORP can also terminate the agreement if Jupiters is legally
prevented from making or implementing an election under the RPS Terms
to have RPS the subject of a Conversion Notice acquired by TABCORP
Investments or redeemed by Jupiters (as applicable).
20.13 JUPITERS PRESCRIBED OCCURRENCES
Jupiters is obliged under the Merger Implementation Agreement to ensure
that no Jupiters Prescribed Occurrence occurs prior to the Second Court
Date. A breach of this obligation will, as discussed in Section 20.3,
entitle TABCORP to terminate the Merger Implementation Agreement and
seek costs reimbursement from Jupiters.
A Jupiters Prescribed Occurrence includes:
(a) Jupiters or any of its Related Entities amending their
constitution;
(b) any member of the Jupiters Group reconstructing its share
capital (for example, by issuing new securities, buying back
shares, reducing its share capital or converting its shares);
(c) Jupiters disposing of any of its subsidiaries, or any member
of the Jupiters Group disposing of the whole or substantial
part of its business or property, or the Jupiters Group
acquiring or disposing of businesses or assets worth more than
$10 million;
(d) Jupiters paying any dividend or other distribution (other than
the Jupiters' final dividend for the June 2003 financial year
and any dividends on the RPS);
(e) any member of the Jupiters Group entering into any contract
with a period of more than two years, or which requires or may
result in expenditure of $500,000 or more in any year (except
where previously legally committed);
(f) any member of the Jupiters Group incurring any debt or making
any loan, other than under existing facilities;
(g) the Jupiters Group making any capital expenditure in excess of
$500,000 (except where previously legally committed);
(h) Jupiters paying or agreeing to pay bonuses or increased
entitlements to Jupiters Group employees (except to the extent
already disclosed to TABCORP or in the ordinary course of
business consistent with past practice);
(i) any Jupiters Group member varying or waiving its rights under
any material contract; or
(j) Jupiters applying or proposing to apply the RPS Terms in a
manner other than as set out in the Merger Implementation
Agreement (see Section 20.7).
There are also a number of insolvency events which would constitute a
Jupiters Prescribed Occurrence.
205
Jupiters and its Related Entities are permitted to take any action that
would otherwise be a Jupiters Prescribed Occurrence if that is required
under the Merger Implementation Agreement, the Schemes, the RPS Terms
or the Jupiters Option Plan. The same applies if the action is
necessitated by the Casino Management Agreements, or is consistent with
business plans or other disclosure made to TABCORP prior to entry into
the Merger Implementation Agreement. Conduct relating to the operation
or disposal of the Centrebet Business is also excluded, provided it is
otherwise in compliance with the Merger Implementation Agreement (see
Section 20.9).
20.14 JUPITERS MATERIAL ADVERSE CHANGE
TABCORP has the right to terminate the Merger Implementation Agreement
if a Jupiters Material Adverse Change occurs prior to the Second Court
Date.
A Jupiters Material Adverse Change is a matter, event or circumstance
which either individually, or when aggregated with others, is
reasonably likely to have an adverse financial effect of $60 million or
more.
Such a matter, event or circumstance would include a change in law and
a change in any matter which has been previously disclosed to TABCORP
as a financial assumption in Jupiters' business plans. It would not
include, however, anything required to be done pursuant to the Merger
Implementation Agreement or anything that TABCORP had knowledge of
prior to entering into the Merger Implementation Agreement (other than
knowledge of the general risk of a matter). It also does not include
any matter impacting on the operation of the Centrebet Business (unless
it impacts the wider Jupiters Group).
The relevant financial effect of such matters, events or circumstances
is calculated on the following basis:
(a) adverse financial effects on the recurring operating EBIT of
the Jupiters Group in any financial year will be taken into
account if they are at least $1 million. In calculating the
overall effect, a factor of ten will be applied (so that an
earnings effect that is actually $2 million will be taken for
these purposes to have an impact of $20 million);
(b) adverse financial effects on the net assets of the Jupiters
Group will be taken into account if they are at least $5
million; and
(c) where the matter, event or circumstance involves capital
expenditure on a particular project of the Jupiters Group
(including the Gold Coast Convention and Exhibition Centre) in
excess of those levels previously disclosed to TABCORP, the
amount of the excess will be taken into account.
Matters that fall within more than one paragraph are only counted once,
being where the matter has the largest financial effect based on the
calculations above.
20.15 JUPITERS' REPRESENTATIONS
In addition to customary representations regarding its status and
corporate authority, Jupiters has represented to TABCORP under the
Merger Implementation Agreement that:
(a) except as otherwise notified to TABCORP, it has acted in good
faith and used all reasonable endeavours to ensure that it has
disclosed to TABCORP all
206
information objectively necessary to make an informed decision
as to whether or not to proceed with the Merger, and that it
is not aware of any material information relating to Jupiters
that has not been disclosed;
(b) the Jupiters Information in this Scheme Booklet has been
included in good faith and on the understanding that TABCORP
and its officers have relied on that information for the
purposes of considering and approving the TABCORP Information
in this Scheme Booklet and that the Independent Expert has
relied on the information for the purposes of preparing its
reports;
(c) the Jupiters Information complies in all material respects
with relevant laws;
(d) the Jupiters Information does not contain any material
statement which is misleading or deceptive or contain any
material omission;
(e) it will provide to TABCORP (and to Jupiters' security holders,
as necessary) any new material information of which Jupiters
becomes aware (after making all reasonable and diligent
enquiries);
(f) except as previously disclosed in any written material made
available to TABCORP as part of its due diligence
investigations, no Director nor any senior executive at
Jupiters is aware (after making reasonable enquiries) of any
Jupiters Prescribed Occurrence having occurred between 5 March
2003 and 12 June 2003 (the date of execution of the Merger
Implementation Agreement);
(g) it will have sufficient profits and franking credits to pay
both the Special Dividend and the Centrebet Dividend; and
(h) the assets to be sold under the Centrebet Sale Agreement are
used exclusively in the Centrebet Business and do not
otherwise relate to the operations of the Jupiters Group, and
the liabilities which will be assumed under the Centrebet Sale
Agreement constitute the material liabilities of Centrebet.
20.16 TABCORP PRESCRIBED OCCURRENCES
TABCORP is obliged under the Merger Implementation Agreement to ensure
that no TABCORP Prescribed Occurrence occurs prior to the Second Court
Date. A breach of this obligation will, as discussed in Section 20.3,
entitle Jupiters to terminate the Merger Implementation Agreement and
seek costs reimbursement from TABCORP.
A TABCORP Prescribed Occurrence includes:
(a) any member of the TABCORP Group reconstructing its share
capital, by reducing its share capital or converting its
shares; and
(b) any member of the TABCORP Group disposing of the whole or
substantial part of its business or property.
There are also a number of insolvency events which would constitute a
TABCORP Prescribed Occurrence.
In addition, a TABCORP Prescribed Occurrence will occur if:
(a) TABCORP (without Jupiters' consent) announces an intention or
agreement to:
207
(i) issue any securities (other than in connection with
the Merger or under a dividend reinvestment plan
including pursuant to any underwriting of that plan
or an employee incentive arrangement);
(ii) acquire assets or securities (other than in the
ordinary course of business) with a cumulative value
of more than $185 million; or
(iii) dispose of substantially all of one of its operating
divisions; and
(b) over the 10 Business Days after the announcement, the volume
weighted average sale price for TABCORP Shares on ASX is below
$8.98, where that price represents a fall relative to $10.26
that is more than 7.5 percentage points greater than the
decline (if any) in the S&P / ASX 100 Index since 5 March
2003.
TABCORP and its Related Entities are permitted to take any action that
would otherwise be a TABCORP Prescribed Occurrence if that is required
under the Merger Implementation Agreement or the Schemes.
20.17 TABCORP MATERIAL ADVERSE CHANGE
Jupiters has the right to terminate the Merger Implementation Agreement
if a TABCORP Material Adverse Change occurs prior to the Second Court
Date.
A TABCORP Material Adverse Change is a matter, event or circumstance
which either individually, or when aggregated with others, is
reasonably likely to have an adverse financial effect of $438 million
or more.
Such a matter, event or circumstance would include a change in law and
a change in any matter which has been previously disclosed to Jupiters
as a financial assumption in TABCORP's business plans for its gaming
business. It would not include, however, anything required to be done
pursuant to the Merger Implementation Agreement or anything that
Jupiters had knowledge of prior to entering into the Merger
Implementation Agreement (other than knowledge of the general risk of a
matter).
The relevant financial effect of such matters, events or circumstances
is calculated on the following basis:
(a) adverse financial effects on the recurring operating EBIT of
the TABCORP Group in any financial year will be taken into
account if they are at least $7 million. In calculating the
overall effect, a factor of ten will be applied (so that an
earnings effect that is actually $9 million will be taken for
these purposes to have an impact of $90 million); and
(b) adverse financial effects on the net assets of the TABCORP
Group will be taken into account if they are at least $36
million.
Matters that fall within more than one paragraph are only counted once,
being where the matter has the largest financial effect based on the
calculations above.
208
20.18 TABCORP'S REPRESENTATIONS
In addition to customary representations regarding its status and
corporate authority, TABCORP has represented to Jupiters under the
Merger Implementation Agreement that:
(a) it has acted in good faith and used all reasonable endeavours
to ensure that it has disclosed to Jupiters all information
objectively necessary for an informed decision to be made in
relation to an acquisition of 48 million TABCORP Shares;
(b) the TABCORP Information in this Scheme Booklet has been
included in good faith and on the understanding that Jupiters
and it officers have relied on that information for the
purposes of preparing this Scheme Booklet and that the
Independent Expert has relied on the information for the
purposes of preparing its report;
(c) the TABCORP Information complies in all material respects with
relevant laws;
(d) the TABCORP Information in this Scheme Booklet does not
contain any material statement which is misleading or
deceptive or contain any material omission;
(e) it will provide to Jupiters any new material information of
which TABCORP becomes aware (after making all reasonable and
diligent enquiries); and
(f) no TABCORP Prescribed Occurrence has occurred between 5 March
2003 and 12 June 2003 (the date of execution of the Merger
Implementation Agreement).
209
SECTION 21 - KEY TERMS OF THE AGREEMENTS WITH JUPITERS OPTIONHOLDERS FOR THE
CANCELLATION OF JUPITERS OPTIONS
Jupiters and TABCORP Investments have entered into an Option Cancellation Deed
with each Jupiters Optionholder. Under the terms of each Option Cancellation
Deed, the parties agree that the Jupiters Options registered in the name of the
relevant Jupiters Optionholder on the Implementation Date for the Ordinary Share
Scheme will be cancelled on that date and that TABCORP Investments will pay to
that Jupiters Optionholder a cancellation fee. The cancellation fee will be
$2.07 for each Jupiters Option which is registered in the name of the relevant
Jupiters Optionholder and which has an expiry date of 30 August 2011, and $2.14
for each Jupiters Option which is registered in the name of the relevant
Jupiters Optionholder and which has an expiry date of 5 November 2011.
The cancellation of Jupiters Options and payments referred to above are subject
to the Ordinary Share Scheme becoming effective.
Unless TABCORP Investments and Jupiters agree otherwise, the Option Cancellation
Deeds will automatically terminate on 19 December 2003 if the conditions
referred to above have not been satisfied by that date.
Under the Jupiters Option Plan, certain of the Jupiters Options will become
exercisable once the Court approves the Ordinary Share Scheme and it is
unconditional. Jupiters Optionholders are able to exercise, on or before the
Implementation Record Date for the Ordinary Share Scheme, any Jupiters Options
which become exercisable before that date. Any Jupiters Optionholder who
exercises Jupiters Options in this way will participate in the Ordinary Share
Scheme in respect of the Jupiters Ordinary Shares issued to them (assuming that
they continue to hold Jupiters Ordinary Shares at the Implementation Record Date
for the Ordinary Share Scheme), and will not receive a cancellation fee in
respect of the relevant Jupiters Options.
Jupiters Optionholders may not otherwise dispose of their Jupiters Options, and
have agreed with Jupiters and TABCORP Investments that they will not do so or
seek to do so.
210
GLOSSARY OF TERMS
DEFINITIONS
In this Scheme Booklet (other than the Appendices), unless the context requires
otherwise:
$ means the lawful currency of Australia.
ACCRUED DIVIDEND EQUIVALENT means, in relation to a RPS, an amount equal to the
dividend accrued on that RPS from (and including) the Dividend Payment Date
immediately prior to the Implementation Date for the RPS Scheme, to (but
excluding) that Implementation Date.
APPENDIX means an appendix to this Scheme Booklet.
ASIC means the Australian Securities and Investments Commission.
ASX means Australian Stock Exchange Limited (ACN 008 624 691) or, as the context
requires, the financial market conducted by it.
ASX LISTING RULES means the official listing rules of ASX.
BUSINESS DAY has the meaning given in the ASX Listing Rules.
CASH CONSIDERATION CAP has the meaning given in Section 6.2(c).
CASINO DUTY AND COMMUNITY BENEFIT LEVY AGREEMENT means the SCH Casino Duty and
Community Benefit Levy Agreement dated 14 December 1994 between the State of New
South Wales and Star City, governing the calculation and payment of certain
taxes in relation to Star City Casino.
CASINO MANAGEMENT AGREEMENTS means:
(a) the agreement dated 18 May 1993 between Jupiters and BI Gaming
Corporation in relation to the management of the hotel and casino
complex known as Conrad Treasury; and
(b) the agreement dated 16 May 1988 between Jupiters, BI Gaming Corporation
and Jupiters Custodian Pty Ltd (ACN 067 888 680) in relation to the
management of the hotel and casino complex known as Conrad Jupiters.
CENTREBET means Centrebet Pty Limited (ACN 082 760 610).
CENTREBET BUSINESS means the internet and telephone gambling business conducted,
or proposed to be conducted (to the extent of the introduction of a rapid-draw
numbers game and mobile telephone betting platforms), by Centrebet and Jupiters
UK Limited (Company Number 04279246) as at 12 June 2003 (being the date of the
Merger Implementation Agreement).
CENTREBET COMPONENT means the component of entitlements to be received by
Jupiters Ordinary Shareholders pursuant to the Ordinary Share Scheme in
connection with the distribution of a proportion of the Net Centrebet Proceeds.
CENTREBET DIVIDEND means a fully franked special dividend (for each Jupiters
Ordinary Share on issue at the Implementation Record Date for the Ordinary Share
Scheme) of a cash amount equal to the Net Centrebet Proceeds divided by the
number of Jupiters Ordinary Shares on issue at the
211
Implementation Record Date for the Ordinary Share Scheme, to be declared by the
Jupiters Board and paid by Jupiters in certain circumstances.
CENTREBET NOTE means an unsecured note to be issued in certain circumstances by
TABCORP Issuer under the Centrebet Note Deed and providing for a potential cash
payment to holders.
CENTREBET NOTE DEED means the Centrebet Notes Trust Deed dated 3 September 2003
between TABCORP, TABCORP Issuer and the Note Trustee, described in Section 7.5.
CENTREBET NOTEHOLDER means a person registered in the register of noteholders of
TABCORP Issuer as the holder of one or more Centrebet Notes from time to time.
CENTREBET SALE means the sale by Jupiters and its relevant Related Entities of
the Centrebet Business, including the assets (or substantially all of the
assets) used in the Centrebet Business and the material liabilities of the
Centrebet Business, to a person other than Jupiters or any of its Related
Entities.
CENTREBET SALE AGREEMENT means a definitive and legally binding agreement,
whether conditional or unconditional, for the Centrebet Sale.
CENTREBET SALE COMPLETION means the first time at which both of the following
are satisfied:
(a) completion under a Centrebet Sale Agreement has occurred; and
(b) the purchase price payable by the purchaser under that Centrebet Sale
Agreement has been received by Jupiters and its relevant Related
Entities, and any adjustments to that purchase price have been made,
and any disputes in relation to any such adjustments have been finally
determined, in accordance with that Centrebet Sale Agreement.
CLUB KENO ACT means the Club Keno Act 1993 (Vic).
CONVERSION DATE means a Special Conversion Date or a Trigger Event Conversion
Date.
CONVERSION MINIMUM has the meaning given to it in the RPS Terms.
CONVERSION NOTICE means a Special Conversion Notice for a Trigger Event
Conversion Notice.
CORPORATIONS ACT means the Corporations Act 2001 (Cth).
COURT means the Supreme Court of Queensland.
DEED POLL means the Deed Poll dated 3 September 2003 executed by TABCORP,
TABCORP Investments and TABCORP Issuer, and set out in Appendix I, pursuant to
which each of TABCORP, TABCORP Investments and TABCORP Issuer has, amongst other
things, covenanted in favour of Jupiters Ordinary Shareholders to perform the
obligations contemplated of it under the Ordinary Share Scheme.
DIRECTORS means the directors of Jupiters.
DIVIDEND PAYMENT DATE has the meaning given in the RPS Terms.
EBIT means earnings before interest and tax.
EBITA means earnings before interest, tax and goodwill amortisation.
212
EBITDA means earnings before interest, tax, depreciation and amortisation.
EFFECTIVE DATE means, in relation to a Scheme, the date on which the order of
the Court made for the purposes of section 411(4)(b) of the Corporations Act in
relation to the Scheme comes into effect pursuant to section 411(10) of the
Corporations Act.
EGM means electronic gaming machine.
EPS means earnings per share.
ELECTION FORM means a form accompanying this Scheme Booklet to be completed by a
Jupiters Ordinary Shareholder who wishes to make a Maximum Shares Election or a
Maximum Cash Election under the Ordinary Share Scheme.
EXEMPT EMPLOYEE SHARE PLAN or EESP means a share plan under which Jupiters
Ordinary Shares are held by the Plan Trustee on trust for certain employees of
the Jupiters Group.
FINANCIAL INFORMATION has the meaning given to it in Section 16.7(a).
GAMING AND BETTING ACT means the Gaming and Betting Act 1994 (Vic).
GAMING LICENCE means the gaming licence granted to TABCORP under the Gaming and
Betting Act.
GAMING MACHINE CONTROL ACT means the Gaming Machine Control Act 1991 (Vic).
GST means the goods and services tax imposed under the A New Tax System (Goods
and Services Tax) Act 1999 (Cth) and the related imposition acts of the
Commonwealth of Australia.
IMPLEMENTATION DATE means, in relation to a Scheme, the third Business Day after
the Implementation Record Date for that Scheme.
IMPLEMENTATION RECORD DATE means, in relation to a Scheme, 5.00pm on the fifth
Business Day after the Effective Date for that Scheme.
INDEPENDENT EXPERT means PricewaterhouseCoopers Securities Ltd (ACN 003 311
617).
INDEPENDENT EXPERT'S REPORT means:
(a) in respect of the Ordinary Share Scheme, the independent expert's
report prepared by the Independent Expert on the Ordinary Share Scheme
and set out in Appendix A; and
(b) in respect of the RPS Scheme, the independent expert's report prepared
by the Independent Expert on the RPS Scheme and set out in Appendix F.
INELIGIBLE OVERSEAS SHAREHOLDERS means a Jupiters Ordinary Shareholder whose
address as shown in Jupiters' Share Register at the Implementation Record Date
for the Ordinary Share Scheme is in a jurisdiction other than Australia or its
external territories, Hong Kong, the United Kingdom or the United States of
America, except where:
(a) in the case of the issue of TABCORP Shares, TABCORP is reasonably
satisfied that such issue to that Jupiters Ordinary Shareholder is not
prohibited, not unduly onerous and not unduly impracticable in that
jurisdiction; and
213
(b) in the case of the issue of Centrebet Notes, TABCORP is reasonably
satisfied that such issue to that Jupiters Ordinary Shareholder is not
prohibited, not unduly onerous and not unduly impracticable in that
jurisdiction.
JOINT VENTURE AGREEMENT means the agreement dated 25 May 1994 between TABCORP,
VicRacing Pty Ltd and certain wholly owned subsidiaries of TABCORP providing for
the establishment and conduct of an unincorporated joint venture between TABCORP
Participant and VicRacing Pty Ltd.
JUPITERS means Jupiters Limited (ACN 010 741 045).
JUPITERS BOARD means the board of directors of Jupiters.
JUPITERS GROUP means Jupiters and its Related Entities.
JUPITERS INFORMATION means the information provided by Jupiters to the
Independent Expert for the purpose of the Independent Expert preparing the
Independent Expert's Reports and the information contained in this Scheme
Booklet other than the TABCORP Information, the taxation opinions set out in
Appendices B and G and the Independent Expert's Reports.
JUPITERS MATERIAL ADVERSE CHANGE has the meaning given in Section 20.14.
JUPITERS OPTION means an option granted pursuant to the Jupiters Option Plan to
subscribe for Jupiters Ordinary Shares.
JUPITERS OPTION PLAN means the Jupiters Limited Executive Option Plan adopted by
the Jupiters Board on or about 8 February 2001.
JUPITERS OPTIONHOLDER means each person registered as the holder of Jupiters
Options in the register of holders of Jupiters Options maintained in accordance
with the Corporations Act.
JUPITERS ORDINARY SHARE means a fully paid ordinary share in the capital of
Jupiters.
JUPITERS ORDINARY SHAREHOLDER means a person registered in Jupiters' Share
Register as the holder of Jupiters Ordinary Shares.
JUPITERS PRESCRIBED OCCURRENCE has the meaning given in Section 20.13.
JUPITERS' SHARE REGISTER means the register of members of Jupiters maintained in
accordance with the Corporations Act.
JUPITERS' SHARE REGISTRY means Computershare Investor Services Pty Ltd (ACN 078
279 277).
MAXIMUM CASH ELECTION has the meaning given to it in Section 6.2(c).
MAXIMUM SHARES ELECTION has the meaning given to it in Section 6.2(c).
MERGED GROUP means TABCORP and its Related Entities following the Merger,
including Jupiters.
MERGER means the combination of Jupiters and TABCORP pursuant to the Ordinary
Share Scheme.
MERGER IMPLEMENTATION AGREEMENT means the Merger Implementation Agreement dated
12 June 2003 between Jupiters and TABCORP (as amended on 4 September 2003).
MINIMUM TRIGGER EVENT REPURCHASE AMOUNT has the meaning given to it in Section
13.4(b).
214
NET CENTREBET PROCEEDS are summarised in Appendix E.
NOTE TRUSTEE means the trustee of the trust constituted by the Centrebet Note
Deed, being Equity Trustees Limited (ACN 004 031 298) as at the date of this
Scheme Booklet.
NPAT means Net Profit after Tax.
NSW CASINO CONTROL AUTHORITY means the New South Wales Control Authority, a
statutory authority created under the Casino Control Act 1992 (NSW).
NSW CASINO LICENCE means the licence issued to Star City and in force under Part
2 of the Casino Control Act 1992 (NSW) to operate a casino.
OFFER PRICE has the meaning given in the RPS Terms.
OPTION CANCELLATION DEED means a deed between TABCORP Investments, Jupiters and
the relevant Jupiters Optionholder providing for the cancellation of Jupiters
Options and the payment of a cancellation fee.
ORDINARY SHARE SCHEME means the proposed scheme of arrangement between Jupiters
and Jupiters Ordinary Shareholders, set out in Appendix C, subject to any
alterations or conditions made or required by the Court under section 411(6) of
the Corporations Act and approved in writing by Jupiters and TABCORP.
ORDINARY SHARE SCHEME MEETING means the meeting of Jupiters Ordinary
Shareholders ordered by the Court to be convened and to be held on 24 October
2003 to consider and, if thought fit, to approve the Ordinary Share Scheme.
PARTICIPATING EMPLOYEES means employees of the Jupiters Group who participate in
the Exempt Employee Share Plan.
PBT means Profit before Income Tax Expense.
PLAN TRUSTEE means the trustee of the Exempt Employee Share Plan, being ASX
Perpetual Registrars Ltd (ACN 083 214 537) as at the date of this Scheme
Booklet.
PRODUCT SUPPLY AGREEMENT means the agreement dated 25 May 1994 between TABCORP,
VicRacing Pty Ltd, Racing Products Victoria Pty Limited and certain subsidiaries
of TABCORP providing for the supply of certain information relating to
thoroughbred, harness and greyhound racing and the establishment and operation
of a marketing program for the Victorian Racing Industry.
QUEENSLAND STATE GOVERNMENT means any and all of the Governor-in-Council of the
State of Queensland, the Minister for the time being charged with the
administration of the Casino Control Act 1982 (Qld) or the Keno Act 1996 (Qld),
the Queensland Office of Gaming Regulation and the chief executive officer of
the Queensland Office of Gaming Regulation.
RACING PROGRAM AGREEMENT means the agreement dated 25 May 1994 between TABCORP,
VicRacing Pty Ltd, Racing Products Victoria Pty Limited and certain subsidiaries
of TABCORP providing for the establishment and operation of a program of race
meetings and races in Victoria.
215
REGULATORY APPROVAL means:
(a) any approval, consent, authorisation, registration, filing, lodgement,
permit, franchise, agreement, notarisation, certificate, permission,
licence, direction, declaration, authority, waiver, modification or
exemption from, by or with a Regulatory Authority;
(b) in relation to anything that would be fully or partly prohibited or
restricted by law if a Regulatory Authority intervened or acted in any
way within a specified period after lodgement, filing, registration or
notification, the expiry of that period without intervention or action;
or
(c) any amendment to any legislation.
REGULATORY AUTHORITY means a government or a governmental, semi-governmental or
judicial entity or authority or any Minister, department, office or delegate of
any government. It includes a self-regulatory organisation established under
statute or a stock exchange, ASIC and ASX.
RELATED ENTITY means, in relation to a person, any entity which is related to
that person within the meaning of section 50 of the Corporations Act or which is
an economic entity (as defined in any approved Australian accounting standard)
that is controlled by that person.
REPURCHASE AMOUNT has the meaning given in the RPS Terms.
RPS means a fully paid reset preference share in the capital of Jupiters issued
on the RPS Terms.
RPS HOLDER means each person registered in the Jupiters' Share Register as the
holder of RPS.
RPS SCHEME means the proposed scheme of arrangement between Jupiters and RPS
Holders, as set out in Appendix H, subject to any alterations or conditions made
or required by the Court under section 411(6) of the Corporations Act and
approved in writing by Jupiters and TABCORP.
RPS SCHEME MEETING means the meeting of RPS Holders ordered by the Court to be
convened and to be held on 24 October 2003 to consider and, if thought fit, to
approve the RPS Scheme.
RPS TERMS means the Terms and Conditions of the RPS (being the Terms and
Conditions as set out in Appendix A to the prospectus dated 28 February 2002
issued by Jupiters, as those Terms and Conditions were amended by the Directors
and announced to ASX on 12 June 2003).
SARS means Severe Acute Respiratory Syndrome.
SCHEME BOOKLET means this scheme booklet.
SCHEME MEETINGS means the Ordinary Share Scheme Meeting and the RPS Scheme
Meeting.
SCHEMES means the Ordinary Share Scheme and the RPS Scheme.
SECOND COURT DATE means the first day on which an application made to the Court
for the Scheme Order is heard or, if the application is adjourned for any
reason, the first day on which the adjourned application is heard.
SECTION means a section of this Scheme Booklet.
SHARE CONSIDERATION CAP has the meaning given in Section 6.2(c).
216
SPECIAL CONVERSION DATE has the meaning given to it in Section 13.4(c).
SPECIAL CONVERSION NOTICE means a notice to Jupiters from a RPS Holder that
requests Jupiters to convert the number of RPS specified in the notice into
Jupiters Ordinary Shares pursuant to clause 4.3 of the RPS Terms.
SPECIAL DIVIDEND means a fully franked dividend (for each Jupiters Ordinary
Share on issue at the Implementation Record Date for the Ordinary Share Scheme)
of $0.75 cash.
STANDARD CASH AND SHARES OFFER has the meaning given to it in Section 6.2.
STAR CITY means Star City Pty Ltd (ACN 060 510 410).
STAR CITY CASINO means the casino operated at Pyrmont Bay, New South Wales in
respect of which Star City has been issued a casino licence.
STAR CITY GROUP means Star City Holdings and its subsidiaries.
STAR CITY HOLDINGS means Star City Holdings Limited (ACN 064 054 431).
STAR CITY MANAGEMENT AGREEMENT means the Casino Complex Management Agreement
entered into on 21 April 1994 between Sydney Harbour Casino Properties Pty Ltd,
Star City, Showboat Australia Pty Ltd, Sydney Casino Management Pty Ltd (all
wholly owned subsidiaries of TABCORP at the date of this Scheme Booklet) and
Leighton Property Development Pty Ltd in relation to the operation, management
and supervision of Star City Casino.
TABCORP means TABCORP Holdings Limited (ACN 063 780 709).
TABCORP BOARD means the board of directors of TABCORP.
TABCORP GROUP means TABCORP and its Related Entities as at the date of this
Scheme Booklet.
TABCORP INFORMATION means the information set out in Sections 4, 5 under the
heading "Trading of TABCORP Shares", 6.1 but only the third paragraph and that
part of the sixth paragraph that relates to TABCORP's intentions, 6.2(d)(ii) but
only that part of the fifth paragraph that relates to TABCORP's intentions with
respect to Centrebet, 7.1 but only that part of the ninth paragraph that relates
to TABCORP's intentions with respect to Centrebet, 7.3, 7.4, 7.5, 11, 13.4(b)
but only that part of the seventh paragraph that relates to the period after the
Effective Date for the Ordinary Share Scheme, 13.4(c) but only the fourth
paragraph, 14, 16, 17, 18 other than Sections 18.3 and 18.6 and that part of
18.7(b) that relates to the laws concerning internet gambling and Centrebet's
turnover, 19.12, 19.13, 19.14, 19.15, 19.16, 19.17, 19.18, 20.4 and definitions
used in the Glossary that are used in the preceding Sections that are not used
elsewhere in the Scheme Booklet other than the Glossary, which have been
prepared and provided by TABCORP, TABCORP Investments and TABCORP Issuer for use
in this Scheme Booklet, and information provided by TABCORP, TABCORP Investments
or TABCORP Issuer to the Independent Expert for the purpose of the Independent
Expert preparing the Independent Expert's Reports.
TABCORP INVESTMENTS means TABCORP Investments No. 2 Pty Ltd (ACN 105 341 375).
TABCORP ISSUER means TABCORP Issuer Pty Ltd (ACN 105 341 366).
TABCORP MATERIAL ADVERSE CHANGE has the meaning given in Section 20.17.
TABCORP PARTICIPANT means TABCORP Participant Pty Ltd (ACN 064 304 105).
217
TABCORP PRESCRIBED OCCURRENCE has the meaning given in Section 20.16.
TABCORP SHARE means a fully paid ordinary share in the capital of TABCORP.
TATTERSALL'S means the Trustees of the Will and Estate of the late George Adams.
TRIGGER EVENT means the trigger event arising under the RPS Terms as a result of
the release of this Scheme Booklet to ASX.
TRIGGER EVENT CONVERSION DATE means the trigger event conversion date under the
RPS Terms pertaining to the Trigger Event.
TRIGGER EVENT CONVERSION NOTICE means the notice that may be delivered to
Jupiters by a RPS Holder following the notification by Jupiters of the Trigger
Event requesting Jupiters to convert the number of RPS specified in the notice
into Jupiters Ordinary Shares pursuant to clause 4.2 of the RPS Terms.
TRIGGER EVENT NOTIFICATION means the notice sent to RPS Holders notifying them
of the occurrence of a Trigger Event under the RPS Terms.
US NOTE DEED means the Indenture dated as of 11 March 1999 between Jupiters, The
Bank of New York and others.
US NOTES means 8.5% unsecured senior notes issued under the US Note Deed.
VCGA or VICTORIAN CASINO AND GAMING AUTHORITY means the Victorian Casino and
Gaming Authority established under the Gaming and Betting Act.
VICTORIAN MINISTER means the Minister of the Crown for the time being charged
with the administration of the Gaming and Betting Act.
VICTORIAN RACING INDUSTRY means the thoroughbred, harness and greyhound racing
clubs established in Victoria.
VWAP means the average of the daily volume weighted average sale price of
Jupiters Ordinary Shares sold on ASX during the specified period or on specified
days (but not including any transaction defined in the official business rules
of ASX as "special" crossings prior to the commencement of normal trading,
crossings during the after hours adjust phase nor any overseas trades or the
exercise of options over Jupiters Ordinary Shares), or, as the context requires,
the variable "VWAP" as determined under the RPS Terms.
WAGERING LICENCE means the wagering licence granted to TABCORP under the Gaming
and Betting Act.
INTERPRETATION
In this Scheme Booklet (other than the Appendices):
- - Words and phrases not otherwise defined in this Scheme Booklet
(excluding the Appendices) have the same meaning (if any) as is given
to them by the Corporations Act.
- - The singular includes the plural and vice versa. A reference to a
person includes a reference to a corporation.
218
- - Headings are for ease of reference only and do not affect the
interpretation of this Scheme Booklet.
APPENDIX A
INDEPENDENT EXPERT'S REPORT ON THE ORDINARY SHARE SCHEME
[PRICEWATERHOUSECOOPERS LETTERHEAD]
The Directors
Jupiters Limited
Level 9
Niecon Tower
17 Victoria Avenue
BROADBEACH QLD 4128
4 September 2003
Dear Directors
INDEPENDENT EXPERT'S REPORT IN RELATION TO THE PROPOSED MERGER WITH TABCORP
HOLDINGS LIMITED
INTRODUCTION
On 5 March 2003, the directors of Jupiters Limited (Jupiters) and TABCORP
Holdings Limited (TABCORP) jointly announced a proposal to create Australia's
largest gambling and entertainment company through the Proposed Merger of
Jupiters and TABCORP.
The Proposed Merger is to be implemented by way of TABCORP Investments, a wholly
owned subsidiary of TABCORP, acquiring all of the ordinary shares in Jupiters
and will be effected by a Scheme of Arrangement between Jupiters and the holders
of Jupiters Ordinary Shares (Ordinary Share Scheme). Jupiters will also propose
a scheme for the holders of Jupiters RPS (RPS Scheme).
The Proposed Merger is conditional upon Jupiters Ordinary Shareholders approving
the Ordinary Share Scheme, but is not conditional upon the RPS Scheme becoming
effective. The details of the Proposed Merger are embodied in a Merger
Implementation Agreement (MIA) dated 12 June 2003, which sets out the main terms
and conditions of the merger, as well as the process leading to the approval of
the Schemes of Arrangement.
In summary, the Proposed Merger is conditional upon various regulatory
approvals, including the Queensland Government, approval of the Supreme Court of
Queensland, approval of Jupiters Ordinary Shareholders, TABCORP's financing
facility becoming unconditional and certain prescribed events not occurring.
SHAREHOLDER APPROVAL
Pursuant to the MIA, Jupiters must propose the Schemes of Arrangement under Part
5.1 of the Corporations Act. Details of each Scheme are contained in the Scheme
Booklet which has been approved by the Court, registered with the Australian
Securities & Investments Commission (ASIC) and in which this letter and
accompanying report are enclosed.
Relevant shareholders will be asked to vote on the Schemes at meetings ordered
by the Court under section 411(1) of the Corporations Act. In addition to voting
on whether the Ordinary Share Scheme should be approved, Jupiters Ordinary
Shareholders may also make an election as to the form of consideration they wish
to receive should the Ordinary Share Scheme be approved.
[PRICEWATERHOUSECOOPERS LOGO]
It will be a significant decision for Jupiters Ordinary Shareholders to approve
the Proposed Merger as approval will pass control of Jupiters to TABCORP,
providing the Ordinary Share Scheme is also approved by the Court. In making
this decision, Jupiters Ordinary Shareholders will need to compare the benefits
of approving the Proposed Merger against the benefits offered by other
alternatives available to them and to Jupiters.
INDEPENDENT EXPERT'S REPORT
To assist Jupiters Ordinary Shareholders in their decision whether to approve
the Proposed Merger, the Jupiters directors have requested
PricewaterhouseCoopers Securities Ltd (PwCS) to prepare an Independent Expert's
Report addressing whether or not the Proposed Merger is fair and reasonable and
is in the best interests of Jupiters Ordinary Shareholders. This letter contains
our opinion, which is based on the approach, evaluation criteria and analysis
set out in the accompanying Independent Expert's Report.
In developing our evaluation criteria as to the meaning of "best interests" and
"fair and reasonable", we have considered precedents, as well as the policy and
practice statements issued by ASIC. In our view, the criteria we have applied,
as summarised below, for assessing best interests incorporates the fair and
reasonable tests embodied in the Corporations Act and in ASIC's policy
statements.
Our report is directed at the interests of the Jupiters Ordinary Shareholders
and therefore we do not directly consider the interests of the RPS holders in
our report. A separate report has been prepared on the RPS Scheme.
TERMS OF THE MERGER PROPOSAL
The salient aspect for Jupiters Ordinary Shareholders, which is addressed in our
report, is whether the total consideration offers sufficient value to compensate
them for the disposal of their ordinary shares in Jupiters. For the purposes of
our report, the total consideration reflects the aggregate entitlements under
the Ordinary Share Scheme as set out in the Scheme Booklet.
Under the Proposed Merger, Jupiters Ordinary Shareholders will receive, for
their Jupiters Ordinary Shares, a combination of cash and shares (with limited
exceptions). It is important to note that the consideration comprises a
component of cash and shares to be provided by the TABCORP Group directly,
another component being delivered by Jupiters in the form of a special dividend,
and a further component relating to the Net Centrebet Proceeds, which may be
provided by the TABCORP Group or by Jupiters.
The cash and shares component of the TABCORP consideration is set out in the
Scheme Booklet and is described as a cash amount and quantum of TABCORP shares
for each 100 Jupiters Ordinary Shares held (subject to the effects of rounding).
Throughout our report we have converted the offer to an equivalent cash amount
and quantum of TABCORP Shares for one Jupiters Ordinary Share, to allow easier
comparison.
[PRICEWATERHOUSECOOPERS LOGO]
Leaving aside the proceeds from the sale of the Centrebet business, the
component of consideration from the TABCORP Group, for each Jupiters Ordinary
Share held, is (on average):
- - 0.24 shares in TABCORP, and
- - $2.85 in cash.
Leaving aside the proceeds from the sale of the Centrebet business, the
component of consideration from Jupiters, for each Jupiters Ordinary Share held,
is $0.75 in cash via payment of a fully franked special dividend.
Additional consideration is provided for in relation to the sale of the
Centrebet business:
- - if the sale of Centrebet completes before 31 October 2003, the
consideration will be the Net Centrebet Proceeds payable by Jupiters by
way of a fully franked dividend, or
- - if the sale of Centrebet completes after 31 October 2003, the
consideration will be an unsecured note from TABCORP Issuer under which
TABCORP Issuer will pay the Net Centrebet Proceeds to Jupiters Ordinary
Shareholders when such proceeds are received; or
- - should a sale agreement for the sale of Centrebet not be entered into
by 30 June 2004 or not be completed before 30 September 2004, providing
TABCORP has exercised reasonable endeavours to sell Centrebet, the
notes will lapse and TABCORP will have no further obligation to sell
Centrebet or to account to Jupiters Ordinary Shareholders for any
proceeds received.
The Ordinary Share Scheme will also allow Jupiters Ordinary Shareholders to
elect to receive a higher proportion of cash or shares from TABCORP depending on
the availability of cash and shares from fixed pools.
BASIS OF EVALUATION
At the outset, we note that the strategic rationale for the Proposed Merger is
underpinned by influences within the gambling industry which drive the need for
greater scale and diversification in order to generate earnings growth and to
take advantage of expansion opportunities. Our report evaluates these influences
in the context of the Proposed Merger. In doing so, we have applied four
criteria to assess whether the Merger Proposal is fair and reasonable and in the
best interests of Jupiters Ordinary Shareholders:
(a) DOES THE PROPOSED MERGER OFFER FAIR VALUE TO JUPITERS ORDINARY
SHAREHOLDERS? To satisfy this test, the total consideration
offered must not be less than the fair value of a Jupiters
Ordinary Share. In evaluating whether the total consideration
is fair, we have valued Jupiters including a full control
premium, on the basis that the Proposed Merger amounts to a
takeover of Jupiters
(b) WILL JUPITERS ORDINARY SHAREHOLDERS BE BETTER OFF AFTER THE
TRANSACTION? To satisfy this test, the Proposed Merger must
demonstrate net benefits based on an comparison of pre and
post-merger shareholder value metrics. In undertaking this
analysis, we have allowed for the impact on the metrics of the
significant cash component in the total consideration
(c) IS THE MERGER THE BEST ALTERNATIVE AVAILABLE? To satisfy this
test, the Proposed Merger must demonstrate that it delivers
more value to Jupiters Ordinary Shareholders than alternative
strategies, including a sale to, or merger with, an
alternative buyer, continuation as a stand alone company or an
orderly realisation of assets
(d) IS IT REASONABLE FOR JUPITERS SHAREHOLDERS TO APPROVE THE
TERMS OF THE MERGER RESOLUTION? To satisfy this test, the
terms of the Proposed Merger should not contain any onerous or
non-commercial conditions, which could materially dilute the
value of the consideration offered.
OPINION
[PRICEWATERHOUSECOOPERS LOGO]
In our opinion, THE PROPOSED MERGER IS FAIR AND REASONABLE AND IS IN THE BEST
INTERESTS OF JUPITERS ORDINARY SHAREHOLDERS. Our reasons for this opinion are
summarised as follows:
(a) The TOTAL CONSIDERATION OFFERED IS FAIR, because on our
assessment it is not less than the full control value of a
Jupiters ordinary share:
(i) the range of full control values of Jupiters Ordinary
Shares compared to the value of total consideration
is set out in Tables 1 and 2 and also shown
graphically in Figure 1:
TABLE 1
VALUE OF JUPITERS ORDINARY SHARES
- ------------------------------------------------------------------------
LOW HIGH
- ------------------------------------------------------------------------
EBITDA $m 175.0 180.0
Multiple 9.0 9.5
------- -------
Enterprise value $m 1,575 1,710
Surplus assets $m 93 127
Debt $m (473) (473)
------- -------
Equity value $m 1,195 1,364
No of ordinary shares (m) 201.8 201.8
VALUE PER SHARE $ 5.92 $ 6.76
- ------------------------------------------------------------------------
TABLE 2
VALUE OF TOTAL CONSIDERATION
- ---------------------------------------------------------------------
LOW HIGH
- ---------------------------------------------------------------------
TABCORP shares 2.40 2.76
Cash 2.85 2.85
------- -------
TABCORP CONSIDERATION 5.25 5.61
Net Centrebet Proceeds - 0.27
Special dividend 0.75 0.75
Value of franking credits 0.16 0.22
------- -------
TOTAL CONSIDERATION $ 6.16 $ 6.85
- ---------------------------------------------------------------------
[PRICEWATERHOUSECOOPERS LOGO]
FIGURE 1
COMPARISON OF VALUE TO CONSIDERATION
[BAR CHART]
(ii) as shown in Table 2, the total consideration offered
is in the range $6.16 to $6.85. This total
consideration is not less than our assessment of the
full control value of a Jupiters Ordinary Share which
is in the range $5.92 to $6.76 as shown in Table 1
(iii) in assessing the full control value of a Jupiters
Ordinary Share (Table 1), we have incorporated a
control premium into the EBITDA multiple. We have
assessed this control premium to be approximately 25%
to 30% above the portfolio value of a Jupiters
Ordinary Share.
(iv) the value of total consideration in Table 2 includes
benefits attributable to franking credits attaching
to the special dividend and Centrebet distribution.
We have valued these benefits, which will vary
according to class of shareholder, as the average
benefit of the franking credits to be received
(v) whilst Table 2 is directed specifically at the
standard cash and share consideration option, we note
that the bottom of our TABCORP consideration range of
$5.25 is equal in value to that which would be
received under the "maximum cash alternative" and,
therefore, the maximum cash alternative is also fair.
Given the exchange ratio to determine the "maximum
share alternative", this would realise value which is
consistent with our TABCORP consideration range and
is also fair. Hence, our fairness opinion covers all
available mixtures of cash and shares consideration
(vi) the low end of our range for the total consideration
in Table 2 reflects a scenario where Jupiters
Ordinary Shareholders receive no benefits for
Centrebet. At this low end, the total consideration
is still within our valuation range for Jupiters
Ordinary Shares and the offer is still fair.
(b) JUPITERS ORDINARY SHAREHOLDERS WILL BE BETTER OFF AFTER THE
MERGER because, compared to Jupiters' position pre-merger, the
Proposed Merger offers net advantages in that:
(i) it offers positive features as follows:
- a substantial control premium over the Jupiters
share trading prices prior to the announcement of
the merger discussions with UNiTAB and TABCORP. We
assess this control premium at an average of 34%
based on the average value of consideration of
$6.51 over the pre-UNiTAB announcement VWAP of
$4.84
- a significant cash realisation at a full control
value of Jupiters, whilst allowing Jupiters
Ordinary Shareholders to retain an interest,
albeit diluted, in the merged TABCORP going
forward. Accordingly, shareholders can retain the
opportunity to participate in any potential upside
in the industry, but at a reduced investment level
[PRICEWATERHOUSECOOPERS LOGO]
- significantly enhanced dividends and marginally
enhanced earnings per share (pre-amortisation of
intangibles), generated from the debt leverage
used to finance the merger, together with
potential for earnings enhancement from
realisation of synergies
- the credit standing of the merged group is likely
to be better than Jupiters standalone. This is
despite the funding of a significant portion of
the total consideration by debt. In addition,
shareholders will have benefited from the receipt
of cash as part of the total consideration which
reduces their overall risk
- the opportunity to share in the longer-run
potential arising from diversification of merged
TABCORP, together with the associated portfolio
benefits, especially in relation to the casinos,
which should reduce volatility of earnings and
allow for stronger competitive positioning
- a higher representation in Australian Stock
Exchange Limited (ASX) leaders indices promoting
additional trading activity and associated
liquidity in TABCORP shares.
(ii) however, it contains some risks which Jupiters
Ordinary Shareholders who decide to retain their
TABCORP shares post-merger will assume, including:
- in order to justify the price paid (that is, the
total consideration) over time, TABCORP will need
to demonstrate that it can support a re-rating of
the earnings multiple for the merged group, via
the actual realisation of synergies and
achievement of longer-term portfolio benefits
post-merger. Otherwise the merged TABCORP's share
price may not be sustained
- the achievement of merger synergies will depend
upon successful implementation of TABCORP's
integration plans, together with sound management
of risks, especially associated with the
integration of technologies and management
cultures, and TABCORP management resources being
sufficient to manage the demands of a wider
portfolio
[PRICEWATERHOUSECOOPERS LOGO]
- the capital management policies of TABCORP,
involving a combination of high dividend payout
ratio and relatively high debt to equity ratio,
will require prudent management to ensure that the
competing cash flow demands are met and that
capital expenditure, particularly on the casino
properties and technology, is not under-committed
over time
- Jupiters' shareholders who decide to retain their
TABCORP shares will be exposed to greater
regulatory risk associated with the renewal of
TABCORP's gaming and wagering licences in 2012.
(iii) on balance, we believe the positive benefits outweigh
the risks. The risks should be capable of management
by TABCORP based on its expertise and track record
and, in any case, Jupiters Ordinary Shareholders will
retain a reduced exposure post-merger via the receipt
of cash as a major part of the total consideration
offered.
(c) THE PROPOSED MERGER IS THE BEST ALTERNATIVE AVAILABLE because
it delivers most value to shareholders. In our view:
(i) the Proposed Merger offers greater value and benefits
than the alternative proposal to merge with UNiTAB
which, based on the likely merger terms, would not
have offered a control premium for Jupiters Ordinary
Shareholders, would not have delivered any cash, and
would have relied on realisation of synergies to
generate value over time
(ii) no other alternative offers have been received,
despite the public nature of the negotiations with
TABCORP. In any case, as the Proposed Merger values
Jupiters with a full control premium, we would not
expect an alternative buyer to be able to justify a
materially higher offer price coupled with the
significant cash component
(iii) an orderly realisation of assets would not deliver
higher value in that such a strategy would incur
costs and tax liabilities, and would not deliver any
value for synergy benefits or control
(iv) a stand alone strategy does not provide a longer term
direction for Jupiters, and does not address the
industry influences as set out in paragraph 18. In
addition, a stand alone strategy does not allow the
benefit of synergies to be gained
(v) Jupiters' share price would most likely trade at a
lower price in the absence of this Proposed Merger.
We would anticipate that prices may fall to the
pre-TABCORP announcement but post UNiTAB announcement
trading range. In this case, we are of the view that
the additional control premium of some 15.5% which
was built into the share price following the TABCORP
announcement would be lost to shareholders.
(d) THE PROPOSED MERGER HAS REASONABLE COMMERCIAL TERMS, because
the agreements reached do not appear to contain any
non-commercial terms which have the potential to materially
dilute the value of the total consideration for Jupiters
Ordinary Shareholders.
For the reasons set out above, in our opinion, Jupiters Ordinary Shareholders
should approve the Ordinary Scheme resolution.
GENERAL
The full analysis and reasoning for our opinion is set out in our attached
report.
Yours sincerely
/s/ Ron Higham /s/ Andrew Wellington
- -------------- ---------------------
Ron Higham Andrew Wellington
Director and Authorised Representative Authorised Representative
PricewaterhouseCoopers Securities Ltd
[PRICEWATERHOUSECOOPERS LOGO]
INDEPENDENT EXPERT'S REPORT
PREPARED FOR THE DIRECTORS OF JUPITERS LIMITED IN RELATION TO THE PROPOSED
MERGER WITH TABCORP HOLDINGS LIMITED
4 SEPTEMBER 2003
[PRICEWATERHOUSECOOPERS LOGO]
TABLE OF CONTENTS
- ------------------------------------------------------------------------------------------------------------
SECTION TITLE PAGE
- ------------------------------------------------------------------------------------------------------------
1 INTRODUCTION AND PURPOSE OF OUR REPORT 3
2 DETAILS OF THE PROPOSED MERGER 5
2A Scheme of Arrangement for ordinary shares
2B Scheme of Arrangement for RPS
2C Resolutions
3 BASIS OF OUR EVALUATION 9
4 THE PROPOSED MERGER IN THE CONTEXT OF THE AUSTRALIAN GAMBLING INDUSTRY 11
4A Background to Proposed Merger
4B Industry trends and outlook
4C Description of merged operations
4D Summary of industry considerations for the merger
5 JUPITERS ORDINARY SHARES - WHAT IS THEIR VALUE? 29
5A Overview
5B Application of valuation methodology
5C Conclusion on Valuation of Jupiters Ordinary Shares
6 THE MERGER CONSIDERATION - IS IT FAIR? 41
6A Introduction and approach
6B Value of TABCORP shares
6C Cash component
6D Other merger consideration
6E Comparison of total consideration to valuation of Jupiters Ordinary Shares
7 POST MERGER ANALYSIS - ARE JUPITERS ORDINARY SHAREHOLDERS BETTER OFF? 53
7A Introduction and approach
7B Summary of TABCORP pre-merger operating performance
7C A pro-forma view of the Merged TABCORP
7D Shareholder value analysis
8 ALTERNATIVES - IS THERE A BETTER ONE? 69
8A Merger with UNiTAB
8B Other potential suitors
8C Orderly realisation
8D Continuation as a stand alone entity
9 IS IT REASONABLE FOR JUPITERS ORDINARY SHAREHOLDERS TO APPROVE THE TERMS OF THE MERGER 73
RESOLUTIONS?
- -----------------------------------------------------------------------------------------------------------
APPENDICES
- -----------------------------------------------------------------------------------------------------------
A Qualifications, disclaimers and consents 75
B Sources of information 77
C Value of Centrebet 78
D Comparable company analysis 85
E Glossary of Terms 89
- -----------------------------------------------------------------------------------------------------------
[PRICEWATERHOUSECOOPERS LOGO]
Introduction and purpose of our report
On 5 March 2003, the directors of Jupiters and TABCORP jointly announced the
Proposed Merger of Jupiters and TABCORP.
The Proposed Merger is to be implemented by way of TABCORP Investments, a wholly
owned subsidiary of TABCORP, acquiring all of the ordinary shares in Jupiters
and will be effected by a Scheme of Arrangement between Jupiters and the holders
of Jupiters Ordinary Shares. Jupiters will also propose a Scheme for the holders
of Jupiters RPS.
The details of the Proposed Merger are embodied in the MIA dated 12 June 2003
which sets out the main terms and conditions of the merger, as well as the
process leading to the approval of the Schemes of Arrangement. In summary, the
Proposed Merger is conditional upon various regulatory approvals, approval of
the Queensland Government, approval of the Supreme Court of Queensland, approval
of Jupiters Ordinary Shareholders, TABCORP's financing facilities becoming
unconditional and certain prescribed events not occurring.
Pursuant to the MIA, Jupiters must propose the Schemes of Arrangement in
accordance with Part 5.1 of the Corporations Act. Details of each Scheme are
contained in the Scheme Booklet which has been approved by the Court, registered
with the Australian Securities & Investments Commission (ASIC) and in which this
report is enclosed. Relevant shareholders will be asked to vote on the Schemes
at meetings ordered by the Court under section 411(1) of the Corporations Act.
In addition to voting on whether the Scheme should be approved, holders of
Jupiters Ordinary Shares, may make an election as to the form of consideration
they wish to receive should the Ordinary Share Scheme be approved.
It will be a significant decision for Jupiters Ordinary Shareholders to approve
the Proposed Merger, as approval will pass control of Jupiters to TABCORP if the
Ordinary Share Scheme is also approved by the Court. In making this decision,
Jupiters Ordinary Shareholders will need to compare the benefits of approving
the Proposed Merger against the benefits offered by other alternatives available
to them and to Jupiters.
To assist the Jupiters Ordinary Shareholders in deciding whether to approve the
Proposed Merger, the Jupiters directors have requested PwCS to prepare this
Independent Expert's Report addressing whether or not the Proposed Merger is
fair and reasonable and is in the best interests of Jupiters Ordinary
Shareholders. We therefore do not directly consider the interests of the RPS
Holders in this report. Our approach, decision criteria and evaluation process
in relation to the interests of the Jupiters Ordinary Shareholders are set out
in the succeeding Sections of this report.
At the outset, we note that the strategic rationale for the Proposed Merger is
underpinned by a range of business and gambling industry drivers which we have
addressed in the report. The essence of these drivers can be summarised as:
- - the desire for greater FINANCIAL AND OPERATIONAL SCALE in order to gain
competitive advantage in national and global markets, by exploiting
economies of scale and by achieving lower unit costs through synergies
from complementary strategies, systems, technology and intellectual
property to produce greater earnings growth, value and returns to
shareholders
- - the desire to achieve LEGAL DIVERSIFICATION across jurisdictions in
order to reduce volatility induced by changing State-based gambling
regulation
12
[PRICEWATERHOUSECOOPERS LOGO]
Section 1: Introduction and purpose of our report
- - the desire to achieve BUSINESS DIVERSIFICATION across geographic
markets and to broaden product offerings in order to reduce volatility
caused by reliance on specific gaming and wagering products, and
- - the desire to generate benefits for shareholders through the
implementation of PORTFOLIO MANAGEMENT STRATEGIES across complementary
products, especially the casinos, allowing for improved revenues and
the spreading of risk over a larger revenue base.
Our report evaluates and tests these propositions in the context of the Proposed
Merger. Our specific evaluation criteria are set out in Section 3.
Users of this report should have regard to the qualifications, disclaimers and
consents contained in Appendix A. All amounts referred to in this report are in
Australian dollars, unless otherwise specifically stated. Abbreviations and
definitions are contained in the Glossary of Terms at Appendix E.
13
[PRICEWATERHOUSECOOPERS LOGO]
Details of the Proposed Merger
The terms of the Proposed Merger are fully described in the accompanying Scheme
Booklet. For convenience, we have summarised the terms and effect of the
Proposed Merger in this section.
If approved, the outcome of the Schemes of Arrangement will be:
- - TABCORP Investments will acquire all the outstanding Jupiters Ordinary
Shares and RPS and all of the executive options in Jupiters will be
cancelled, making Jupiters a wholly owned subsidiary of TABCORP, and
- - because part of the consideration to be provided to Jupiters Ordinary
Shareholders under the Ordinary Share Scheme comprises TABCORP shares,
Jupiters Ordinary Shareholders will most likely hold shares in the
Merged TABCORP, thereby retaining an indirect but diluted interest in
Jupiters.
2A SCHEME OF ARRANGEMENT FOR ORDINARY SHARES
CONSIDERATION OFFERED
Under the Proposed Merger, Jupiters Ordinary Shareholders will receive, for
their Jupiters Ordinary Shares, a combination of cash and shares (with limited
exceptions). It is important to note that the consideration comprises a
component of cash and shares to be provided by the TABCORP Group directly,
another component being delivered by Jupiters in the form of a special dividend,
and a further component relating to the Net Centrebet Proceeds, which may be
provided by the TABCORP Group or by Jupiters.
The salient aspect for Jupiters Ordinary Shareholders, which is addressed in our
report, is whether the total consideration offers sufficient value to compensate
them for the disposal of their ordinary shares in Jupiters. For the purposes of
our report the total consideration reflects the aggregate entitlements under the
Ordinary Share Scheme as set out in the Scheme Booklet.
The cash and shares component of the TABCORP consideration is set out in the
Scheme Booklet and is described as a cash amount and quantum of TABCORP shares
for each 100 Jupiters Ordinary Shares held (subject to the effects of rounding).
Throughout our report we have converted the offer to an equivalent cash amount
and quantum of TABCORP Shares for one Jupiters Ordinary Share, to allow
comparison to the value of one Jupiters Ordinary Share.
Leaving aside the proceeds from the sale of the Centrebet business, the
component of consideration from the TABCORP Group, for each Jupiters Ordinary
Share held, is (on average):
- - 0.24 shares in TABCORP, and
- - $2.85 in cash.
Leaving aside the proceeds from the sale of the Centrebet business, the
component of consideration from Jupiters, for each Jupiters Ordinary Share held,
is $0.75 in cash via payment of a fully franked special dividend.
Additional consideration is provided for in relation to the sale of the
Centrebet business:
- - if the sale of Centrebet completes before 31 October 2003, the
consideration will be the Net Centrebet Proceeds from Jupiters by way
of a fully franked dividend, or
14
[PRICEWATERHOUSECOOPERS LOGO]
Section 2: Details of the Proposed Merger
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
- - if the sale of Centrebet completes after 31 October 2003, the
consideration will be in the form of an unsecured note from TABCORP
Issuer under which TABCORP Issuer will pay the value of the Net
Centrebet Proceeds to Jupiters Ordinary Shareholders when such proceeds
are received; or
- - should a sale agreement for the sale of Centrebet not be entered into
by 30 June 2004 or not be completed by 30 September 2004, provided
TABCORP has exercised reasonable endeavours to sell Centrebet, the
notes will lapse and TABCORP will have no further obligation to sell
Centrebet, or account to Jupiters Ordinary Shareholders for any
proceeds received.
The TABCORP shares, unsecured notes and franking credits represent a non-cash
component of the total consideration and our report addresses the value of
these, as well as the value of the other components of consideration.
The Ordinary Share Scheme will allow Jupiters Ordinary Shareholders to elect to
receive varying amounts of cash and shares from the TABCORP Group as follows:
Option 1: Cash and shares - 0.24 TABCORP shares plus $2.85 for
each Jupiters Ordinary Share held (this is the base offer as
described above, and is subject to the effects of rounding
described in the Scheme Booklet).
Option 2: Maximum cash - Jupiters Ordinary Shareholders may
elect to receive an additional cash payment of up to $2.40 per
Jupiters Ordinary Share in lieu of TABCORP shares. This option
is limited to the extent cash is available from a cash pool of
approximately $575 million (as adjusted for the exercise of
executive options in Jupiters).
Option 3: Maximum shares - Jupiters Ordinary Shareholders may
elect to receive up to an additional 0.285 shares in TABCORP
per Jupiters Ordinary Share in lieu of cash. This option is
limited to the extent the shares are available from a share
pool of approximately 48.4 million shares (as adjusted for the
exercise of executive options in Jupiters). Any fractional
entitlement to a TABCORP share will be rounded up or down to
the nearest whole number of TABCORP shares.
Effectively, as both the cash paid and shares issued will reach their respective
pool limits if all shareholders chose the `average' of $2.85 and 0.24 TABCORP
shares for each Jupiters Ordinary Share, additional cash and shares will only be
available to the extent some ordinary shareholders elect to take different
mixtures of cash and shares.
15
[PRICEWATERHOUSECOOPERS LOGO]
Section 2: Details of the Proposed Merger
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Information is provided in the Scheme Booklet as to how, prima facie, the value
of the maximum cash and maximum shares options may vary with changes to TABCORP
share prices. In making a choice between the alternatives, investors should have
regard to their own financial and tax circumstances and, if necessary, seek
their own professional advice.
CENTREBET DIVESTMENT
The MIA provides that Jupiters will use all reasonable endeavours to dispose of
the Centrebet Business prior to 31 October 2003. The net proceeds of such a sale
are to be distributed to Jupiters Ordinary Shareholders as additional
consideration under the Ordinary Share Scheme by way of a fully franked dividend
from Jupiters. As discussed in Section 5, the process for selling the Centrebet
Business is well advanced at the date of this report.
16
[PRICEWATERHOUSECOOPERS LOGO]
Section 2: Details of the Proposed Merger
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
However, the quantum of the Net Centrebet Proceeds is still uncertain. For the
purposes of this report, we have made an estimate of this amount in Section 6.
This estimate is not material to our opinion, in that Jupiters Ordinary
Shareholders will eventually share in the actual net proceeds, subject to the
rider in the next paragraph.
The Proposed Merger covers the contingency that the Centrebet Business may not
be disposed of prior to 31 October 2003 in which case TABCORP Issuer will issue
an unsecured note to Jupiters Ordinary Shareholders as part of the consideration
under the Ordinary Share Scheme. In this event, the TABCORP Group will assume
responsibility for the disposal of the Centrebet Business, under the control of
a committee comprising a TABCORP director and the two Jupiters directors who
will join the TABCORP board.
Overall, the Proposed Merger contemplates the following scenarios for Centrebet
with varying outcomes for Jupiters Ordinary Shareholders as follows:
- - if the sale is completed prior to 31 October 2003, 100% of the Net
Centrebet Proceeds will be distributed (as discussed above) by Jupiters
as a fully franked dividend
- - if the sale is not completed by 31 October 2003 but a sale agreement is
entered into by 30 June 2004 and completed by 30 September 2004,
TABCORP will retain the first $10 million of the net proceeds plus 12%
of net proceeds in excess of $30 million and the balance of the net
proceeds will be distributed to Jupiters Ordinary Shareholders via
redemption of the Centrebet Note to be issued
- - if an agreement to sell the Centrebet Business has not been entered
into by 30 June 2004, or if the Centrebet Business is not sold by 30
September 2004 it will remain part of the TABCORP Group (subject to
certain restrictions), TABCORP will have no further obligations to sell
the business and, therefore, Jupiters Ordinary Shareholders will not
retain any direct economic interest in it other than as TABCORP
shareholders.
INELIGIBLE OVERSEAS SHAREHOLDERS
Ineligible Overseas Shareholders will not have TABCORP shares or Centrebet Notes
issued directly to them. Securities that would otherwise be issued to Ineligible
Overseas Shareholders will be issued to a nominee appointed by TABCORP. The
nominee will sell the TABCORP shares, hold the Centrebet Notes until they are
redeemed or lapse, and remit the resulting cash as soon as practicable after the
TABCORP shares have been sold or Centrebet Notes redeemed.
Our assessment of the value of the TABCORP shares offered as merger
consideration represents the amount that the Jupiters Ordinary Shareholders
could reasonably expect to realise if they sold, either immediately or in the
short term, the TABCORP shares they will receive under the Proposed Merger.
17
[PRICEWATERHOUSECOOPERS LOGO]
Section 2: Details of the Proposed Merger
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Hence our analysis and conclusions in relation to the Ordinary Share Scheme
apply equally to Ineligible Overseas Shareholders as to other Jupiters Ordinary
Shareholders.
2B SCHEME OF ARRANGEMENT FOR RPS
Pursuant to the RPS Scheme, holders of Jupiters RPS will receive $105.26, plus
the value of accrued dividends, in cash from TABCORP Investments for each RPS.
Holders of RPS also have a number of alternatives open to them pursuant to the
Jupiters RPS terms as a result of the Proposed Merger. These are discussed in
detail in our separate report in relation to the RPS Scheme. We have not in this
report considered whether the RPS Scheme is fair and reasonable and in the best
interests of RPS holders.
2C RESOLUTIONS
Jupiters Ordinary Shareholders and RPS Holders will be asked to vote on the
respective Schemes in accordance with the resolutions contained in the relevant
notice of meeting accompanying the Scheme Booklet. The Scheme for RPS holders is
conditional upon the Ordinary Share Scheme becoming effective.
The Ordinary Share Scheme is not conditional on the RPS Scheme becoming
effective.
If the resolutions are passed by the relevant majorities, Jupiters must apply to
the Court for orders approving the relevant Scheme(s), and if that approval is
given, lodge the orders with ASIC and do all things necessary to give effect to
the relevant Scheme(s).
18
[PRICEWATERHOUSECOOPERS LOGO]
Basis of our evaluation
In developing our evaluation criteria, we have considered the nature of the
Proposed Merger and how this will impact on Jupiters Ordinary Shareholders.
In our view, the Proposed Merger amounts to a takeover of Jupiters in that:
- - control of Jupiters will pass to TABCORP, with only around 12% of
TABCORP equity being held post-merger by existing Jupiters Ordinary
Shareholders, and
- - the majority of the consideration is in the form of cash.
In considering whether the Proposed Merger is in the best interests of Jupiters
Ordinary Shareholders, we have therefore looked for the presence of a full
control premium in the consideration offered.
We have also had regard to the relevant Policy Statements and Practice Notes
issued by ASIC. In particular, we have had regard to Policy Statement 75:
Independent Expert Reports to Shareholders, and Practice Note 43: Valuation
Reports and Profit Forecasts.
Policy Statement 75 states that:
- - a transaction is "fair" if the value of the consideration offered is
equal to or greater than (that is, not less than) the value of the
asset or assets which are the subject of the transaction
- - a transaction is "reasonable" if it is fair. It may also be reasonable
if, despite not being fair, after considering other significant
factors, shareholders should accept the terms of the transaction in the
absence of any higher bid.
In our view, for the Proposed Merger to be fair and reasonable and in the best
interests of Jupiters Ordinary Shareholders, it must be capable of satisfying
four key criteria:
- - DOES THE PROPOSED MERGER OFFER FAIR VALUE TO JUPITERS ORDINARY
SHAREHOLDERS? This involves a comparison of the value of the total
consideration being offered to the value of Jupiters Ordinary Shares
including a control premium. If the total value of the consideration
offered is not less than the value of Jupiters Ordinary Shares,
including a control premium, the transaction will offer fair value. In
this regard, the consideration is the total of the TABCORP
consideration plus any other amounts to be paid directly by Jupiters
- - WILL JUPITERS ORDINARY SHAREHOLDERS BE BETTER OFF AFTER THE
TRANSACTION? An important component of the consideration involves
shares in TABCORP. Jupiters Ordinary Shareholders need to evaluate the
implications and benefits in owning TABCORP shares, as well as consider
the additional benefits and risks associated with the merger strategy
and synergies. This evaluation involves a comparison of various pre and
post merger shareholder value metrics, including earnings per share
(EPS), dividends per share (DPS), debt to equity ratios, and review of
capital market parameters, such as trading and liquidity in the TABCORP
stock, as well as a consideration of the merged TABCORP group's
prospects
- - IS THE MERGER THE BEST ALTERNATIVE AVAILABLE? The Proposed Merger will
pass control of Jupiters to TABCORP. Shareholders need to be satisfied
that the Proposed Merger provides the most value to shareholders
compared to other options available to realise value, for example from
an orderly realisation or from
19
[PRICEWATERHOUSECOOPERS LOGO]
Section 3: Basis of evaluation
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
other suitors, such as the potential merger with UNiTAB, or from a
stand alone strategy, and
20
[PRICEWATERHOUSECOOPERS LOGO]
Section 3: Basis of evaluation
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
- - IS IT REASONABLE FOR JUPITERS ORDINARY SHAREHOLDERS TO APPROVE THE
TERMS OF THE MERGER RESOLUTION? This involves a consideration of other
commercial arrangements, such as board and management control, and any
material contractual conditions. The terms of the Proposed Merger
should not contain any onerous or non-commercial conditions which could
materially dilute the value of the consideration.
In our view, our best interests criteria incorporate the requirements for a fair
and reasonable assessment.
In undertaking our assessment, we have considered the likely impact of the
Proposed Merger on the ordinary shareholders as a whole. We have not considered
how the Proposed Merger may affect individual shareholders. Individual
shareholders have different financial and tax circumstances and it is not
practicable nor possible to consider the implications of the Proposed Merger on
individuals as their respective financial circumstances are not known to us.
Individual shareholders should seek their own professional advice.
21
[PRICEWATERHOUSECOOPERS LOGO]
The Proposed Merger in the context of the Australian gambling industry
4A BACKGROUND TO PROPOSED MERGER
Both Jupiters and TABCORP are significant participants in the Australian
gambling industry. Whilst there is significant complementarity in their
operations, they do not tend to compete directly because Jupiters' major
activities are in Queensland whilst TABCORP has significant activities in both
Victoria and New South Wales. The Merger Proposal therefore offers potential for
geographic diversification by bringing the two groups together.
The Australian gambling industry experienced significant growth throughout the
1990s, however that growth is showing signs of maturing and levelling off. It is
within this context that the Proposed Merger should be viewed. In considering
the Proposed Merger, we have therefore given consideration to industry trends
and outlook at a national level and then considered the profile of the gambling
operations of the Merged TABCORP should the Proposed Merger be approved.
The major activities of Jupiters can be summarised as:
- - ownership of two premier casino/hotel complexes in Queensland, being
Conrad Jupiters on the Gold Coast and Conrad Treasury in Brisbane
- - ownership and operation of the Breakwater casino/hotel and marina
complex in Townsville
- - operation of a real-time, wide-area keno game throughout Queensland
(Jupiters Keno) and New South Wales (Club Keno)
- - provision of monitoring services and progressive jackpot services for
gaming machines in Queensland
- - ownership of Centrebet, a Northern Territory based international
on-line fixed odds sports book operator
- - operation of a nation-wide information technology service and support
business for the Australian gaming and other industries (AWA
Technology)
- - development of gaming and wagering technology for use by Jupiters
and/or sale or licence to third parties in Australia and offshore
(Jupiters Technology and Jupiters International).
TABCORP similarly owns and operates a number of businesses in the gaming and
wagering sector. The major activities of TABCORP are based in Victoria and New
South Wales and can be summarised as:
- - holds one of the two Gaming Operators licences permitting holders to
operate gaming machines in Victoria outside Crown Casino. Under this
licence, TABCORP owns, operates and monitors gaming machines at
licensed clubs and hotels throughout Victoria
- - holds the sole licence to conduct on-course and off-course totalisators
(wagering) in Victoria on thoroughbred, harness and greyhound racing in
Australia and New Zealand
- - ownership and operation of the Star City casino/hotel complex in Sydney
- - operation of fixed odds betting in Victoria on approved sporting and
other events
- - operation of TRACKSIDE, an animated simulated racing game at off-course
venues in Victoria, casinos in Australia and venues in Denmark
- - holds a keno licence in Victoria.
22
[PRICEWATERHOUSECOOPERS LOGO]
Section 4: The Proposed Merger in the context of the Australian gambling
industry
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
23
[PRICEWATERHOUSECOOPERS LOGO]
Section 4: The Proposed Merger in the context of the Australian gambling
industry
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
A summary of the operations on a geographic basis is set out in Table 4.1.
TABLE 4.1
GEOGRAPHIC SPLIT OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------
STATE CASINOS GAMING WAGERING OTHER
- ------------------------------------------------------------------------------------------------------------------
VICTORIA - TABCORP - TABCORP - TABCORP keno
Gaming wagering - TRACKSIDE
- Fixed odds
betting
- ------------------------------------------------------------------------------------------------------------------
NEW SOUTH WALES - Star City - Club Keno
- ------------------------------------------------------------------------------------------------------------------
QUEENSLAND - Conrad Jupiters - Jupiters Machine - Jupiters Keno
- Conrad Treasury Gaming
- Jupiters Townsville - TABCORP
monitoring
- ------------------------------------------------------------------------------------------------------------------
OTHER/INTERNATIONAL - SuperTAB - Jupiters Technology
pooling - Jupiters
agreement International
- Centrebet - AWA Technology
- TRACKSIDE
- ------------------------------------------------------------------------------------------------------------------
Italics = TABCORP operations
Non-Italics = Jupiters operations
The Proposed Merger would therefore produce a merged entity with a significant
market share and operations across the three major states of Queensland, New
South Wales and Victoria. These three states dominate the Australian gambling
industry, which is a major sector in the Australian economy and contributes
strongly to State revenues. Figures 4.1 and 4.2 below, show the merged market
share, as well as the geographic spread of revenue pre and post merger, of the
national gambling industry.
FIGURE 4.1
GAMBLING MARKET SHARE OF MERGED TABCORP
[PIE CHART]
Other 81%
Merged TABCORP(1) 19%
(1) The merged TABCORP market share includes revenues managed by TABCORP under
the terms of the joint venture with the
24
[PRICEWATERHOUSECOOPERS LOGO]
Section 4: The Proposed Merger in the context of the Australian gambling
industry
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
FIGURE 4.2
MERGER EFFECTS ON GEOGRAPHICAL SPREAD OF REVENUE
[PIE CHART]
TABCORP PRE-MERGER(2003)
QLD 0%
NSW 33%
VIC 67%
[PIE CHART]
JUPITERS PRE-MERGER(2003)
NSW 8%
Centrebet 4%
QLD 88%
[PIE CHART]
TABCORP POST-MERGER
QLD 26%
NSW 26%
VIC 48%
Source : TABCORP analysis, PwC analysis
4B INDUSTRY TRENDS AND OUTLOOK
Australian gambling turnover has grown rapidly over the past decade and by
2000/01 had grown to in excess of $117 billion, representing a CAGR of 14.7%
over the prior ten years. Much of this growth was fuelled by new capacity in the
form of new casino licences in Canberra, Brisbane, Cairns, Sydney and Melbourne,
and by the rapid growth in gaming machines in Victoria, New South Wales and
Queensland in particular. The market dominance and high growth of gaming
machines and casinos is illustrated by the 5 year growth profile shown in Figure
4.3.
25
[PRICEWATERHOUSECOOPERS LOGO]
Section 4: The Proposed Merger in the context of the Australian gambling
industry
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
FIGURE 4.3
GAMBLING TURNOVER(1) AND EXPENDITURE(1) GROWTH FROM 1995/96 TO 2000/01
[GRAPH]
(1) Does not include interactive gaming data
Source : Tasmanian Gaming Commission, PwC analysis
TABCORP and Jupiters have benefited from this growth and have employed
strategies involving both organic growth and acquisitions. As examples of the
latter, TABCORP acquired the Sydney casino licence through its 1999 takeover of
Star City, whilst Jupiters successfully bid for the Brisbane casino licence and
commenced operations in 1995, and in late 2002 acquired the balance of ownership
in Jupiters Townsville.
A key growth driver for the industry has been the benefit from an increasing
share of HDI. This is largely an outcome of enhanced distribution and the aging
population, who have a greater propensity to spend on leisure and entertainment
activities. To illustrate, the share of HDI being spent in Australia on gambling
has increased from 2.53% in 1994 to 3.39% in 2001 as shown in Figure 4.4.
FIGURE 4.4
26
[PRICEWATERHOUSECOOPERS LOGO]
Section 4: The Proposed Merger in the context of the Australian gambling
industry
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
GAMBLING EXPENDITURE AS A PERCENTAGE OF HOUSEHOLD DISPOSABLE INCOME
[PIE CHART]
1993-94 2000-01
Gambling 2.53% 3.39%
Other expenditure 97.47% 96.61%
4.27%
CAGR
Source: Tasmanian Gaming Commission, PwC analysis
Future organic growth in the industry is expected to be assisted by continued
growth in HDI, as shown in Figure 4.5, which shows continued forecast real
growth in HDI through to 2005.
FIGURE 4.5
GROWTH IN GAMBLING EXPENDITURE AND HDI
GAMBLING EXPENDITURE COMPARED TO HOUSEHOLD DISPOSABLE INCOME
FROM 1990/91 TO 2004/05
[BAR CHART]
(1) Household disposable income
Source : Tasmanian Gaming Commission, Access Economics, PwC analysis
In more recent years, however, as also shown in Figure 4.5 above, the rate of
growth in gambling expenditure has started to show signs of maturity, due to a
major degree, to government-imposed caps on gaming machines and no new casino
licences. Nevertheless, if gambling can at least maintain its 3.39% share of
27
[PRICEWATERHOUSECOOPERS LOGO]
Section 4: The Proposed Merger in the context of the Australian gambling
industry
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
HDI, there should be a positive underlying industry growth factor, assuming no
further major changes in state government social policies in relation to
responsible gambling.
Maturity in any industry inevitably drives rationalisation. As revenue growth
begins to slow, participants focus more on the costs of product delivery in
order to continue generating bottom line growth. The desire to achieve scale
economies, allowing costs and risks to be spread over a larger operation, is
critical to this strategy. The Proposed Merger is a response to this maturing
growth profile.
Given this industry profile there are likely to be four key drivers of value for
participants in the gambling industry. They are:
- - finding ways to generate earnings growth as the industry matures
- - producing economies of scale in product delivery
- - producing diversification benefits across products, allowing greater
flexibility in risk management and,
- - managing regulatory risk as regulators introduce safeguards to minimise
the perceived social impacts associated with problem gambling.
In order to generate the required earnings growth, expansion into new markets
(including potential overseas expansion) becomes imperative. However, without
the necessary capital base and economic scale such expansion is difficult and
risky.
From TABCORP's perspective, the Proposed Merger is an opportunity to broaden its
exposure to other markets such as Queensland, whilst also spreading the
regulatory risk across jurisdictions and increasing its merged capital base.
From Jupiters perspective, in the absence of the TABCORP proposal, it would have
to look to other ways to address these strategic imperatives. The alternatives
for Jupiters are considered in Section 8.
4C DESCRIPTION OF MERGED OPERATIONS
The Proposed Merger would see TABCORP have significant operations across three
state jurisdictions, Queensland, New South Wales and Victoria. Following the
merger, TABCORP would manage a market share of approximately 19% of the total
gambling market in Australia. The operations of a post merger TABCORP in each of
the Australian states are now considered in turn.
QUEENSLAND
As shown in figure 4.6, based on data for 2000/01, Queensland gambling
expenditure represents 15% of national expenditure. In Queensland, 72% of its
gambling expenditure is generated from gaming machines and casinos. Gambling
expenditure has increased by a CAGR of approximately 14% from 1995/96 to
2000/01. The increase in casino turnover and revenue has been primarily due to
the opening of Treasury Casino in Brisbane in 1995. Other trends are consistent
with national statistics.
28
[PRICEWATERHOUSECOOPERS LOGO]
Section 4: The Proposed Merger in the context of the Australian gambling
industry
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
FIGURE 4.6
GAMBLING EXPENDITURE BY STATE IN 2000/01(%)
[PIE CHART]
VIC 29%
SA 6%
Other 9%
QLD 15%
NSW 41%
Other 17%
TAB 11%
Casino 25%
Gaming Machines 47%
Gambling type
Source: Tasmanian Gaming Commission, PwC analysis
JUPITERS CASINO OPERATIONS
CONRAD JUPITERS
In 1985, Jupiters Trust established the Conrad Jupiters hotel/casino which
remains the only casino resort destination on the Gold Coast. Conrad Jupiters
offers a wide array of amenities catering to local patrons, Australian and
international tourists and premium players. The Queensland Government awarded
Jupiters the casino licence in perpetuity.
Conrad Jupiters currently has 103 tables and 1,348 machines installed, with
legislative limits of 117 tables and 1,404 machines, leaving some room for
expansion of the gaming facility. Conrad Jupiters also has:
- - 8 restaurants and bars
- - 603 room hotel, including 29 suites
- - Banquet facilities
- - Jupiters Showroom theatre (1,125 seats)
- - Retail speciality shops
- - Covered car park for 2,400 cars.
GOLD COAST CONVENTION AND EXHIBITION CENTRE (GCCEC)
In December 2000, Jupiters entered into agreements with the Queensland
Government to develop and manage the GCCEC which is due to open in 2004. This
Queensland Government funded project is currently in construction and is located
adjacent to Conrad Jupiters. The Government-owned $118 million GCCEC
29
[PRICEWATERHOUSECOOPERS LOGO]
Section 4: The Proposed Merger in the context of the Australian gambling
industry
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
has been designed to cater for up to 2,000 convention delegates or up to 6,000
concert or sporting event attendees.
Jupiters' role will be to facilitate the development of the GCCEC and operate it
under a long-term management agreement. The strategy for the GCCEC is to attract
more convention business to the Gold Coast, particularly larger scale
international and national conventions and exhibitions, and therefore drive
increased visitation to the region.
The project is being constructed under a Managed Reimbursable contract by
Multiplex and is expected to be completed on budget and in time for the first
event in July 2004.
CONRAD TREASURY
In 1995, Jupiters established Conrad Treasury, a boutique hotel and landmark
casino in Brisbane which caters to local patrons, Australian tourists and
targeted premium players. The licence to operate the casino extends for a
further 67 years and provides an initial ten-year exclusivity period to 2005 for
casino gaming within a 60 kilometre radius of its central business district
location.
Conrad Treasury features 1,329 gaming machines and 86 table games. Other
facilities include:
- - 7 restaurants and bars
- - 130 room hotel
- - underground car parking for 750 cars.
JUPITERS TOWNSVILLE
In 1994, Jupiters acquired a 32.2% interest in Breakwater Island Trust (BIT),
the owner of Sheraton Townsville Hotel & Casino (renamed Jupiters Townsville in
1999) and an 83.3% interest in Breakwater Island Limited (BIL), the Responsible
Entity of BIT.
In 1999, Jupiters acquired various interests held by Starwood Pacific Hotels Pty
Ltd in BIL and BIT, resulting in Jupiters becoming the operator of the Trust's
hotel/casino complex as well as holding 47.5% of the units in BIT and 100% of
BIL.
Jupiters moved to full ownership of BIT in March 2003.
30
[PRICEWATERHOUSECOOPERS LOGO]
Section 4: The Proposed Merger in the context of the Australian gambling
industry
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Jupiters Townsville is an integrated tourism and leisure facility that caters
primarily to local patrons and Australian tourists. The facility includes a
casino with 16 table games and 294 gaming machines as well as:
- - 194 room hotel
- - 7 restaurant and bars.
BIT also owns the Breakwater Marina, a 241 berth marina in Townsville with an
additional 6.4 hectares of undeveloped land and holds a 20% interest in, and
operates, the Townsville Entertainment Centre.
CASINO MANAGEMENT AGREEMENTS
In 1983, Conrad International Hotels Corporation (CIHC), a wholly owned
subsidiary of Hilton Hotels Corporation, became a founder unitholder of Jupiters
Trust and commenced managing Conrad Jupiters. Jupiters also engaged CIHC to
manage Conrad Treasury when operations commenced in 1995. On 31 December 1998,
CIHC transferred its rights to manage Conrad Jupiters and Conrad Treasury and
its shares in Jupiters, to BI Gaming, a wholly owned subsidiary of Park Place
Entertainment Corporation (Park Place). Park Place was formed as a result of the
separation of Hilton's hotel and gaming businesses.
The right to use the Conrad brand name for Conrad Jupiters is held under the
management agreement with BI Gaming and for Conrad Treasury under a licence from
Hilton Hospitality Inc.
The operations and management of Jupiters Townsville are conducted by Jupiters
under a management agreement with Breakwater Island Trust.
A summary of the management fees payable under the management contracts is shown
in Table 4.2:
TABLE 4.2
MANAGEMENT AGREEMENTS
PROPERTY MANAGER EXPIRY TERMS (3)
- -------------------------------------------------------------------------------------------------
Conrad Jupiters BI Gaming 2010 2% revenue + 5% profit (1)
- -------------------------------------------------------------------------------------------------
Conrad Treasury BI Gaming 2010 2% revenue + 5% profit (1)
- -------------------------------------------------------------------------------------------------
Jupiters Townsville Jupiters 2011 (2) 1% Casino revenue + 5% Casino profit
3% Hotel revenue + 9% Hotel profit
- -------------------------------------------------------------------------------------------------
Notes:
(1) Profit is defined as total income before fixed charges
(2) Plus two renewal option periods of five years subsequent
(3) Exclusive of goods and services tax (GST)
KENO OPERATIONS
JUPITERS KENO
In 1997 Jupiters obtained a 25-year licence to operate a real-time, wide-area
keno game in Queensland casinos, clubs, bars/pubs and TABs. The licence is
exclusive for a minimum of ten years in public places in Queensland, although
the Queensland Government has various rights to terminate the licence.
31
[PRICEWATERHOUSECOOPERS LOGO]
Section 4: The Proposed Merger in the context of the Australian gambling
industry
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Jupiters began operating Jupiters Keno outside its casinos on July 1, 1997 and
now serves 597 clubs and bars/pubs/hotels, 248 TABs, Conrad Jupiters, Conrad
Treasury, Jupiters Townsville and Reef Casino Cairns.
The business is operated by Jupiters-appointed keno agents, who collect turnover
and pay out winnings and, in return for a daily connection fee, Jupiters
provides the agents with hardware, equipment installation, maintenance,
insurance and promotional material.
JUPITERS MACHINE GAMING
Jupiters Machine Gaming was one of eight entities to acquire a ten-year licence
to provide monitoring and other services in respect of Queensland's gaming
machines in clubs and bars/pubs. The licensed monitoring operators (LMO's)
commenced gaming machine monitoring services in 1998. Rationalisation in the
industry has resulted in only four licensed operators remaining in the market.
Jupiters currently monitors close to 40% of the gaming machines in Queensland
clubs and hotels. The Queensland regulatory authority has set the maximum market
penetration at 40% per licensee.
QUEENSLAND REGULATORY DEVELOPMENTS
The operation of casinos and other gaming and wagering in Queensland is
regulated pursuant to a number of Acts and other legislation. A number of recent
regulatory changes have been relevant to both the casino and gaming machine
operations of Jupiters, as follows:
- - Note Acceptors - All bank note acceptors on gaming machines in clubs,
hotels and casinos have been limited to accepting $20 notes only from 1
December 2001. Prior to this, approximately 94% of Jupiters' machines
accepted $50 and $100 notes
- - Non-smoking - The Queensland Government introduced a ban on smoking in
certain gaming areas from May 2002. Jupiters has been active in
implementing non-smoking policies in many of its gaming areas prior to
the mandatory date and was granted an exemption for its Club Conrad
premium gaming venues. Jupiters believes the approach taken will
minimise any long term impact on revenue.
From our discussions with management and industry analysis, we are not aware of
any further impending legislative amendments which will impact Jupiters' various
business units in Queensland.
NEW SOUTH WALES
As shown in figure 4.7, based on data for 2000/01, New South Wales gambling
expenditure represents 41% of national expenditure. In New South Wales, 70% of
gambling expenditure is generated by gaming machines, compared to only 47% in
Queensland and 56% in Victoria. Gaming machine expenditure and casino
expenditure have grown at a CAGR of 11% and 14% respectively from 1995/96 to
2000/01.
32
[PRICEWATERHOUSECOOPERS LOGO]
Section 4: The Proposed Merger in the context of the Australian gambling
industry
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
FIGURE 4.7
GAMBLING EXPENDITURE BY STATE IN 2000/01(%)
[PIE CHART]
Other 9%
SA 6%
VIC 29%
QLD 15%
NSW 41%
Other 10%
TAB 11%
Casino 9%
Gaming Machines 70%
The Merged TABCORP's New South Wales operations will be represented by its
existing Star City casino complex, which overall commands a 9% share of the NSW
gambling market, and Jupiters Club Keno operations.
STAR CITY
In December 1994, a Casino licence was issued for the operation of the Star City
Casino. The licence provides the right to operate a casino in New South Wales
for 99 years commencing from 13 September 1995. The New South Wales government
has agreed to compensate Star City if it issues licences to other operators of
certain table games for the 12 years to 13 September 2007.
Star City is located at Pyrmont, adjacent to Darling Harbour and approximately
1.5 kilometres from the Sydney central business district. Title to improvements
on the site revert to the New South Wales Casino Control Authority without
payment or compensation upon termination of the lease on 13 December 2093.
TABCORP acquired control of Star City Holdings Limited, the then head of the
group of companies which owns Star City Casino in late 1999.
The Star City complex consists of:
- - A casino containing 200 gaming tables and 1,500 gaming machines. Gaming
areas are split between the main gaming floor (164 tables) and premium
player areas, The Endeavour Room and three private gaming rooms (36
tables)
33
[PRICEWATERHOUSECOOPERS LOGO]
Section 4: The Proposed Merger in the context of the Australian gambling
industry
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
- - 7 restaurants and 6 bars
- - 352 room hotel and 139 serviced apartments
- - Banquet facilities
- - Lyric theatre (2,000 seats) and Showroom theatre (1,000 seats)
- - Retail arcade
- - Underground car park for 2,500 cars.
The Star City Casino is subject to the Casino Control Act 1992 of New South
Wales, which is administered by the New South Wales Casino Control Authority.
The Act requires an investigation of a casino operator within each three year
period from the original grant of a casino licence. Star City has had two
reviews, the first report was issued in March 1998 and the second in December
2000. While both reports found that it was in the public interest for Star
City's casino licence to continue in force, the second report found there had
been some problems at the casino and made a number of recommendations to improve
the management of the casino and its regulation. These recommendations included
changes to the regulatory structure, criminal influence and exploitation,
intoxication and other associated matters.
The New South Wales Casino Control Authority performed a review of Star City's
progress in actioning the recommendations within their control and a report in
July 2002 concluded that Star City had substantially commenced the process of
implementing management procedures to deal with the issues raised in the
December 2000 report.
Star City Casino is managed by a wholly owned subsidiary of TABCORP. TABCORP
completed the purchase of an 85% interest in the subsidiary and management
contract on 11 January 2000 for $207 million and the remaining 15% interest
effective 30 June 2003 for $53 million.
TABCORP has in place a Casino Services Agreement with Harrah's Entertainment
Inc. which, for a fixed annual fee, provides TABCORP with access to certain of
Harrah's knowledge and experience in running casinos. The agreement expires in
January 2005.
CLUB KENO
The acquisition of AWA in January 2000 resulted in Jupiters acquiring a company
now called Jupiters Gaming (NSW) Pty Ltd which is the joint licensee and manager
of Club Keno. The licence to operate keno in clubs in New South Wales is jointly
held with Clubkeno Holdings Pty Ltd which is controlled by Clubs NSW, a body
associated with the registered clubs in that state.
Jupiters Gaming (NSW) operates real-time, wide-area keno games in New South
Wales in over 1,000 clubs and Star City Casino on behalf of the licencees for a
fee. The licence expires in July 2007 and Jupiters and Clubs NSW have the right
to reapply for renewal of that licence in accordance with normal regulatory
processes.
34
[PRICEWATERHOUSECOOPERS LOGO]
Section 4: The Proposed Merger in the context of the Australian gambling
industry
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
VICTORIA
As shown in figure 4.8, based on data for 2000/01, Victorian gambling
expenditure represents 29% of national expenditure.
35
[PRICEWATERHOUSECOOPERS LOGO]
Section 4: The Proposed Merger in the context of the Australian gambling
industry
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
FIGURE 4.8
GAMBLING EXPENDITURE BY STATE IN 2000/01(%)
[PIE CHART]
Other 9%
SA 6%
VIC 29%
QLD 15%
NSW 41%
Other 10%
TAB 11%
Casino 23%
Gaming Machines 56%
Victoria has a similar gambling mix to Queensland, with gaming machines and
casino expenditure representing the majority of state expenditure (79%). Gaming
machine expenditure and casino expenditure have grown at a CAGR of 14% from
1995/96 to 2000/01.
GAMING AND WAGERING LICENCES
TABCORP's Victorian operations consist of gaming and wagering activities. Its
Gaming and Wagering licences are for a term of 18 years and are not
transferable. They expire in 2012.
On the granting of a new licence under the Gaming and Betting Act, TABCORP will
be entitled to receive an amount equal to the lesser of the purchase
consideration for the new licences and an amount between 85% and 115% of the
original $597 million paid by TABCORP for the Wagering and Gaming licences in
1994.
The licences may only be cancelled by the Supreme Court of Victoria, following
an application by the VCGA, which is approved by the Minister. Grounds for
cancellation include:
- - a material breach, of the relevant laws or licences relating to
wagering or gaming, which is not rectified or in relation to which
steps to rectify the breach have not been taken within a specified
period of time
- - TABCORP or an operator of a licence being convicted of a serious
offence, which is of sufficient magnitude to warrant cancellation
36
[PRICEWATERHOUSECOOPERS LOGO]
Section 4: The Proposed Merger in the context of the Australian gambling
industry
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
- - TABCORP or an operator of a licence being involved in a scheme or
arrangement intended to avoid paying tax under the Gaming and Betting
Act
- - TABCORP or an operator of a licence being insolvent.
GAMING
The gaming machine operations operate under the Tabaret brand in hotels and
licensed clubs in Victoria. TABCORP is licensed to operate up to 13,750 gaming
machines in Victoria. At 30 June 2003, TABCORP operated 13,692 gaming machines.
The other licensed operators of gaming machines in Victoria are:
- - Tattersall's, which, like TABCORP, is also licensed to operate 13,750
gaming machines in hotels and licensed clubs in Victoria
- - Crown Casino, which is licensed to operate 2,500 gaming machines in the
Crown Casino.
A number of Ministerial Directions have been issued in relation to the operation
of the industry. These are:
- - TABCORP's allocation of 13,750 gaming machines must be split equally
between hotels and licensed clubs (as must Tattersall's)
- - the maximum number of gaming machines in any one venue is 105
- - a minimum of 20% of gaming machines in Victoria must be located outside
the Melbourne metropolitan area.
There are regional caps in place which limit the number of gaming machines
within a defined region. There are currently 5 regional caps in place in
Victoria with the Victorian government intending to introduce another 5 and
extend the current capped areas.
The gaming industry has grown dramatically in Victoria as shown in Figure 4.9.
FIGURE 4.9
37
[PRICEWATERHOUSECOOPERS LOGO]
Section 4: The Proposed Merger in the context of the Australian gambling
industry
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
GAMING MACHINE GROWTH IN VICTORIA
[BAR CHART]
TURNOVER($m)
1990-91 61.2
2000-01 23,889.7
81.6% CAGR(1)
[BAR CHART]
EXPENDITURE($m)
1990-91 8.9
2000-01 2,366.0
74.7% CAGR(1)
(1) Compound annual growth rate
Source : Tasmanian Gaming Commission, PwC analysis
38
[PRICEWATERHOUSECOOPERS LOGO]
Section 4: The Proposed Merger in the context of the Australian gambling
industry
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
OPERATING RESTRICTIONS
While historical growth in gaming machine revenues has been strong, as the
market matures one of the threats to continued growth is increasing regulation
and operating restrictions imposed on the industry.
In particular, in recent times there has been significant community concern as
to the social impacts of problem gaming. This has translated into a number of
operating restrictions in Victoria. In addition to the restrictions on the
number and location of machines identified above, current operating restrictions
include:
- - restrictions on the manner in which gaming can be advertised and a
requirement that advertising includes Responsible Gaming statements
- - a ban on offering vouchers or coupons that can be exchanged for credits
to play gaming machines
- - defining the `Gaming Machine Area' and ensuring it is a physically
discrete area. In September 2002 smoking in gaming machine areas was
prohibited
- - a ban on some venues from twenty four hour trading such that there must
be a continuous 4 hour break from gaming after every 20 hours of gaming
and there may not be more than 20 hours of continuous gaming each day.
In addition to the regulations above, a series of new regulations were
introduced as from January 2003. They include:
- - a limit of $200 on cash withdrawals in any one transaction in gaming
venues
- - a limit of $50 on the note acceptors for gaming machines
- - prior to 1 January 2008, a bet limit of $10 will apply to gaming
machine games approved after 1 January 2003, and after 1
January 2008, a bet limit of $10 will apply to all gaming machine games
- - winnings above $2,000 must be paid by cheque.
Of all the operating restrictions introduced, the most significant impact on the
gaming business has been the impact of smoking restrictions. Smoking bans were
introduced into Victoria effective 1 September 2002 and since that time gaming
machine revenues have month on month been lower than the prior corresponding
period. It is estimated that in the period 1 January 2003 to 30 June 2003,
gaming machine revenues declined 13% as compared to the corresponding prior year
period. The full year decline in gaming machine revenues was 7.6% for the year
ended 30 June 2003. This is the first financial year since gaming machines were
introduced into Victoria in 1994 that there has been any significant decline in
revenue.
The impact of smoking bans on TABCORP and TABCORP's responses to the bans are
discussed further in section 7 of this report.
39
[PRICEWATERHOUSECOOPERS LOGO]
Section 4: The Proposed Merger in the context of the Australian gambling
industry
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
WAGERING
TABCORP received the Wagering licence at the same time the Gaming licence was
obtained, in June 1994. The licence allows TABCORP to:
- - conduct off course totalisators in Victoria on thoroughbred, harness
and greyhound racing in Australia and New Zealand and
wagering events outside the Australasian region
- - conduct on course totalisators in Victoria on wagering events
- - conduct totalisator and fixed odds betting competitions in Victoria on
approved sporting and other events known as Approved Betting
Competitions (ABC). ABC's must be approved by the responsible Minister
under the Gaming and Betting Act. Current fixed odds ABC's include a
wide range of sports, Academy Awards and TRACKSIDE (an animated
simulated racing game). Approved pari-mutuel ABC's include AFL football
and motor racing.
Another activity of the wagering division is Club Keno, although Club Keno is
operated under the Gaming licence. Club Keno is a joint activity conducted by
Tattersall's and TABCORP according to an agreement between the parties which
commenced in July 1997 and has a term of 10 years. The term may be extended by
either party for the remainder of TABCORP's Gaming licence. Tattersall's is
responsible for the management of the Club Keno game and the operation of the
Club Keno system.
Wagering products are distributed:
- - in Victoria
- as at 30 June 2003, through a retail network of 566 agencies
and selected clubs and hotels (PubTABs);
- - in Victoria, interstate and overseas through
- Telephone betting centres, Interactive voice response (IVR)
and natural language speech recognition (NLSR) technology and
the internet.
At 30 June 2003 TRACKSIDE was available throughout outlets in Australia
including 205 Victorian TABs, Star City and casinos in Victoria, Western
Australia and Tasmania. In addition, the product is installed in 36 sites in
Denmark. In Victoria, TABCORP operates TRACKSIDE itself, in other jurisdictions,
TRACKSIDE is sold as a product to other operators.
JOINT VENTURE AGREEMENT
During the privatisation process, TABCORP entered into a number of contractual
arrangements with the Victorian Racing Industry.
An unincorporated joint venture between TABCORP and the Victorian Racing
Industry entitles the Victorian Racing Industry to a 25% interest in the income
generated from and the expenses incurred in TABCORP's conduct of the activities
under its Wagering and Gaming licences. In addition to the Joint Venture
40
[PRICEWATERHOUSECOOPERS LOGO]
Section 4: The Proposed Merger in the context of the Australian gambling
industry
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
agreement, a Racing Program Agreement and a Product Supply Agreement were
signed. They require the major Victorian racing bodies to provide the services
and information, including an annual program of race meetings in Victoria and
information required to conduct totalisators in Victoria on racing within the
State, interstate and overseas.
The fees paid to the racing industry under the Product Supply Agreement are
18.8% of revenue and a minimum of $2.5 million per annum for developing a
marketing program. The $2.5 million per annum is indexed to the growth in off
course net wagering revenue from the 1996/97 year. Under the Racing Program
Agreement, the racing industry receives a minimum payment of $50 million per
annum for the supply of the racing program, this is also indexed to the growth
in off course net wagering revenue from the 1996/97 year. Total fees paid to the
racing industry in the 2003 financial year were $250.4 million.
41
[PRICEWATERHOUSECOOPERS LOGO]
Section 4: The Proposed Merger in the context of the Australian gambling
industry
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
OTHER NON-STATE BASED OPERATIONS
In addition to the operations discussed for each of Queensland, New South Wales
and Victoria, Jupiters has a number of other operations which do not have their
operations predominantly in any one state. These include:
- - Centrebet
- - Jupiters Technology
- - Jupiters International, and
- - AWA Technology.
CENTREBET
In November 1998, Jupiters purchased substantially all of the assets of
Centrebet, an on-line fixed odds racing and sports book operator. Centrebet
offers betting options on more than twenty international football competitions,
golf, tennis, motor racing, ice hockey and cricket. In addition, books on
popular Australian sports such as Australian rules football and Rugby League are
offered, together with opportunities to bet on popular Nordic sports such as
bandy, floorball and handball. Other events such as political elections, the
Academy Awards and the Eurovision song contests are also covered.
Centrebet holds a non-transferable, renewable sports bookmakers licence issued
by the Northern Territory Racing Commission. The licence duration was recently
extended until 30 June 2015. Under the licence terms, Centrebet may accept
wagers by telephone, by facsimile or through the internet from Australian and
international customers. In the 12 months to 30 June 2003, internet transactions
provided approximately 90% of the value of bets received.
Centrebet operates its website in a range of languages and receives the majority
of revenue from international customers. In the year to 30 June 2003, around 59%
of turnover was from the Nordic countries (Denmark, Finland, Sweden and Norway)
with the majority of the balance from Australia (22%) and other European
countries (19%).
Up until 2002, the Centrebet operation experienced significant growth in both
revenue and profit since acquisition. 2003 saw an increase in revenue but a
significant decrease in profit.
The operation and performance of Centrebet is discussed further at Appendix C -
Value of Centrebet.
JUPITERS TECHNOLOGY
Jupiters Technology provides technical support for Jupiters' technology based
gaming activities including products and services sold by Jupiters
International. Additionally, Jupiters Technology developed the proprietary
technology that enables Jupiters to operate Jupiters Keno, gaming machine
monitoring services
42
[PRICEWATERHOUSECOOPERS LOGO]
Section 4: The Proposed Merger in the context of the Australian gambling
industry
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
and progressive jackpots across a real-time, wide-area network together with the
sports betting operating system currently used by Centrebet.
JUPITERS INTERNATIONAL
Jupiters International is responsible for marketing Jupiters' various internally
developed technologies in offshore economies. Jupiters International has
supplied gaming and wagering solutions to more than 30 customers in 14
countries. Among the wagering products supported are horse racing, greyhound
racing, pacing, Jai Alai and Pari-mutuel sports betting. Gaming products include
fixed odds sports betting, single and multi-digit numbers games and keno.
AWA TECHNOLOGY
The acquisition of AWA in January 2000 resulted in Jupiters acquiring the
business of AWA Technology Services. AWA Technology Services provides
independent third party support services to the information technology and
gaming industries in Australia. The services includes repairs and support of
desktop computing and network equipment and installation and maintenance of
gaming machines and wagering terminals. AWA Technology Services operates through
depots in all Australian capital cities, excluding Darwin in the Northern
Territory.
4D SUMMARY OF INDUSTRY CONSIDERATIONS FOR THE MERGER
As discussed above, there are a number of industry dynamics which are directly
relevant to the drivers of the merger. These industry dynamics include:
- - the industry is maturing, resulting in a flattening of growth rates.
This can be expected to result in increased competition as existing
participants strive to grow their businesses
- - there is a growing number of entertainment products competing with
gaming and wagering products in the market, and
- - social and political pressures on the impact of gambling are on the
increase. This has in turn impacted on regulatory regimes and has
resulted in the potential for increased earnings volatility due to
regulatory changes.
As identified earlier, the key drivers of value for participants in the gaming
industry are likely to be:
- - finding ways to generate earnings growth as the industry matures
- - producing economies of scale in product delivery
- - producing diversification benefits across products, allowing greater
flexibility in risk management strategies, and
- - managing regulatory risk, and therefore managing volatility.
43
[PRICEWATERHOUSECOOPERS LOGO]
Section 4: The Proposed Merger in the context of the Australian gambling
industry
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
The merger provides a number of responses to current industry dynamics. The
implications are summarised in Table 4.3:
TABLE 4.3
- ---------------------------------------------------------------------------------------------------------------------------------
INDUSTRY DYNAMICS MERGER RESPONSE IMPLICATION FOR CONTINUING SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------------------------------------
- - Mature industry with flattening Portfolio of gaming and wagering assets - Potentially valuable synergies for
growth provides: the merged group
- - Development of alternative - economies of scale - Capital base to underpin future
entertainment, gaming and acquisition and expansion
wagering products likely to - enhanced capital base opportunities including international
result in increased competition. opportunities
- the ability to offer new products and
increase the merged group's ability to - Management need to be capable of
compete managing a number of different
gambling businesses in a number of
- diversified product risk which can jurisdictions if synergies and merger
insulate the merged group from external benefits are to be realised
factors that affect individual products
but not the entire portfolio. For example - Long term value growth will depend
the impact, if any, of the SARS virus on on the delivery of synergies over
the casinos is mitigated by the fact that time.
the other businesses are unlikely to be
directly affected
- a broader product set that may be
capable of providing attractive
combined offerings, particularly in
relation to the casinos, also enhancing
the ability to compete.
- ---------------------------------------------------------------------------------------------------------------------------------
- - Increased regulatory focus and - The merger provides diversity across - On balance, this should reduce
some volatility around the regulatory environments and allows the volatility and therefore risk for
degree of regulation. cost of response to these changes to be ongoing shareholders.
defrayed across a wider product base.
In our view the factors identified provide a strategic rationale for the
transaction in that they provide the Merged TABCORP with a diversified exposure
to geographic, product and regulatory risk, as well as a significant base to
obtain economies of scale. The extent to which the strategic rationale is
achieved will be dependent upon the ability of TABCORP to successfully execute
an appropriate integration plan, manage a number of different regulatory
jurisdictions and execute the future growth strategies from this platform.
44
[PRICEWATERHOUSECOOPERS LOGO]
Jupiters Ordinary Shares - what is their value?
5A OVERVIEW
As discussed in Section 2, the Proposed Merger will deliver consideration from
TABCORP directly as well as distributions from Jupiters.
Accordingly, to assess the impact of the proposed transaction on shareholders,
we have valued Jupiters Ordinary Shares to allow a comparison of the total value
being given up by Jupiters Ordinary Shareholders to the total consideration
being received. We note it is Jupiters' intention to dispose of Centrebet
whether or not the Proposed Merger is implemented. Accordingly, in performing
our valuation we have treated Centrebet as an asset surplus to the ongoing
operation of Jupiters.
Our valuation has been undertaken in light of the market conditions prevailing
at the date of this report, as described in Section 4, and as reflected in our
benchmarking to market prices and transactions.
5B APPLICATION OF VALUATION METHODOLOGY
The value of the Jupiters enterprise is driven by the substantial earnings and
cash flow stream generated by the casino, gaming and wagering businesses,
supplemented by additional earnings and cash flow from the hotel, restaurants,
bars and other associated facilities. Overall, the earnings stream is provided
by these assets, including all the real property, working capital, information
technology, human and intellectual capital, the various gambling licences and
other legal rights.
Given the diversification of the earnings base and the low proportion of
volatile premium table play at its casinos, Jupiters' earnings stream tends to
be reasonably stable. Therefore we have adopted the capitalisation of earnings
as our primary valuation approach.
It is conventional valuation practice to estimate the market value of casino and
other gambling businesses in this way by capitalising future EBITDA at a
multiple which allows for risk and growth potential. Using EBITDA as an earnings
definition removes distortions to value caused by capital structures, asset
financing strategies and tax outcomes. This allows more reliable benchmarking of
value to other listed casinos and comparable businesses.
As our primary valuation approach, we have therefore:
- - used EBITDA for Jupiters as a basis for estimated future maintainable
EBITDA on a normalised basis
- - examined comparable companies and transactions to arrive at a range of
industry EBITDA multiples
- - adjusted the range of EBITDA multiples for specific factors relating to
the risks and growth potential for Jupiters
- - added a control premium to the adjusted multiples to reflect the
takeover component of the transaction
- - capitalised the estimated future EBITDA by applying the range of
multiples reflecting a control value for Jupiters shares, to arrive at
an enterprise value
- - added surplus assets and subtracted debt and RPS to arrive at a value
for all the ordinary equity in Jupiters
- - divided the total ordinary equity by the ordinary shares on issue to
arrive at a value per share.
45
[PRICEWATERHOUSECOOPERS LOGO]
Section 5: Jupiters Ordinary Shares - what is their value?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
As further support to this approach, we have cross-checked the enterprise
valuation utilising a DCF methodology which allows for explicit modelling of
factors such as:
- - the discrete business units at Jupiters which are experiencing
differing growth scenarios
- - the volatility of the international commission business
- - the infinite period of two of the casino licences
- - the finite period of the Keno and other licences
- - the finite period during which Jupiters has a legislated monopoly over
table games in areas of Queensland, and
- - the finite periods of the management agreements with BI Gaming.
ISSUES CONSIDERED IN SELECTION OF MAINTAINABLE EBITDA
In selecting our maintainable EBITDA upon which to value the ordinary equity in
Jupiters, we have had regard to the normalised actual EBITDA for the three years
ended 30 June 2003 and Jupiters' future prospects.
REVIEW OF OPERATING PERFORMANCE
The reported operating performance of Jupiters for the three years ended 30 June
2003 is summarised in Table 5.1 below:
TABLE 5.1
JUPITERS OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------
12 MONTHS ENDED 12 MONTHS ENDED 12 MONTHS ENDED
30 JUNE 2001 30 JUNE 2002 30 JUNE 2003
$ MILLION (AUDITED) $ MILLION (AUDITED) $ MILLION (AUDITED)
- ---------------------------------------------------------------------------------------------
REVENUE
Casino 482 481 463
Hotel 125 124 135
Other 164 188 188
---- ----- -----
Total revenue 771 793 786
EBITDA 198 207 179
Depreciation and
amortisation (52) (54) (54)
----- ----- -----
EBIT 146 153 125
Interest expense (20) (28) (36)
----- ----- -----
Profit/(loss) before tax 126 125 89
Tax (expense)/benefit (47) (46) (30)
Outside equity interest (2) (1) (0)
----- ----- -----
Net profit (loss) after tax 77 78 59
===== ===== =====
EPS $0.32 $0.34 $0.29
EBITDA/revenue 25.7% 26.1% 22.8%
EBIT/revenue 18.9% 19.3% 15.9%
NPAT/revenue 9.9% 9.8% 7.5%
- ---------------------------------------------------------------------------------------
46
[PRICEWATERHOUSECOOPERS LOGO]
Section 5: Jupiters Ordinary Shares - what is their value?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
COMMENTARY ON 2001 AND 2002 OPERATING PERFORMANCE
Jupiters' operating performance is primarily reliant upon the Conrad Jupiters
and Conrad Treasury hotel and casino properties. These two properties have
historically accounted for 70% - 80% of revenues and profits of the business of
which approximately 80% of these revenues and profits are from casino
operations.
We note that the 2002 financial year operating performance was positively
influenced by a win rate above theoretical in the premium play business of
approximately $18.4 million on a pre-tax basis. Jupiters also earned a win rate
above theoretical for the 2001 financial year of $14.3 million pre-tax. After
adjusting for the above theoretical win rates, the Jupiters casino revenues in
2002 were similar to 2001 on a normalised basis.
The 2002 casino result was also adversely impacted by lower than expected
performance in the casino properties, primarily due to decreases in gaming
machine revenue of around 6.7% and table game revenue of around 2.1%. The lower
gaming machine revenue was attributable to the limitations on note acceptors
(maximum $20 denomination) introduced in December 2001 and the impact of delays
in rolling out Jupiters `Cougar' machine monitoring system (thus limiting the
introduction of new gaming machines). A reduction in table gaming revenue also
reflected the continuing trend in this area. Jupiters is focussing on restoring
revenues and margins in the casino gaming segment through the introduction of
game enhancements, technology and business process improvements.
The commission business continued to grow in 2002, reflecting the completion of
the Club Conrad gaming facility at Conrad Jupiters. Commission play revenue grew
by around 28.4% over the prior period. Jupiters remains committed to maintaining
this business in the range of ten to fifteen percent of the total revenue in
line with its preferred risk management policies.
Other operations such as wide area gaming (keno) and sportsbetting (Centrebet)
increased revenues 16% and 56% respectively in 2002, which resulted in an
increase in total revenue of 2.9% to $793.4 million, or 3.7% to $746.6 million
on a normalised basis.
The normalised Jupiters EBITDA grew around 3.1% over the prior corresponding
period. The normalised result reflects the removal of the above theoretical win
in the commission business.
COMMENTS ON 2003 PERFORMANCE
We have reviewed Jupiters' actual results for the year ending 30 June 2003. In
our discussions with management, we have discussed a number of issues which have
impacted the actual results for the year including:
- - ongoing impact of smoking bans in table gaming areas and non-smoking
areas for gaming machines
- - implementation of the Cougar gaming machine monitoring system in the
casinos and the resultant ability to introduce new machines
47
[PRICEWATERHOUSECOOPERS LOGO]
Section 5: Jupiters Ordinary Shares - what is their value?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
- - acquisition of the balance of the Breakwater Island Trust such that it
is now a wholly owned subsidiary of Jupiters
48
[PRICEWATERHOUSECOOPERS LOGO]
Section 5: Jupiters Ordinary Shares - what is their value?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
- - satisfactory progress on the construction of the Gold Coast Convention
and Exhibition Centre, including finalisation of all earthworks and the
commencement of construction. We note forward bookings are already
exceeding projections and construction remains on time for a June 2004
opening
- - ongoing competition from club and hotel operators for machine players
in the proximity of both Conrad Treasury and Conrad Jupiters
- - slower growth in Centrebet revenues and EBITDA, coupled with the
regulatory uncertainty in some Scandinavian gaming jurisdictions
- - the impact of the severe acute respiratory syndrome (SARS) on
international travel and the impact upon Jupiters' earnings.
The 2003 financial year operating performance was adversely impacted by a win
rate below theoretical of approximately $4.9 million on a pre-tax basis. This
contributed to casino revenue decreasing by $18.4 million, a decline of 3.8% on
the 2002 financial year.
Main floor table gaming remained flat, however gaming machine revenue increased
by 2.1%, reflecting the installation of the Cougar gaming machine monitoring
system and the introduction of new gaming machines.
The International Commission Business (ICB) contributed in line with Jupiters'
target of 10% to 15% of total revenue. ICB revenue increased 20.9% in 2003.
However the ICB increased provisioning for doubtful debts during the year by
$5.3 million due to the impact of SARS in Asia. Club Conrad's non-commission
premium play revenues decreased by 4.0% over the prior corresponding period.
Hotel room revenue achieved strong growth of 7.2% primarily attributable to an
improved performance by food and beverage operations and a continued focus on
high yielding corporate and convention business revenues. An increase in
domestic activity compensated for the decline in the inbound segment brought
about by the war in Iraq and the outbreak of SARS.
In Queensland, the strong performance of clubs and hotels and ongoing sales and
marketing activity generated positive growth in wide area gaming (Keno) of 6.4%.
Increasing regulation in relation to responsible gaming continued to have a
negative impact on gaming in New South Wales. As a result Keno turnover in New
South Wales decreased by 2.7%.
Other operations such as monitoring of gaming machines in clubs and hotels in
Queensland and Centrebet increased revenues by 15.6% and 1.3% respectively. The
monitoring of gaming machines revenue growth was achieved by attracting a number
of large venues electing to use Jupiters' systems. Centrebet's slow revenue
growth and decline in EBITDA from $14.7 million to $9.9 million was due to a
lower win rate in the last quarter of the year, increased competition in the
Nordic market, regulatory uncertainty and the impact of the decision to sell the
Centrebet business.
The normalised Jupiters EBITDA decreased by less than 1% in 2003. The normalised
result reflects the addition of the below theoretical win in the commission
business and the impact of merger costs.
49
[PRICEWATERHOUSECOOPERS LOGO]
Section 5: Jupiters Ordinary Shares - what is their value?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
We have also reviewed management projections for the year ending 30 June 2004.
These projections reflect the contribution from the Centrebet business for four
months until 31 October 2003 and demonstrate the maturity of the gambling market
in which Jupiters is operating and reflect the recovery of gaming machine
revenues in Conrad Treasury.
50
[PRICEWATERHOUSECOOPERS LOGO]
Section 5: Jupiters Ordinary Shares - what is their value?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
SELECTION OF MAINTAINABLE EBITDA
In light of our review of Jupiters' actual and forecast results together with
our review of industry drivers and published reports of various gaming industry
analysts, we are of the opinion that Jupiters' 2003 actual EBITDA forms an
appropriate starting point upon which to base our estimate of maintainable
EBITDA.
Implicit in using the actual results for the year ended 30 June 2003 as the
basis of our maintainable EBITDA are the following assumptions:
- - no material change in legislative requirements for Jupiters' gaming
operations
- - existing limits on gaming table and machine numbers will remain in
place
- - the gaming tax regime under which Jupiters operates will not change
- - all licences for existing gaming and wagering operations will remain in
force in perpetuity or be renegotiated on essentially the same terms at
renewal periods, and
- - the Centrebet business is sold.
In light of the above, we have estimated a maintainable EBITDA for Jupiters in
the range $175 million to $180 million on an ex Centrebet basis.
ISSUES CONSIDERED IN SELECTING AN EBITDA MULTIPLE
In selecting an appropriate multiple to apply to our assessment of future
maintainable EBITDA, we have considered, among other things, the following:
- - reported historical EBITDA and price earnings multiples of comparable
listed companies
- - prospective EBITDA and price earnings multiples for comparable
companies as forecast by market commentators
- - EBITDA and price earnings multiples implied by significant transactions
in the industry, both domestic and overseas
- - the relative size of Jupiters, and its competitive position and market
strength including the location of Jupiters' land based casinos
- - the potential for growth in Jupiters' EBITDA arising from expansion of
international businesses, and
- - other relevant factors influencing multiples such as interest rates and
general economic conditions, company specific and general economic
growth forecasts.
COMPARABLE COMPANY EBITDA MULTIPLES
Set out in Table 5.2 below is a table of pricing multiples for other casinos and
comparable companies, based upon historical EBITDA and forecasts by various
market commentators. We note the Australasian multiples are for traded portfolio
interests in the respective stocks and are based on actual EBITDA for the year
ended
51
[PRICEWATERHOUSECOOPERS LOGO]
Section 5: Jupiters Ordinary Shares - what is their value?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
30 June 2002 and a mix of actual and forecast EBITDA for the year ending
30 June 2003. A more detailed analysis of comparable companies can be found in
Appendix D.
52
[PRICEWATERHOUSECOOPERS LOGO]
Section 5: Jupiters Ordinary Shares - what is their value?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
TABLE 5.2
COMPARABLE EBITDA MULTIPLES
- --------------------------------------------------------------------------------------
MARKET EBITDA
CAPITALISATION MULTIPLE
A$M 2002A 2003F/A
- --------------------------------------------------------------------------------------
AUSTRALASIAN CASINOS
Burswood Limited 398 8.7 10.2
Sky City Limited 1,782 9.8 9.8
---- ----
Australasian casinos (weighted average) 9.6 9.9
---- ----
AUSTRALIAN LEISURE/GAMING
UNiTAB Limited 824 16.4 10.8
TABCORP Holdings Limited 3,963 8.9 8.7
TAB Limited 1,516 11.5 9.2
---- ----
AUSTRALIAN CASINOS/LEISURE/GAMING (WEIGHTED
AVERAGE) US CASINOS 10.3 9.3
---- ----
Argosy Gaming Company 854 5.3 5.8
Mandalay Resort Group 3,019 8.1 7.3
Harrah's Entertainment Inc 7,138 7.4 7.3
MGM Mirage Inc 7,803 8.8 8.7
Park Place Entertainment 3,922 6.8 6.6
---- ----
US CASINOS (WEIGHTED AVERAGE) 7.8 7.6
Note: where available, actual 2003 EBITDA has been used. Market capitalisation
is based on share prices at mid August 2003
We consider the multiples of the Australian comparable gaming and wagering
companies to be of higher relevance to our valuation than the multiples relating
to US Casino operators. The Australian Casino and gaming industry differs from
the US industry in a number of areas, including the geographical monopoly for
most casinos and the increased reliance upon regular players as opposed to the
"destination" nature of most US casinos.
In addition, international multiples are not directly comparable, given
differences between Australian and the international growth and inflationary
expectations, industry and market conditions, and differing tax regimes, which
all impact market costs of capital, prices and the related implied multiples.
Accordingly we have weighted our selection of an appropriate multiple to the
Australian comparable observations.
TRANSACTION MULTIPLES - AUSTRALIA
There have also been a number of relatively recent transactions in Australia
which are relevant to our analysis. We note that the EBITDA multiples implied in
the transactions reflect takeover multiples which generally include some premium
for control.
53
[PRICEWATERHOUSECOOPERS LOGO]
Section 5: Jupiters Ordinary Shares - what is their value?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
- - October 2002 - Jupiters made a takeover bid for all of the units in
Breakwater Island Trust that it did not already own. The transaction
was completed in March 2003 with an equity value of $52.4 million to
$58.1 million which implied a historical EBITDA multiple of 6.9 to 7.8
times
54
[PRICEWATERHOUSECOOPERS LOGO]
Section 5: Jupiters Ordinary Shares - what is their value?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
- - February 2000 - Sky City Entertainment Group announced their intention
to purchase the Adelaide Casino, and subsequently assumed ownership on
30 June 2000. The property was re-launched in April 2001 following a
$12 million refurbishment. According to publicly available information,
the casino was sold for $183.5 million which on an estimated 1999
EBITDA of $20.7 million indicates a historic takeover multiple of
around 9 times
- - July 1999 - TABCORP Limited announced a takeover offer for all the
issued shares in Star City Holdings Limited, the owner and operator of
the Star City Casino in Sydney. The offer to Star City shareholders was
a combination of cash and TABCORP Limited shares. The value of equity
implied by the offer was approximately $1.1 billion to $1.2 billion
which implied a prospective takeover EBITDA multiple of 10.5 to 11.5
times
- - January 1999 - Publishing and Broadcasting Limited (PBL) announced its
intention to merge with Crown Limited through a scheme of arrangement.
The scheme involved Crown shareholders accepting one share in PBL for
each eleven shares held in Crown. The merger was seen as a positive for
Crown shareholders as the company had high debt levels and was at that
time unable to pay dividends. The value which was placed upon Crown for
the merger was $1.7 billion to $1.9 billion which implied a prospective
EBITDA multiple of between 8.5 to 9.5 times 1999 earnings.
TRANSACTION MULTIPLES - UNITED STATES
We have also identified a number of transactions from the US market as set out
in Table 5.3 below:
TABLE 5.3
US TRANSACTION MULTIPLES
- ----------------------------------------------------------------------------------------------------------
ENTERPRISE
VALUE EBITDA
DATE TARGET TRANSACTION US$ M MULTIPLE
- ----------------------------------------------------------------------------------------------------------
2 Mar 00 Lady Luck Gaming Corp Acquisition of 100% by Isle 236.5 6.0
of Capri Casinos Inc
31 May 00 Mirage Resorts Inc Acquisition of 100% by MGM 6,620.5 19.1
Grand Inc
31 Jul 01 Empress Casino & Hotel Acquisition of 100% by 465.0 7.5
Argosy Gaming Co
31 Jul 01 Harveys Casino Resorts Acquisition of 100% by 625.0 6.6
Harrah's Entertainment Inc
- ---------------------------------------------------------------------------------------------------------
Source: SDC Database, various media reports
Apart from the Mirage acquisition of MGM Grand Inc, the US transaction multiples
are consistently lower than the Australian multiples. Our review suggests the
market expected the Mirage acquisition to generate significant synergies for MGM
Grand Inc.
55
[PRICEWATERHOUSECOOPERS LOGO]
Section 5: Jupiters Ordinary Shares - what is their value?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
SELECTION OF EBITDA MULTIPLE
We have reviewed Jupiters historical EBITDA multiples against the comparable
companies listed in Table 5.2 above, over the past 4 years. We noted that a
consistent discount has applied to Jupiters multiple over this period. Against
the other casino companies, the discount has been 15% to 20%. Against the total
gambling and leisure companies, the discount has been 25% to 35%.
Based on the market evidence presented above, most of which relates to portfolio
values, we conclude that an appropriate range of portfolio value prospective
EBITDA multiples to apply to the maintainable earnings of Jupiters is 7.6 to 8.1
reflecting Jupiters operating locations, market position, growth opportunities,
diversified activities and financial strength, as well as the structural
discount of 15% to 20% which has applied to its multiple relative to the other
casinos.
We note that multiples observed in the market are portfolio multiples, that is
they are based on the trading of small parcels of shares. As discussed above,
the premium for control evident in transactions is reflected in transaction
multiples being in excess of the observed portfolio multiples. Studies have
determined that the majority of premiums paid for equity in Australian takeovers
is in the range of 20% to 40% dependent upon the circumstances of the
transaction. Converting these premia to an enterprise value equivalent, using a
debt to equity ratio of 50:50, an average control premium is between 10% to 20%.
In light of the above we have selected an EBITDA multiple of 9.25, with a range
of 9.0 to 9.5 to calculate the full control value of Jupiters (on an ex
Centrebet basis), applying a control premium of approximately 17.5% at the
enterprise value level, which is at the higher end of the range primarily
reflecting in our view, Jupiters important strategic position in its geographic
market. This is equivalent to a control premium between 25% to 30% at the equity
level and produces an enterprise value for Jupiters in the range of $1.575
billion to $1.710 billion as set out in Table 5.4.
TABLE 5.4
JUPITERS ENTERPRISE VALUE (EX. CENTREBET)
- ---------------------------------------------------------
LOW HIGH
$ MILLION $ MILLION
- ---------------------------------------------------------
EBITDA 175.0 180.0
Multiple 9.0 9.5
---------------------
Enterprise Value 1,575.0 1,710.0
- ---------------------------------------------------------
JUPITERS SURPLUS ASSETS AND LIABILITIES
We have reviewed the financial position of Jupiters to determine whether any
assets or liabilities surplus to the enterprise (in addition to Centrebet) exist
as at our valuation date. We have set out in Table 5.5 the audited summarised
statements of financial position for Jupiters as at 30 June 2001, 30 June 2002
and 30 June 2003:
56
[PRICEWATERHOUSECOOPERS LOGO]
Section 5: Jupiters Ordinary Shares - what is their value?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
57
[PRICEWATERHOUSECOOPERS LOGO]
Section 5: Jupiters Ordinary Shares - what is their value?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
TABLE 5.5
JUPITERS STATEMENT OF FINANCIAL POSITION
- -------------------------------------------------------------------------------------------------
30 JUNE 2001 30 JUNE 2002 30 JUNE 2003
CURRENT ASSETS $ MILLION $ MILLION $ MILLION
- -------------------------------------------------------------------------------------------------
Cash 117 85 78
Receivables 31 18 22
Inventories 13 14 13
Other 11 11 32
---------------------------------------
TOTAL CURRENT ASSETS 172 128 145
---------------------------------------
NON CURRENT ASSETS
Property, plant and equipment 790 792 759
Intangibles 128 123 107
Other 52 24 41
---------------------------------------
TOTAL NON CURRENT ASSETS 970 939 907
---------------------------------------
TOTAL ASSETS 1,142 1,067 1,052
---------------------------------------
CURRENT LIABILITIES
Payables 80 93 87
Borrowings 2 2 45
Provisions 44 38 20
Other 27 20 19
---------------------------------------
TOTAL CURRENT LIABILITIES 153 153 171
---------------------------------------
NON CURRENT LIABILITIES
Borrowings 341 432 392
Provisions 10 11 10
Other 17 2 -
---------------------------------------
TOTAL NON CURRENT LIABILITIES 368 445 402
---------------------------------------
TOTAL LIABILITIES 521 598 573
---------------------------------------
NET ASSETS 621 469 479
=======================================
Key ratios
Net tangible assets ($ million) 493 346 372
Net tangible assets per share $2.04 $1.72 $1.85
Debt/Debt + Equity (1) 32.8% 45.7% 45.3%
Debt / Equity(1) 48.8% 84.0% 82.9%
Notes:
(1) Debt is net debt (borrowings, net of surplus cash over that required
for cage)
The net asset position of Jupiters has decreased over the past two years,
reflecting the share buy-back in 2002. Pertinent comments on the financial
position of Jupiters as at 30 June 2003 are set out below.
ASSETS
- - Cash - Jupiters held cash or cash equivalents of around $78 million as
at 30 June 2003. Based on our analysis, approximately $45 million is
required for cage and other working capital, with the balance being
surplus and available to offset borrowings
- - Receivables - Receivables consist of predominantly debtors in relation
to hotel sales and the AWA Technology division and gaming debts for
premium play
58
[PRICEWATERHOUSECOOPERS LOGO]
Section 5: Jupiters Ordinary Shares - what is their value?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
- - Property, plant and equipment - primarily comprises:
- $560.7 million of land, buildings, casino licence on leasehold
and freehold land
- $197.9 million of plant and equipment
- - Intangibles - the intangibles balance is primarily acquired goodwill,
arising from the purchase of AWA Limited.
LIABILITIES
- - Payables - consist primarily of trade creditors in relation to the
casino and hotel operations
- - Provisions - consist primarily of employee entitlements
- - Borrowings - long term borrowings consist predominantly of unsecured
notes, an unsecured commercial bill facility and the reset preference
shares:
- the unsecured Senior Redeemable Notes (SRN) were issued to
institutional investors in the USA in March 1999 at a face
value of US$135 million, with a fixed coupon of 8.5% per annum
and will mature in March 2006. The SRN were registered for
trading with the U.S. Securities and Exchange Commission in
September 1999. In March 1999, Jupiters also entered into an
interest rate and currency swap contract to protect against
currency movements on interest instalments and principal. The
swap expires in March 2004. If the Ordinary Share Scheme
becomes effective, Jupiters will be required to offer to
repurchase the SRN at a purchase price equal to 101% of their
principal amount plus accrued and unpaid interest. Given the
coupon on the SRN's, it is unlikely such an offer would be
accepted by a significant number of SRN Holders. In any event,
if SRN Holders were to accept the offer it would be value
positive for Jupiters (and therefore the Merged Group)
- the unsecured commercial bill facility is for $150 million and
provided by a syndicate of domestic banks. It was established
in April 2001 to refinance a former bi-lateral unsecured
commercial bill facility. $45 million of this facility was
drawn at 30 June 2003
- 1,901,735 Reset Preference Shares (RPS) were issued on 11
April 2002 at a face value of $100 each with a coupon rate of
8.15% per annum. The coupon is payable semi-annually, is
cumulative and ranks senior to the payment of ordinary
dividends. The RPS have a 10 year term with specified terms
able to be reset by Jupiters at the end of year five. The RPS
are quoted for trading on the Australian Stock Exchange and
have traded in the range $106.45 to $107.20 in the 30 days
prior to the announcement of the Proposed Merger. These
trading values reflect accrued dividends, and
59
[PRICEWATERHOUSECOOPERS LOGO]
Section 5: Jupiters Ordinary Shares - what is their value?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
we estimate the trading range was approximately $102.99 to
$104.54 if the accrued dividend portion of the trading value
is excluded.
We note the Ordinary Share Scheme is an event which provides RPS Holders with
the opportunity to deliver a Trigger Event Conversion Notice which, at Jupiters'
election, will result in the RPS being either converted into ordinary shares,
on-sold to a third party or redeemed. Jupiters has agreed with TABCORP in the
MIA that it will sell any such RPS to it for the "Repurchase Amount". The RPS
Terms provide a formula for calculation of the Repurchase Amount.
Under the RPS Scheme, TABCORP Investments will offer RPS Holders $105.26 plus an
amount equal to the accrued dividend for each RPS. We have prepared a separate
Independent Expert's Report for the RPS Scheme to accompany the Scheme Booklet.
In that report we have concluded that the TABCORP RPS offer is in the best
interests of RPS Holders and is fair and reasonable, because that the offer
should exceed the amount to hold the RPS or the amount that would be payable to
RPS Holders under the Repurchase formula. We have therefore used $105.26 as the
market value of the RPS in this report.
SURPLUS ASSETS AND LIABILITIES
After our review of the balance sheet of Jupiters as at 30 June 2003 and
discussion with Jupiters management, we have identified the following assets and
liabilities which are surplus to the ongoing operation of the business assets:
- - Cash - approximately $33 million of cash on hand as at 30 June 2003 is
considered to be surplus to the ongoing operation of the business.
- - Land & buildings - Jupiters holds a number of properties, both
residential and commercial, in close proximity to Conrad Jupiters at
Broadbeach and also Jupiters Breakwater at Townsville. We reviewed
valuations performed on these properties in June 2000 and reviewed
general market trends since that date. In light of the above, we have
assumed a value of $34 million for surplus land and buildings, based on
their land value only. We are aware of an internal proposal to
undertake development of the properties, however as this is a non core
activity we have not taken into account any development profits in our
assessment.
- - Undistributed franking credits - our analysis of Jupiters' franking
account balance indicates franking credits of around $94 million to
$108 million are available after dividends and the Centrebet sale are
considered. We have valued these franking credits at 5% of their face
value which is $4.7 million to $5.4 million.
- - Centrebet - the Jupiters Board has decided to sell Centrebet whether or
not the Ordinary Share Scheme is implemented. Hence, we have treated
Centrebet as a surplus asset. Appendix C of this report sets out our
estimate of the value range for Centrebet as being $21.5 million to
$54.7 million. The relatively wide range of our estimation reflects the
uncertainty created by the public sale process. In the
60
[PRICEWATERHOUSECOOPERS LOGO]
Section 5: Jupiters Ordinary Shares - what is their value?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
circumstance where the Ordinary Share Scheme is not implemented, it is
not certain that the Net Centrebet Proceeds will be distributed,
therefore we have not separately valued the franking credits created on
the payment of tax arising from the Centrebet sale, other than as part
of the pool of undistributed franking credits referred to above.
Our analysis of the balance sheet and our discussions with management have not
revealed the existence of any surplus liabilities. Accordingly, we can summarise
the surplus asset position of Jupiters as set out in Table 5.6 below.
TABLE 5.6
JUPITERS SURPLUS ASSETS
- --------------------------------------------------------
LOW HIGH
SURPLUS ASSETS $m $m
- --------------------------------------------------------
Centrebet 21.5 54.7
Cash 33.0 33.0
Property 34.0 34.0
Franking accounting balance 4.7 5.4
--------------------
TOTAL SURPLUS ASSETS 93.2 127.1
- --------------------------------------------------------
5C CONCLUSION ON VALUATION OF JUPITERS ORDINARY SHARES
VALUATION OF JUPITERS
Taking the enterprise value and adjusting it for surplus assets and liabilities,
we have assessed the value of each Jupiters Ordinary Share which Jupiters
shareholders will give up under the Proposed Merger at between $5.92 and $6.76.
TABLE 5.7
VALUE OF JUPITERS ORDINARY SHARES
- -----------------------------------------------------------------------------------------
LOW HIGH
$ MILLION $ MILLION
- -----------------------------------------------------------------------------------------
Maintainable EBITDA (ex Centrebet) 175 180
EBITDA multiple 9.0 9.5
-----------------------
Value of Jupiters enterprise (ex Centrebet, full control 1,575 1,710
basis)
Add: surplus assets 93 127
Less: market value of interest bearing debt (1), (2) (473) (473)
-----------------------
Value of all Jupiters equity (control basis) 1,195 1,364
-----------------------
Number of ordinary shares on issue (2) 201.8 201.8
Value per ordinary share (fully diluted) (2) $ 5.92 $ 6.76
- -----------------------------------------------------------------------------------------
Note:
(1) We have marked the U.S. denominated debt to market using a market
interest rate of approximately 6% based on comparable corporate debt,
and adjusted this value for the effect of the interest rate / currency
swap. We converted this
61
[PRICEWATERHOUSECOOPERS LOGO]
Section 5: Jupiters Ordinary Shares - what is their value?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
U.S. denominated market value for the debt using the $A/$US hedge rate
of 0.63. The RPS are included at their market value of $105.26 per RPS.
(2) In addition to the 201.8 million ordinary shares on issue are executive
options which are proposed to be cancelled by Jupiters by agreement
with Option holders. We have therefore estimated the dilution impact on
the Jupiters Ordinary Shares as consistent with the amount to be paid
to Jupiters Option holders by TABCORP Investments. We have included
this amount in our estimate of net debt.
VALUATION CROSS-CHECK
DISCOUNTED CASH FLOW
We cross-checked our enterprise value by developing a 10 year discounted cash
flow model. We based our cash flow projections upon Jupiters management's
forecast for 2004 together with projections for the two years to 30 June 2006
and discussion regarding expectations for subsequent years. In developing our
cash flow model, we modelled the divisions of Jupiters separately to account for
differing growth expectations and to reflect the cessation of the management
agreements with BI Gaming on 30 June 2010.
In order to arrive at our enterprise value we discounted the nominal projected
cash flows at an appropriate WACC for Jupiters. The WACC was calculated as the
long-term weighted average of the cost of equity and the cost of debt. In order
to determine an appropriate cost of equity we analysed equity betas for
companies most comparable to Jupiters.
Our DCF analysis arrived at values consistent with that assessed under the
capitalisation of EBITDA methodology.
62
[PRICEWATERHOUSECOOPERS LOGO]
The merger consideration - is it fair?
6A INTRODUCTION AND APPROACH
In this section we value the consideration to be received by Jupiters Ordinary
Shareholders and compare this to the value of Jupiters Ordinary Shares
determined in the previous section.
Leaving aside the proceeds from the sale of the Centrebet business, the
component of consideration from the TABCORP Group, for each Jupiters Ordinary
Share held, is (on average):
- - 0.24 shares in TABCORP, and
- - $2.85 in cash.
Leaving aside the proceeds from the sale of the Centrebet business, the
component of consideration from Jupiters, for each Jupiters Ordinary Share held,
is $0.75 in cash via payment of a fully franked special dividend.
Additional consideration is provided for in relation to the sale of the
Centrebet business:
- - if the sale of Centrebet completes before 31 October 2003, the
consideration will be the Net Centrebet Proceeds from Jupiters by way
of a fully franked dividend, or
- - if the sale of Centrebet completes after 31 October 2003, the
consideration will be an unsecured note from TABCORP Issuer under which
TABCORP Issuer will pay the value of the Net Centrebet Proceeds to
Jupiters Ordinary Shareholders when such proceeds are received; or
- - should an Agreement for the sale of Centrebet not be entered into by 30
June 2004 or completed by 30 September 2004, TABCORP will be under no
further obligation to dispose of Centrebet and so the interests of
Jupiters Ordinary Shareholders in the Centrebet Business will be
diluted significantly.
Given the structure of the consideration, in addressing whether the Proposed
Merger offers fair value to Jupiters Ordinary Shareholders, we have compared the
total consideration to be received (including early delivery of franking
credits) to the total value of the Jupiters Ordinary Shares. The total value of
Jupiters Ordinary Shares incorporates the disposal value of Centrebet as a
surplus asset and the value of franking credit balances to be realised in the
normal course of business.
In placing a value on the consideration offered by TABCORP we have assumed that
each shareholder receives the base offer of cash and shares, or option 1, as set
out in paragraph 2.10 of this report. This is the appropriate comparison as
Jupiters Ordinary Shareholders will be able to participate in the alternative
maximum cash or maximum share options only if cash or shares are available in
the respective pools. This, in turn, will be dependent on the preferences of
other Jupiters Ordinary Shareholders. These preferences are unknown at this
time.
In this section therefore we:
- - calculate the value of the total consideration, including the:
- TABCORP shares
- cash
- Net Centrebet Proceeds, and
- special dividend.
63
[PRICEWATERHOUSECOOPERS LOGO]
Section 6: The merger consideration - is it fair?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
- - compare the value of the total consideration to the value of a Jupiters
Ordinary Share, including a control premium
- - conclude as to whether the total consideration offers fair value to
Jupiters Ordinary Shareholders.
6B VALUE OF TABCORP SHARES
To assess the value of the share component of the consideration being offered by
TABCORP, it is necessary to estimate the post-merger trading price of existing
TABCORP shares plus those issued under the Proposed Merger assuming that TABCORP
gains 100% of the ordinary shares in Jupiters. This is the amount that Jupiters
Ordinary Shareholders could reasonably expect to realise if they sold, either
immediately or in the short term, the TABCORP shares they will receive under the
Proposed Merger. Beyond the short term it can be expected that TABCORP's shares
will fluctuate in response to general market movements and events specific to
TABCORP.
The decision to hold TABCORP shares beyond the short term is a separate
investment decision to be made by shareholders. It is not possible to forecast
longer term share price movements, but we have considered, in Section 7 of this
report, some relevant risk factors that TABCORP will face going forward.
In our view, the value of the TABCORP shares being offered should be considered
as a portfolio value. This is because the post-merger value of the shares will
reflect only small trades in the shares. Whilst there may be a future
opportunity to share in a control premium if TABCORP were to be taken over, this
is not a scenario that we consider likely in the short term.
In making an assessment of the value of the TABCORP shares being offered, we
note that the post announcement share price of TABCORP will already reflect the
market's assessment of the cost and benefits of the Proposed Merger for TABCORP
as well as the probability of it proceeding.
As there is a post announcement market price for TABCORP shares, we believe that
this should be a reliable measure of the value of the share component of the
consideration provided that:
- - there are no restrictions on TABCORP shares which could prevent
sufficient trading to produce an unbiased share price
- - the announcements and public analysis of the Proposed Merger have
provided sufficient information for the market to properly assess the
costs and benefits of the Proposed Merger, and
- - the prices at which TABCORP's shares have traded subsequent to the
announcement of the offer appear to reflect the absorption of the
information around the Proposed Merger.
We have also considered the implied valuation indicators (EBITDA multiples) as a
further test of the reasonableness of TABCORP's share price, and have tested its
cash flow stream via a DCF analysis.
64
[PRICEWATERHOUSECOOPERS LOGO]
Section 6: The merger consideration - is it fair?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Each of these issues is discussed below.
65
[PRICEWATERHOUSECOOPERS LOGO]
Section 6: The merger consideration - is it fair?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
TABCORP CAPITAL STRUCTURE AND PRE-ANNOUNCEMENT TRADING
As at 1 September 2003 there were approximately 366 million ordinary TABCORP
shares on issue. Victorian gaming legislation limits individual shareholdings in
TABCORP to 10%. In June 2002 this restriction was lifted from 5% and at the same
time a 40% foreign ownership restriction was removed. The lifting of this
foreign restriction allowed TABCORP's shares to be included in the Morgan
Stanley Capital Index ("MSCI").
The top 20 shareholders, on a grouped basis, in TABCORP as at 21 August 2003 is
shown in Table 6.1. The table demonstrates the shareholding restriction does not
appear to prevent TABCORP attracting a wide range of institutional investors. As
some registered shareholders may hold shares on behalf of other parties a small
number of institutions have registered in excess of 10%. No individual
shareholder has a relevant interest in more than 10% of the shares on issue.
TABLE 6.1
- -----------------------------------------------------------------------------------------
RANK NAME SHARES %
- -----------------------------------------------------------------------------------------
1 JP Morgan Nominees Australia Limited 39,796,277 10.89
2 National Nominees Limited 39,348,227 10.76
3 Westpac Custodian Nominees Ltd 38,697,326 10.59
4 RBC Global Services Australia 37,703,080 10.31
5 Citicorp Nominees Pty Limited 10,145,553 2.78
6 Commonwealth Custodial 8,050,048 2.20
7 Queensland Investment Corporation 7,220,987 1.98
8 ANZ Nominees Limited 5,367,929 1.47
9 Cogent Nominees Pty Limited 5,131,953 1.40
10 HSBC Custody Nominees 4,769,851 1.30
11 AMP Life Limited 3,844,478 1.05
12 IOOF Investment Management Ltd 1,733,254 0.47
13 Invia Custodian Pty Limited 1,683,315 0.46
14 NRMA Nominees Pty Limited 1,656,162 0.45
15 UBS Warburg Private Clients Nominees Pty Limited 1,605,140 0.44
16 Merrill Lynch (Australia) Nominees Pty Limited 1,395,401 0.38
17 Australian United Investment Co. Limited 1,190,000 0.33
18 Perpetual Trustee Co. Limited (Hunter) 1,059,844 0.29
19 PSS Board 1,048,470 0.29
20 Government Superannuation Office 1,036,170 0.28
----------------------
212,483,465 58.13%
----------------------
Other 153,073,056 41.87%
----------------------
Total 365,556,521 100.00%
- -------------------------------------------------------------------======================
The 10% shareholding limit does not necessarily make TABCORP 'takeover proof' as
an acquisition could be completed if the Victorian Parliament agreed to amend
the legislation. However, given the size of a post merger TABCORP, the number of
Australian companies capable of acquiring TABCORP would be limited and
acquisition by a foreign buyer would be complex given the approval that would be
required from FIRB, the Victorian Government and regulators in three States.
66
[PRICEWATERHOUSECOOPERS LOGO]
Section 6: The merger consideration - is it fair?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Figure 6.1 and related notes of TABCORP's recent share price history shown below
provide a useful summary of key recent events in the company's history.
FIGURE 6.1
- Volume - Tabcorp - Consumer Discretionary - ASX200
[LINE GRAPH]
Source: Bloomberg
The share price history of TABCORP has shown a sharp increase during the period
September 2001 to August 2002 followed by a gradual decline as the impact of
smoking restrictions in Victoria took effect and then some recovery since the
announcement of the Proposed Merger in March 2003. We have noted a number of
public events which provide some insight into the historical pattern of the
share price in the following points.
September 2001 - Impact of the September 11 terrorist attack resulted
in the TABCORP share price recording an intra-day low of $8.30 on September 12.
Significant falls also occurred in the ASX 200 and the Consumer Discretionary
Index
January 2002 - Victorian Government announces smoking bans to be
introduced for gaming areas effective in September 2002
February 2002 - Strong half year results announced (to 31 December
2001) with net profit after tax up 38%
67
[PRICEWATERHOUSECOOPERS LOGO]
Section 6: The merger consideration - is it fair?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
June 2002 - Gaming Legislation (Amendment) Bill is passed by the
Victorian Parliament which changes TABCORP's shareholder restriction from 5% to
10% and the 40% foreign ownership restriction is removed
August 2002 - Strong full year results announced (to 30 June 2002) with
net profit after tax up 39%
September 2002 - the smoking ban in gaming areas in Victoria commences
December 2002 - TABCORP management announce revenue growth impact of
smoking bans (revenue for gaming down 8.8% for 1 September 2002 to 30 November
2002 relative to the prior comparative period)
January 2003 - Announcement of merger discussions with Jupiters
February 2003 - Weaker half year results announced (to 31 December
2002) with net profit after tax up 2.4% due to the impact of smoking bans
March 2003 - Announcement of the merger of Jupiters and TABCORP
May 2003 - Announcement that smoking bans will negatively impact full
year profits
June 2003 - Announcement of the signing of the Merger Implementation
Agreement
August 2003 - Announcement of full year results.
On 9 January 2003, the day before the announcement that TABCORP was in merger
discussions with Jupiters, the closing TABCORP share price was $10.64. On the
day prior to the announcement that the Jupiters board would support the Proposed
Merger (4 March 2003), the closing TABCORP share price had fallen to $9.59. The
trading of the shares in the three months leading up to the announcement of the
Proposed Merger is summarised in Table 6.2 below.
TABLE 6.2
TABCORP PRE-ANNOUNCEMENT SHARE TRADING
- -------------------------------------------------------------------------------------------
WEIGHTED
LOW AVERAGE VOLUME VOLUME
MONTH HIGH PRICE PRICE PRICE ('000) TRADED(1)
- -------------------------------------------------------------------------------------------
$ $ $ %
- -------------------------------------------------------------------------------------------
December 2002 11.25 10.14 10.55 28,463 7.75
January 2003 11.02 10.01 10.44 36,117 9.88
February 2003 10.30 9.65 10.00 34,962 9.56
March 2003 (2 trading days) 9.80 9.50 9.72 4,088 1.12
- ----------------------------------------------------------------------------------------
Note (1): The volume of shares traded is the total shares traded for
the month divided by the total shares on issue.
TABCORP shares are well traded. Its share turnover during the twelve months
prior to the announcement of the Proposed Merger averaged 8.97% per month of
total shares on issue. We calculate this places TABCORP in the top quartile of
the ASX 200 in terms of the value of shares traded as a percentage of market
capitalisation. The company is followed by most of the major broking houses
because of its relative size, with a 100% free float, allowing full
participation in appropriate indices.
The TABCORP share price trended downwards in the period between 1 December 2002
and 4 March 2003, falling from a closing share price of $11.22 on 2 December
2002 to $9.59 on 4 March 2003, a fall of 14.5%. This appears to be due to a
combination of:
68
[PRICEWATERHOUSECOOPERS LOGO]
Section 6: The merger consideration - is it fair?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
- - continued concern as to the impact of smoking bans on the gaming
business in Victoria
- - between, 10 January 2003 and 4 March 2003, that is, between the date of
announcement of merger discussions and the announcement of the Proposed
Merger, some media speculation that TABCORP would 'over pay' for
Jupiters
- - a general market trend as the S&P/ASX 200 index fell by 8.1% during the
same period.
In the period prior to the announcement of the Proposed Merger, there is nothing
to suggest the trading in TABCORP shares was reflective of an abnormal share
price or that the share price did not reflect information in the market, other
than that there was some speculation on the likely terms of the Proposed Merger
with Jupiters.
ADDITIONAL INFORMATION RELEASED TO THE MARKET SINCE THE OFFER WAS MADE
The announcement of the Proposed Merger included and was accompanied by detailed
information on its proposed terms. This information included:
- - the consideration to be paid for Jupiters Ordinary Shares, including
the nature and quantum of the consideration
- - details of how TABCORP would fund the acquisition of Jupiters Ordinary
Shares
- - a summary of the likely sources of synergies, although synergies were
not quantified.
Since the announcement of the Proposed Merger, there have been a significant
number of broker's reports published which have prepared earnings estimates for
the merged TABCORP group. Given the Proposed Merger and the extent of analysis
prepared on both TABCORP and Jupiters prior to the announcement of the Merger,
it appears market analysts are in a reasonable position to review the potential
impact of the Proposed Merger on TABCORP.
In addition, in TABCORP's 15 May 2003 market announcement, TABCORP provided
guidance as to its expectations for full year 2003 earnings. TABCORP indicated
that, excluding the after tax impact of non recurring items, it expected NPAT to
be down between 1% and 3% on the prior year. The most significant negative
impacts on the results were the smoking bans imposed on gaming venues in
Victoria as well as uncertainty created by the war in Iraq and the SARS virus
which impacted the international business in the private gaming room at Star
City. These impacts are discussed further in Section 7. TABCORP announced its
2003 results on 13 August 2003.
69
[PRICEWATERHOUSECOOPERS LOGO]
Section 6: The merger consideration - is it fair?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
TRADING IN TABCORP SHARES POST ANNOUNCEMENT
The announcement of the Proposed Merger was made on 5 March 2003. A summary of
the trading in TABCORP shares since the announcement is in Table 6.3 below. The
summary also sets out trading details post 15 May 2003 as it was on that date
TABCORP announced smoking bans in Victorian gaming venues would impact on full
year 2003 profits, and post 13 August 2003 as TABCORP announced its 2003 results
on that day.
TABLE 6.3
TABCORP POST ANNOUNCEMENT SHARE TRADING
- ----------------------------------------------------------------------------------------------------
PRICE PRICE WEIGHTED VOLUME OF VOLUME
LOW HIGH AVERAGE SHARES TRADED TRADED
PERIOD $ $ $ ('000) %
- ----------------------------------------------------------------------------------------------------
6 March 2003 -1 September 2003 9.57 11.64 10.53 196,527 53.8
16 May 2003 - 1 September 2003 10.03 11.64 10.70 123,014 33.7
14 August 2003 - 1 September 2003 10.75 11.64 11.18 29,535 8.1
- ---------------------------------------------------------------------------------------------------
70
[PRICEWATERHOUSECOOPERS LOGO]
Section 6: The merger consideration - is it fair?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
In the period since the announcement of the Proposed Merger on 5 March 2003 to 1
September 2003 (124 trading days), the VWAP of TABCORP shares was $10.53. The
closing share price on 1 September 2003 was $11.27, which represents a 17.5%
increase over the 4 March 2003 closing price of $9.59. Over the same period, the
S&P/ASX 200 index has risen by approximately 13.9% and the consumer
discretionary index has risen by approximately 28.4%.
The announcement of TABCORP's 2003 results does appear to have had a positive
impact as TABCORP shares closed at $11.27 on 1 September 2003, a 7.4% increase
from the closing price on 12 August 2003 of $10.49.
To some extent at least, it appears the increase in the TABCORP share price
since the announcement of the Proposed Merger is consistent with broader market
movements. The trading volumes since the announcement of the Proposed Merger
have been at levels which are broadly consistent with levels prior to the
announcement.
In considering whether the TABCORP share price since the announcement of the
Proposed Merger fairly reflects the market's view of the value of the merged
TABCORP we have had regard to:
- - whether the valuation of TABCORP, as implied by post announcement share
trading, appears reasonable based on market estimates of TABCORP
earnings and financial position post merger, and
- - whether the market estimates prepared by analysts for TABCORP, post
merger, are consistent with our own estimates based on information
provided by TABCORP and Jupiters.
IMPLIED VALUATION OF TABCORP
Since the announcement in May 2003 of the potential profit impact of smoking
bans in Victoria, TABCORP has traded on the following multiple of proforma 2003
earnings as shown in Table 6.4.
TABLE 6.4
TABCORP EBITDA MULTIPLES
- -------------------------------------------------------------
EBITDA
EBITDA EBITDA MULTIPLE ON
PROFORMA (1) MULTIPLE ON 1 SEPTEMBER
$ MILLION LOW (2) HIGH (2)
- -------------------------------------------------------------
2003 710 8.4 9.3
- -------------------------------------------------------------
Notes:
(1) earnings proforma for 2003 based upon our own calculation of a merged
TABCORP assuming the merger had been in place for a full year and $10
million in synergies achieved
(2) EBITDA multiple is calculated using a low share price for TABCORP for the
period 16 May 2003 to 1 September 2003 of $10.03 and a high of $11.64
71
[PRICEWATERHOUSECOOPERS LOGO]
Section 6: The merger consideration - is it fair?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
The implied EBITDA multiple range of 8.4 to 9.3 times 2003 earnings compares
reasonably to observed market multiples. Based on consensus analysts estimates
in December 2002 and a VWAP for December 2002 of $10.55, we estimate TABCORP was
trading at a multiple of 8.2 times the consensus analyst estimated 2003 earnings
prior to the announcement of the Proposed Merger.
The increase (2% to 13%) in TABCORP's trading multiples since December 2002 is
consistent with increases in the market since that time together with the
results now being achieved and possibly a small re-rating of TABCORP in relation
to the Proposed Merger.
In addition to checking the reasonableness of the EBITDA multiples implied by
the TABCORP trading prices, we have performed a discounted cash flow valuation
of the merged TABCORP Group. The valuation uses internal management forecasts
provided by TABCORP and Jupiters for the 2003 and 2004 financial years. After
2004, we have formed our own view as to the likely growth profile of the merged
TABCORP.
We have modelled the TABCORP cash flows until 2012, when the Gaming and Wagering
licenses will expire. We have assumed TABCORP will be successful in retaining
the licences, but that it will pay a market price to do so. At the low end of
our valuation range we have assumed TABCORP will pay a full market price for
these licences, less the purchase price refund owing under the terms of the
licence. At the high end, we have assumed TABCORP is able to obtain the licence
for a lower price, being a 25% discount to a full control value given the likely
competitive advantages it could hold over other bidders, arising from its
incumbent position.
The terminal value assumption at the low end of our range provides effectively
the same result as TABCORP not retaining the licences and receiving the purchase
price refund and disposing its net tangible assets at book value. Hence at the
low end, our discounted cash flow valuation is not sensitive to whether the
Wagering or Gaming licences are retained in 2012.
The valuation range resulting from our discounted cash flow analysis is
consistent with the values implied by the post announcement trading prices of
TABCORP shares after allowing for the fact our DCF value represents a control
value.
REASONABLENESS OF MARKET ANALYSTS' EARNINGS ESTIMATES
We have been provided with forecast information by both TABCORP and Jupiters. We
have used these forecasts to calculate our own estimate of 2004 earnings and we
have compared this information to market analysts forecast earnings. We note our
estimates based on the forecast information provided to us are not materially
different to the markets analysts' estimates which appear to be already factored
into the share price.
72
[PRICEWATERHOUSECOOPERS LOGO]
Section 6: The merger consideration - is it fair?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
CONCLUSION ON TABCORP EQUITY VALUE
Based on the liquid trading in TABCORP shares, the healthy free float and the
trading range of TABCORP share prices, we believe it is reasonable to take the
traded price of TABCORP shares as being an unbiased assessment of the value of
TABCORP shares in a well informed market.
In addition, it appears, on our analysis, that the post announcement trading of
TABCORP shares:
- - has been based on reliable information; and
- - are trading at values which reflect that information.
This supports our approach of adopting the post announcement share price of
TABCORP as representative of the value of TABCORP shares immediately post the
Proposed Merger.
73
[PRICEWATERHOUSECOOPERS LOGO]
Section 6: The merger consideration - is it fair?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Given the price sensitive nature of the announcement made by TABCORP on 15 May
2003 in relation to smoking bans on full year profits, we have based our
estimate of the range of values for TABCORP shares on the trading range of
TABCORP shares for 16 May 2003 to 1 September 2003 of $10.03 to $11.64. In
estimating a value range for TABCORP shares we recognise that post the 13 August
2003 earnings announcement there may be further upside in TABCORP shares,
however, at the time the TABCORP shares traded at $11.64 they were trading cum
dividend. The 1 September 2003 price reflects the first closing price after
TABCORP shares went ex dividend, since the results announcement on 13 August
2003. A price of $11.50 implies a multiple of 9.2 times proforma 2003 EBITDA for
the merged TABCORP, a level we consider reasonable for the upper end of our
range. We have adopted $10.00 to $11.50 as our range of values for the TABCORP
shares.
Accordingly, based on 0.24 of a TABCORP ordinary share for each Jupiters
Ordinary Share, we have valued the equity portion of the consideration offered
by TABCORP as follows:
TABLE 6.5
TABCORP SHARE PORTION OF CONSIDERATION
- ---------------------------------------------------------------------------------
LOW HIGH
- ---------------------------------------------------------------------------------
TABCORP ordinary shares (portfolio) $ 10.00 $ 11.50
Interest in a TABCORP share for 1 Jupiters share 0.24 0.24
-------------------
Value of consideration received in TABCORP shares $ 2.40 $ 2.76
- ---------------------------------------------------------------------------------
6C CASH COMPONENT
We have valued the cash component at its face value of $2.85.
6D OTHER MERGER CONSIDERATION
NET CENTREBET PROCEEDS
On 12 August 2003 Jupiters announced to the market that it was in final sale
negotiations with shortlisted parties and the prices being negotiated were in
the $60 million to $70 million range. Based on disclosures made by Jupiters
management on 12 August 2003, we have taken the maximum gross sale proceeds
received to be $70 million. At the low end we have allowed no benefit for
Jupiters Ordinary Shareholders recognising there is a risk that no sale will be
achieved by 30 September 2004. Therefore, in estimating the gross sale proceeds
for Centrebet we have adopted a range of between nil and $70 million. In
Appendix C we have discussed the Centrebet business and the EBITDA multiples
implied by the estimated gross sale proceeds.
In order to estimate the Net Centrebet Proceeds, we have also estimated the tax
payable on the Centrebet disposal and the sale costs. Based on a CGT cost base
of $23.4 million, sale costs of $4.0 million and
74
[PRICEWATERHOUSECOOPERS LOGO]
Section 6: The merger consideration - is it fair?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
estimated purchase price adjustments of $2.1 million, our estimate of the Net
Centrebet Proceeds is nil to $0.27 per share as set out in Table 6.6.
75
[PRICEWATERHOUSECOOPERS LOGO]
Section 6: The merger consideration - is it fair?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
TABLE 6.6
ESTIMATE OF NET CENTREBET PROCEEDS
- ---------------------------------------------------------------------------
LOW HIGH
$ MILLION $ MILLION
- ---------------------------------------------------------------------------
Gross sale proceeds - 70.0
Add: Net purchase price adjustments - 2.1
Less:
Tax payable - (13.4)
Costs - (4.0)
---------------------
Net proceeds - 54.7
---------------------
Shares on issue 201.8 201.8
- -------------------------------------------------------------------------
NET PROCEEDS PER SHARE - $0.27
- -------------------------------------------------------------------------
SPECIAL DIVIDEND
Jupiters Ordinary Shareholders will receive a fully franked cash dividend of
$0.75 following approval of the Proposed Merger. We have valued the cash
component at its face value of $0.75. In considering the value of the franking
credits, we have compared the value of receiving a fully franked dividend to an
unfranked dividend for different classes of shareholder.
FRANKING CREDITS
The franking credits which attach to the dividend potentially carry a different
value for different classes of shareholders. Franking credits reflect the
payment of company tax, at a rate of 30%, on profits, the benefit of which is
passed to shareholders via franking (or attaching the credit to) the dividend.
The maximum benefit available on the special dividend is $0.32 which is
available to resident shareholders who are on a zero tax rate, and who will
receive a cash refund of $0.32. In contrast, those resident shareholders who are
on the top marginal tax rate of 48.5% receive a benefit of approximately $0.16
compared to their after-tax position from receipt of an unfranked dividend of
$0.75.
Non-resident shareholders will obtain some benefit from the receipt of franking
credits in that franked dividends do not attract dividend withholding tax,
whereas unfranked dividends do. However, in most jurisdictions that have a tax
treaty in place with Australia, the non-resident taxpayer will receive credit in
their country of residence for Australian dividend withholding tax paid and so
the benefit will only be one of timing. Hence at a practical level we have
assumed the benefit of receiving a franking credit for non-resident shareholders
will be nil.
Whilst it is possible to determine that the franking credit carries value, it is
not possible to be precise as its quantum depends on the tax position and
residency of the recipient shareholder. In this case, based on a range of values
from nil to $0.32 for the franking credits attaching to the special dividend, we
have adopted the mid-point of $0.16 as our estimate of value attaching to the
credits for each Jupiters Ordinary Share.
76
[PRICEWATERHOUSECOOPERS LOGO]
Section 6: The merger consideration - is it fair?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
However, individually, Jupiters Ordinary Shareholders should seek independent
advice in relation to their specific circumstances to determine the value of the
franking credits to them.
77
[PRICEWATERHOUSECOOPERS LOGO]
Section 6: The merger consideration - is it fair?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
The estimated Net Centrebet Proceeds are in the range of nil to $0.27 for each
Jupiters Ordinary Share. As long as the Centrebet sale is completed on or before
31 October 2003, the Net Centrebet Proceeds will be distributed by way of a
fully franked special dividend. The franking credits attaching to the proceeds
are estimated to be nil to $0.12 for each Jupiters Ordinary Share. In each case,
as noted above, the value of the franking credits can range from nil to face
value. We estimate the benefits to be received from the franking credits as
being 50% of the face value, being in a range of nil to $0.06 for each Jupiters
Ordinary Share.
SUMMARY OF TOTAL CONSIDERATION
Table 6.7 below summarises our calculation of the value of the consideration
offered which is in a range of $6.16 to $6.85. This includes franking credits on
the $0.75 special dividend and the Net Centrebet Proceeds.
TABLE 6.7
SUMMARY OF TOTAL CONSIDERATION
- -----------------------------------------------------------------------------
LOW HIGH
$ $
- -----------------------------------------------------------------------------
TABCORP shares 2.40 2.76
Cash 2.85 2.85
Net Centrebet Proceeds - 0.27
Special dividend 0.75 0.75
Value of franking credits - Centrebet - 0.06
Value of franking credits - Special dividend 0.16 0.16
--------------------
VALUE OF TOTAL CONSIDERATION 6.16 6.85
- -----------------------------------------------------------------------------
6E COMPARISON OF TOTAL CONSIDERATION TO VALUATION OF JUPITERS ORDINARY SHARES
Table 6.8 and Figure 6.2 below sets out the comparison of the total
consideration offered to Jupiters shareholders to the value of a Jupiters share:
TABLE 6.8
COMPARISON OF VALUE
- -------------------------------------
JUPITERS VALUATION CONSIDERATION
- -------------------------------------
LOW HIGH LOW HIGH
$ $ $ $
- -------------------------------------
5.92 6.76 6.16 6.85
- -------------------------------------
78
[PRICEWATERHOUSECOOPERS LOGO]
Section 6: The merger consideration - is it fair?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
FIGURE 6.2
COMPARISON OF VALUE
[BAR CHART]
THE CONSIDERATION OFFERED IS FAIR
The range of the value of the total consideration being offered to Jupiters
shareholders for each Jupiters share of $6.16 to $6.85 is within the range of
our values for Jupiters shares of $5.92 to $6.76, which includes a control
premium.
In relation to franking credits, it is apparent that the Proposed Merger does
generate value for some shareholders by bringing forward the utilisation of
franking credits. In the absence of the Proposed Merger it is unlikely any
significant additional value would be placed on franking credits, given the
trading multiples of companies in the sector typically already reflect an
expectation of ongoing franked dividends, at normal dividend levels. Further,
the application of normal dividend payout ratios for Jupiters would in fact see
the franking account balance continue to increase.
As the total consideration offered to Jupiters Ordinary Shareholders is within
the range of values for Jupiters Ordinary Shares, in our view the Proposed
Merger provides fair value for Jupiters Ordinary Shareholders.
CONCLUSION ON TOTAL CONSIDERATION
Based on the above analysis, we conclude that the total consideration to be
received by Jupiters Ordinary Shareholders is not less than the fair value of
Jupiters Ordinary Shares. Therefore, the consideration is, in our opinion, fair.
If a sale of Centrebet is not completed by 30 September 2004, we consider the
opportunity for TABCORP to then dispose of Centrebet for a significant amount
would be limited. However, we expect Jupiters will be in a position to provide a
further update on the Centrebet sale process including any potential impact on
Net
79
[PRICEWATERHOUSECOOPERS LOGO]
Section 6: The merger consideration - is it fair?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Centrebet Proceeds to Jupiters Ordinary Shareholders prior to, or at, the
Ordinary Share Scheme meeting, and Jupiters Ordinary Shareholders should
consider any potential impact in deciding whether to approve the Ordinary Share
Scheme. Nevertheless, even if no value were ultimately obtained for Centrebet,
the merger consideration would still be fair.
80
[PRICEWATERHOUSECOOPERS LOGO]
Post merger analysis - are Jupiters Ordinary Shareholders better off?
7A INTRODUCTION AND APPROACH
In this section we consider whether Jupiters Ordinary Shareholders will be
better off after the Proposed Merger. In doing so, we have compared their
position as shareholders in Jupiters prior to the merger to their position as
shareholders in the merged TABCORP.
The comparison is required because Jupiters Ordinary Shareholders will be
exchanging, at least in part, their Jupiters Ordinary Shares for TABCORP shares
(with only limited exceptions). The comparison should be considered in the
context that no more than 40% of the consideration received by Jupiters Ordinary
Shareholders collectively will be in the form of TABCORP shares and, therefore,
the analysis needs to reflect this position.
It is noteworthy also that some of the financial impacts of the Proposed Merger
come directly from the merger consideration. TABCORP will borrow funds to pay
the cash consideration and to fund the subscription of RPS to facilitate payment
of the special dividend and any dividend representing the Net Centrebet
Proceeds. Therefore the gearing ratio of the merged entity will be affected, but
Jupiters Ordinary Shareholders will have received the cash proceeds as part
realisation of their Jupiters investment.
Our "better-off" assessment has been made with regard to a number of typical
shareholder value metrics, which allow comparison of the position of Jupiters
pre-merger with that of the merged TABCORP after the transaction, as follows:
- - EPS and DPS
- - operating performance and margins
- - return on investment and capital expenditure management
- - financing structure and credit worthiness, and
- - likely effects of market factors like market capitalisation, liquidity
and volatility.
To enable the comparison of shareholders position pre and post merger we have
prepared proforma financial statements for the merged TABCORP. The proforma
financial statements are based on a notional consolidation of the 2003 results
for both Jupiters and TABCORP assuming the Proposed Merger had been in place for
a full year.
The Jupiters financial (pre-merger) details are set out in Section 5. We have
therefore set out below:
- - a summary of the TABCORP pre-merger financial position and recent
operating performance
- - a summary of the merged TABCORP financial position and proforma profit
and loss, and
- - our comparison of shareholder value metrics pre and post merger.
81
[PRICEWATERHOUSECOOPERS LOGO]
Section 7: Post merger analysis - are Jupiters shareholders better off?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
7B SUMMARY OF TABCORP PRE-MERGER OPERATING PERFORMANCE
TABCORP has grown significantly since its public listing in August 1994. In
1996, the first full year of operations after listing, TABCORP reported a NPAT
of $87.2 million which has increased to $253 million in 2003. The major changes
that have taken place in TABCORP during that period include the acquisition of
Star City in 1999 and the increase in gaming machines operated from
approximately 7,000 in June 1994 to approximately 13,750 in 2003.
RECENT OPERATING PERFORMANCE
The reported operating performance of TABCORP for the most recent three years is
summarised in Table 7.1.
TABLE 7.1
TABCORP OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------
12 MONTHS ENDED 30 12 MONTHS ENDED 30 12 MONTHS ENDED 30
JUNE 2001 JUNE 2002 JUNE 2003
$ MILLION (AUDITED) $ MILLION (AUDITED) $ MILLION (AUDITED)
- ---------------------------------------------------------------------------------------------------
Revenue
Gaming 846.3 917.6 848.1
Wagering 380.3 403.6 421.3
Star City 586.3 611.9 631.2
--------------------------------------------------
1,812.9 1,933.1 1,900.6
EBITDA
Gaming 245.1 256.6 229.5
Wagering 62.3 74.6 74.1
Star City 171.1 212.6 222.4
--------------------------------------------------
478.5 543.8 526.0
Depreciation and amortisation (113.4) (108.5) (105.2)
EBIT 365.1 435.3 420.8
Net interest expense (66.5) (51.9) (48.5)
--------------------------------------------------
PBT 298.6 383.4 372.3
Tax (expense)/benefit (110.9) (122.4) (119.7)
--------------------------------------------------
NPAT 187.7 261.0 252.6
==================================================
EPS (Cents) 50.4 70.0 68.7
EBITDA/revenue 26.4% 28.1% 27.7%
EBIT/revenue 20.1% 22.5% 22.1%
NPAT/revenue 10.4% 13.5% 13.3%
- ------------------------------------------==================================================
82
[PRICEWATERHOUSECOOPERS LOGO]
Section 7: Post merger analysis - are Jupiters shareholders better off?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
COMMENTARY ON OPERATING PERFORMANCE
2002 FINANCIAL YEAR
The TABCORP result is largely driven by the gaming and Star City divisions. For
the 2002 financial year over 85% of EBITDA was contributed by those two
divisions.
Revenue and EBITDA percentage growth for 2002 against the 2001 year for each
division and in total is summarised in Table 7.2 below.
TABLE 7.2
TABCORP REVENUE AND EBITDA GROWTH 2001 TO 2002
- -------------------------------------------------------------------------
REVENUE EBITDA
GROWTH GROWTH
% %
- -------------------------------------------------------------------------
Gaming 8.4% 4.7%
Wagering 6.1% 19.7%
Star City 4.4% 24.3%
------------------
Total 6.6% 13.6%
- ------------------------------------------------------------------------
Note: These percentages are before adjustments for non recurring items
In percentage terms, the strongest contributor to revenue growth was the gaming
division. This growth was achieved through a combination of strategies to
improve venues and the introduction of new games. The wagering performance
benefited from the Soccer World Cup and a record Spring Carnival result. At Star
City, the growth in revenue came from the private gaming rooms and gaming
machines. The main gaming floor experienced a 1.8% decline in revenue.
However at the EBITDA level, it was Star City which was the most significant
contributor to EBITDA growth.
The reasons for the differences between the growth rates at the revenue and
EBITDA lines were:
- - gaming experienced an increase in costs of $12.2 million (5.3% of
EBITDA) as a result of a Victorian Government decision to increase the
levy on each machine from $333 a machine to $1,533 a machine
- - wagering was able to control growth in operating expenses and also
benefited from a special payment from SATAB in compensation for it
leaving the SuperTAB pooling system
- - Star City benefited from the suspension of international rebate play
which had been loss making in the previous year. Without the impact of
the rebate play in 2001 the increase in EBITDA would have been 19.7%.
The other significant contributor to the increased EBITDA was a 6.7%
reduction in operating expenses.
83
[PRICEWATERHOUSECOOPERS LOGO]
Section 7: Post merger analysis - are Jupiters shareholders better off?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
2003 FINANCIAL YEAR
Revenue and EBITDA percentage growth for the 2003 year against the 2002 year is
set out in Table 7.3 below:
TABLE 7.3
TABCORP REVENUE AND EBITDA GROWTH 2003
- -------------------------------------------------------------------------
REVENUE EBITDA
GROWTH GROWTH
% %
- -------------------------------------------------------------------------
Gaming (7.6%) (10.6%)
Wagering 4.4% (0.1%)
Star City 3.2% 4.6%
-------------------
Total (1.7%) (3.3%)
- ------------------------------------------------------------------------
Note: These percentages are before any adjustments for non recurring items
In the 2003 financial year, the most significant impact on results was the
introduction of smoking bans in gaming areas in Victoria. The bans had a
significant impact on the gaming divisions revenues, which were 7.6% below the
2002 financial year.
The impact of the smoking bans on the revenues of the gaming division for
2002/03 is demonstrated in Figure 7.1 below.
FIGURE 7.1
TABCORP MONTHLY GAMING REVENUE
[LINE GRAPH]
84
[PRICEWATERHOUSECOOPERS LOGO]
Section 7: Post merger analysis - are Jupiters shareholders better off?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
The performance for July and August 2002 is largely attributed to the
introduction of new games. However, the impact of the smoking bans post
September 2002 has been significant.
85
[PRICEWATERHOUSECOOPERS LOGO]
Section 7: Post merger analysis - are Jupiters shareholders better off?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
TABCORP has introduced measures in an attempt to accommodate the needs of
smokers. These initiatives have included:
- - amenity improvement
- - assisting venues improve customer service to improve service to smokers
and attract new users.
In particular, significant effort has been put into the amenity or venue
improvement program. TABCORP have identified that an amenity improvement
solution includes:
- - locating the smoking area/room adjacent to the gaming room
- - ensuring the furniture and fixtures in the smoking room are consistent
with those in the gaming room
- - providing other entertainment options in the smoking room, such as
television, wagering, reading material
- - creating a comfortable ambience in the smoking room, in particular good
air quality.
As at 30 June 2003, 169 out of a total of 271 venues had implemented changes
consistent with the amenity improvement solution.
The increase in wagering division revenue compared to the previous corresponding
period, was mainly due to growth in the racing product which represents 95% of
the business, improved distribution in terms of refurbishments to retail outlets
and growth in self service betting through touch-tone telephone, natural
language speech recognition, pro-bet terminals and the Internet. Although the
actual EBITDA for wagering in 2003 is relatively flat compared to 2002, this
reflects the special payment of $5.6 million received from SATAB in 2002. If the
special payment in 2002 is adjusted for wagering EBITDA increased by
approximately 7.4% in 2003.
The Star City increase in revenues was driven by increases in gaming machine
revenues and non gaming revenues. The performance includes a reduction in
revenue in the private gaming rooms, driven by a reduction in international
business as a result of the war in Iraq and the SARS virus. Revenues from tables
on the main gaming floor benefited from a change to the product mix on the
floor.
SUMMARY
The key features of recent results are:
- - Gaming
- the negative impact of smoking bans on revenue
- - Wagering - stable revenue growth in core products, benefiting from:
- the impact of the Soccer World Cup on sports betting
- a special payment in the 2002 year from the SATAB for the exit
of the SATAB from the pooling system
86
[PRICEWATERHOUSECOOPERS LOGO]
Section 7: Post merger analysis - are Jupiters shareholders better off?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
- - Star City
- reductions in operating expenses
- improvement in non gaming revenues
- improvement from the main gaming floor in the second half of
the 2003 financial year
- impact of Iraq war and SARS on international business.
Of these factors, it is the smoking bans which have had the most significant
impact on earnings and outlook. TABCORP earnings will depend on the extent to
which the gaming division revenue and earnings can recover from the impact.
The 2003 result has 10 months of the impact of smoking bans included. Having
reviewed the 2003 result and 2004 budget information provided by TABCORP we are
satisfied the 2003 results represent an appropriate base to estimate proforma
earnings for the Merged TABCORP.
7C A PRO-FORMA VIEW OF THE MERGED TABCORP
In considering the Merged TABCORP, we have compiled
- - a pro-forma profit and loss statement, using 2003 results for TABCORP
and Jupiters (Table 7.4), and
- - a pro-forma statement of financial position, using June 2003 Balance
Sheets for TABCORP and Jupiters. In order to achieve a consistent
analysis we have shown the Jupiters statement of financial position
assuming Centrebet has been sold and proceeds distributed, as well as
assuming the special dividend has been paid (Table 7.5).
The proforma merger statements assume that the Proposed Merger took effect from
30 June 2002 and was in place for the full year ended 30 June 2003. Using the
2003 year as a pro-forma allows the various shareholder value metrics to be
calculated for Jupiters and TABCORP on a pre and post merger basis using the
available financial information for the 2003 financial year.
To allow clear identification of the impact of the Proposed Merger, we have only
made adjustments which we consider direct outcomes of the Merger. As part of the
implementation of the Proposed Merger, TABCORP have indicated items such as fair
value adjustments and accounting policy changes are expected to impact on the
financial status of the Merged TABCORP. Estimates of the impact of these
adjustments are set out in the pro-forma profit and loss statement and statement
of financial position in the Scheme Booklet. Hence there are some differences
between our pro-forma statements and the pro-forma statements in the Scheme
Booklet which reflect some of the additional adjustments estimated by TABCORP.
87
[PRICEWATERHOUSECOOPERS LOGO]
Section 7: Post merger analysis - are Jupiters shareholders better off?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
TABLE 7.4
PRO-FORMA PROFIT AND LOSS STATEMENT
- ---------------------------------------------------------------------------------------------------
TABCORP JUPITERS
2003 ACTUAL 2003 ACTUAL CONSOLIDATION PRO-FORMA
$ MILLION $ MILLION(1) $ MILLION $ MILLION
- ---------------------------------------------------------------------------------------------------
Revenue 1,901 754 2,655
------------------- -----
EBITDA 526 174 10(1) 710
Depreciation (72) (42) (114)
Amortisation (33) (8) (41)(3) (82)
------------------- -----
EBIT 421 124 514
Interest (49) (36) (43)(2) (128)
Tax expense (119) (29) (140)(4)
----------------------------------------------------
NPAT 253 59 246
- ----------------------------------------------------------------------------------------------
(1) Ex Centrebet and normalised
TABLE 7.5
PRO-FORMA STATEMENT OF FINANCIAL POSITION
- ---------------------------------------------------------------------------------------------
TABCORP JUPITERS
JUNE 03 JUNE 03 CONSOLIDATION PRO-FORMA
$ MILLION $ MILLION $ MILLION $ MILLION
- ---------------------------------------------------------------------------------------------
Cash 119 63 182
Accounts receivable 3 18 21
Other 36 33 69
-------------------------------------------------
CURRENT ASSETS 158 114 0 272
Fixed assets 759 758 1,517
Intangibles 1,375 107 821(3) 2,303
Other assets 108 42 150
-------------------------------------------------
TOTAL ASSETS 2,400 1,021 821 4,242
-------------------------------------------------
Current liabilities (ex-borrowings) 238 95 333
Non-current liabilities
(ex-borrowings) 76 10 86
-------------------------------------------------
NON-DEBT LIABILITIES 314 105 419
Unsecured notes 202 202
Reset preference shares 190 (190)(5) 0
Commercial bills - unsecured 45 45
Lease liabilities - secured 1 1
Bank loans - unsecured 598 598
Bank loans - secured 168 168
New debt 151 824(2),(5) 975
-------------------------------------------------
TOTAL DEBT 766 589 634 1,989
-------------------------------------------------
TOTAL LIABILITIES 1,080 694 634 2,408
-------------------------------------------------
NET ASSETS 1,320 327 187 1,834
-------------------------------------------------
88
[PRICEWATERHOUSECOOPERS LOGO]
Section 7: Post merger analysis - are Jupiters shareholders better off?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
- ----------------------------------------------------------------------------------
TABCORP JUPITERS
JUNE 03 JUNE 03 CONSOLIDATION PRO-FORMA
$ MILLION $ MILLION $ MILLION $ MILLION
- ----------------------------------------------------------------------------------
Share capital 1,138 313 207 1,658
Retained profits 182 14 (20) 176
-------------------------------------------------
TOTAL EQUITY 1,320 327 187 1,834
- ---------------------------=====================================================
Note: The pro-forma statements above are slightly different to those in the
Scheme Booklet pro-forma, reflecting slightly different assumptions around
changes to accounting policies, refinancing of debt and our reduction in equity
for the $6 million in merger implementation costs. The statement of financial
position has been presented to separate the debt position as this is an
important aspect of the post merger financial position.
ASSUMPTIONS
(1) a full year of synergies is achieved. Cost synergies are
estimated at $10 million per annum. No revenue synergies are
assumed although TABCORP management have indicated they plan
to implement strategies intended to generate revenue
synergies. The cost synergies assumed are not dependant on the
acquisition by TABCORP of the BI gaming management contracts.
(2) the consideration offered by TABCORP for Jupiters Ordinary
Shares has a total value of $1.139 billion when transaction
costs are included. This is funded by the issuing of 48.4
million new TABCORP shares and cash funded by new debt. After
the premium on repurchase of RPS, transaction costs and
payment to Jupiters Option Holders, the total additional debt
is $824 million (as set out in note 5). After taking account
of payment of the special dividend, new debt is $975 million.
It is assumed the special dividend was paid by Jupiters at the
end of the 2003 financial year. Interest is paid on existing
TABCORP and Jupiters debt at existing rates. An interest rate
of 6% is paid on new debt of $975 million acquired. The
interest expense adjustment reflects the net of the interest
paid on new debt and elimination of interest previously paid
on the RPS (which was at 8.15%). Net assets acquired are $327
million after payment of the special dividend. TABCORP may
subsequently reduce the debt acquired through a Dividend
Reinvestment Plan, however, we have assumed the impact of such
a plan will be value neutral in the short term.
(3) intangible assets created on consolidation of $821 million
will be amortised over 20 years at $41.1 million per year. The
amortisation assumption may be conservative as, to the extent
some intangible value relates to the licences in place, the
amortisation period may extend beyond 20 years and proposed
changes to Accounting Standards in Australia may result in
goodwill not being amortised but instead subject to regular
impairment testing. Existing TABCORP intangibles are made up
of:
- Wagering and Gaming licence $597 million
- Casino licence $234 million
- Acquired goodwill $293 million
- Rights to the Casino Complex Management Agreement
$251 million.
89
[PRICEWATERHOUSECOOPERS LOGO]
Section 7: Post merger analysis - are Jupiters shareholders better off?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(4) Tax expense is estimated at 30% of proforma EBTA. The TABCORP
tax rate for 2003, pre merger is 30% of EBTA, while the
Jupiters rate is 31% of EBTA.
(5) The additional debt post merger includes:
- --------------------------------------------------------
$ MILLION
- --------------------------------------------------------
Cash component of consideration 575
- -----------------------------------------------------
Premium on RPS payment 10
- -----------------------------------------------------
Advisory fees and integration costs 46
- -----------------------------------------------------
Payment to Jupiters Option Holders 3
- -----------------------------------------------------
NEW DEBT 634
- -----------------------------------------------------
Replace RPS debt 190
- -----------------------------------------------------
ADDITIONAL DEBT 824
- -----------------------------------------------------
Note: Of the costs of $46 million, $31 million represents transaction costs
which are capitalised. $15 million represents merger implementation costs, of
which $9 million are reflected in goodwill as TABCORP have indicated they will
create a pre acquisition reserve for these costs, and $6 million will be
expensed, reducing equity.
TABCORP's existing borrowings include two distinct financing facilities. One to
meet the general requirements of the group, and the other established by Star
City Holdings Limited and its controlled entities. These current debt facilities
are being refinanced by a syndicate of banks.
Binding commitment letters have been signed by TABCORP and each of the Banks
pursuant to which the Banks have agreed to enter into formal agreements to
underwrite Facilities under which (subject to the terms of the Facilities)
TABCORP will be able to borrow up to:
(a) $1,464 million from National Australia Bank Limited, Westpac
Banking Corporation and Barclays Bank PLC; and
(b) $600 million from National Australia Bank Limited
As part of the commitment letters, TABCORP and the Banks have agreed term sheets
in respect of each of the Facilities. Each of the Banks has obtained credit
committee approval to the terms of the Facilities.
The TABCORP Group's current debt facilities will also be refinanced by the
Facilities to enable a lengthened maturity profile of the TABCORP Group's
existing debt.
TABCORP has maintained a facility established by Star City Holdings of $208
million.
As at 30 June 2003 TABCORP has two interest rate swaps in place, under which
TABCORP pay fixed rates between 7.28% and 8.61%. The total principal swapped at
30 June 2003 is $350 million. Both swaps terminate in June 2004.
There will be approximately 414 million TABCORP shares on issue post merger.
90
[PRICEWATERHOUSECOOPERS LOGO]
Section 7: Post merger analysis - are Jupiters shareholders better off?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
7D SHAREHOLDER VALUE ANALYSIS
To evaluate the Proposed Merger in terms of its likely shareholder value
outcomes, we have calculated a range of statistics below. These are based on a
comparison of 2003 actual results for Jupiters and a pro-forma merged entity.
In comparing the Jupiters stand alone position with the pro-forma merged entity,
care needs to be taken that the comparison is being made on a valid basis.
TABCORP will merge with Jupiters after it has disposed of Centrebet, distributed
the proceeds and paid a special dividend. We have therefore constructed an
analysis in order to compare:
- - "Jupiters stand alone" - assuming the merger does not proceed
- - "Jupiters pre-merger" - after the Centrebet sale, distribution and
special dividend
- - "Merged Entity" - post TABCORP/Jupiters merger
91
[PRICEWATERHOUSECOOPERS LOGO]
Section 7: Post merger analysis - are Jupiters shareholders better off?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
TABLE 7.6
SHAREHOLDER VALUE METRICS YEAR ENDED 30 JUNE 2003
- --------------------------------------------------------------------------------------------------
JUPITERS JUPITERS PRO-FORMA
STANDALONE (1) PREMERGER MERGED ENTITY
- --------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
EPS (post amortisation) $ 0.31 $ 0.58(2) $ 0.59
EPS (pre amortisation) $ 0.36 $ 0.66(2) $ 0.79
DIVIDEND POLICY
DPS $ 0.23 $ 0.43 $ 0.71
Payout ratio (as a % of post amortisation earnings) 74% 74% 120%
Payout ratio (as a % of pre amortisation earnings) 64% 65% 90%
OPERATING PERFORMANCE AND RETURNS
ROA 8.9% 8.7% 9.1%
ROCE 10.6% 10.1% 10.9%
EBITDA margin 23.4% 23.1% 26.8%
NPAT margin 7.9% 7.8% 9.3%
FINANCING STRUCTURE & CREDIT WORTHINESS
Interest cover EBIT 3.63 3.45 4.02
Debt/Debt + Equity 45% 63% 51%
Debt/Equity 83% 171% 105%
- -----------------------------------------------------------------------------------------------
Note: (1) The Jupiters standalone position is normalised on a
theoretical win basis and is before transaction costs incurred
post 30 June 2003. When considered on a maintainable basis
with earnings to be generated post 30 June 2003 these costs
will not have a material impact on the shareholder value
metrics considered.
(2) The Jupiters standalone column represents the position for
Jupiters Ordinary Shareholders assuming the merger does not
proceed. The Jupiters pre-merger column represents the
entitlement of Jupiters Ordinary Shareholders to TABCORP
shares based on an all share merger ratio. In calculating
this, EPS and DPS are recalculated so as to exclude Centrebet
earnings and assume franking of the special dividend so as to
be comparable to the Jupiters entity that will be acquired by
TABCORP. They are then re-weighted to reflect that, based on a
Jupiters Ordinary Share value of $5.41 and a TABCORP share
value of $10.75, 1.99 Jupiter shares is equivalent to one
TABCORP share. The Jupiters Ordinary Share value is based on
an equity value of $1.022 billion to $1.158 billion on an ex
Centrebet and special dividend basis, while the TABCORP value
is based on the midpoint of our valuation range for TABCORP
shares as set out in Section 6. Essentially, the pro-forma
merged entity column assumes that a Jupiters Ordinary
Shareholder takes all the merger consideration in the form of
TABCORP shares.
The relevant columns to compare are the pre-merger and merged entity columns.
The implications of these metrics for Jupiters Ordinary Shareholders continuing
to hold shares in the merged TABCORP are summarised below:
- - earnings per share on a pre goodwill basis are greater post merger,
reflecting the pre goodwill EPS accretion that is expected from the
merger and the fact that in value terms Jupiters shareholders are able
to realise a control premium and then reinvest that value at a
portfolio value
92
[PRICEWATERHOUSECOOPERS LOGO]
Section 7: Post merger analysis - are Jupiters shareholders better off?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
- - DPS will increase significantly post merger reflecting TABCORP's higher
dividend policy
- - the capital management policies of TABCORP, involving a combination of
high dividend payout ratio and relatively high debt to equity ratio,
will require prudent management to ensure that the competing demands
are met and that capital spend, particularly on the casino properties
and technology, is not under-committed over time. We have discussed
this point with TABCORP management and have compared the capital
expenditure of TABCORP as a percentage of depreciation over the last
five years to other listed companies, including Jupiters. Based on our
discussion and review, we have no reason to believe TABCORP has under
committed capital over time, although this is an area it will need to
monitor carefully. The dividend payout ratio assumed for the pro-forma
merged entity is 90% of pre goodwill earnings. This produces a dividend
of $0.71 which is slightly higher than the 2003 TABCORP dividends of
$0.67. For such a dividend level to be sustainable TABCORP will need to
realise synergy benefits from the merger and grow earnings. We also
note that TABCORP has announced the introduction of a dividend
re-investment scheme and this could reduce the effective payout ratio
in cash flow terms
- - returns on assets and capital employed decline marginally, although
profit margins improve
- - the funding of transaction consideration by debt will mean that
leverage ratios will increase slightly and liquidity will decline.
However, our analysis of a range of credit statistics suggest that the
credit standing of the combined group post merger will be better than
Jupiters standalone. In July 2003, Standard and Poor's confirmed
TABCORP's BBB + negative rating, which is higher than the rating of BB+
Jupiters had prior to the announcement of the Proposed Merger. The
Standard and Poor's credit analyst noted that "The rating outlook is
negative, reflecting the significant integration risks associated with
acquiring Jupiters, the sizeable debt financing of the transaction, and
the evolving regulatory landscape, which can be expected to affect the
merged entity's cash flows in the short-to-medium term." Standard and
Poor's added that "A rating downgrade could result if TABCORP is unable
to achieve meaningful debt reduction and restoration of
credit-protection measures in the next three years."
There are a number of other capital market factors, being size, liquidity and
volatility, which will affect value outcomes for Jupiters Ordinary Shareholders.
We have summarised the major items below:
93
[PRICEWATERHOUSECOOPERS LOGO]
Section 7: Post merger analysis - are Jupiters shareholders better off?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
TABLE 7.7
CAPITAL MARKET FACTORS
- --------------------------------------------------------------------------------------------------------
CAPITAL MARKET FACTORS PRE MERGER POST MERGER IMPLICATION FOR CONTINUING SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------
SIZE Increased size features a number of benefits. The combined
PRE MERGER market capitalisation of the group will place it very close in
TABCORP market cap $3,506 million(1) size to the ASX 200 leaders, increasing the attractiveness of
Jupiters market cap $1,257 million(1) the stock to certain institutions. In addition, bid/ask
POST MERGER spreads and multiples tend to be more attractive for larger
TABCORP market cap(2) $4,450 million companies, all other things equal.
- --------------------------------------------------------------------------------------------------------
LIQUIDITY Jupiters liquidity was higher than TABCORP's due to a number of
TURNOVER PRE MERGER events during the 6 months to 31 March 2003. However,
TABCORP(3) - 131% TABCORP's liquidity is consistent with a company of its size
Jupiters(3) - 215% and affords continuing shareholders with the option of
POST MERGER liquidating their holding in ordinary trading over a reasonable
Expected to be more liquid on normal period.
trading volumes
- --------------------------------------------------------------------------------------------------------
VOLATILITY TABCORP's volatility was lower than Jupiters pre merger. Both
260 DAY AVERAGE PRE MERGER are lower than the average for the ASX 200 in 2002. The
TABCORP - 21.66% increased regulatory and product diversity of the merged
Jupiters - 26.49% business as well as increased size and associated liquidity
POST MERGER should result in a reduction of volatility relative to other
Expected to be lower volatility on market players going forward, all other issues being equal.
normal trading volumes
- --------------------------------------------------------------------------------------------------------
Notes:
(1) At 4 March 2003, the day prior to the merger announcement
(2) Based on a share price of $10.75
(3) Annualised turnover as a percentage of market capitalisation based on
average daily turnover for six months to 31 March 2003.
In summary, capital market factors favour Jupiters shareholders becoming TABCORP
shareholders, compared to their position pre merger.
PREMIUM PAID TO JUPITERS ORDINARY SHAREHOLDERS
When considered in fundamental terms, if the Proposed Merger is to enhance the
value of TABCORP shares, the value of synergies created from the transaction
need to exceed the premium paid to Jupiters Ordinary Shareholders. To the extent
the synergies are not realisable in the short term through earnings
enhancements, the value needs to come from a re-rating of the Merged TABCORP in
recognition that the company is better positioned to enhance and/or protect
earnings in the medium to long term.
94
[PRICEWATERHOUSECOOPERS LOGO]
Section 7: Post merger analysis - are Jupiters shareholders better off?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
In considering the potential impact of the Proposed Merger on the value of the
Merged TABCORP shares, we have therefore considered:
- - the value of the control premium paid to Jupiters Ordinary Shareholders
- - the value of short term realisable synergies
- - the re-rating required of TABCORP to make up for any difference between
the control premium paid and the value of short term realisable
synergies.
CONTROL PREMIUM PAID TO JUPITERS ORDINARY SHAREHOLDERS
We have benchmarked our valuation conclusion by reviewing our valuation in light
of the recent trading price of Jupiters Ordinary Shares on the Australian Stock
Exchange and by cross-checking the valuation using the discounted cash flow
methodology.
TRADED SHARE PRICE
In evaluating the quantum of control premium, we have considered
pre-announcement trading in Jupiters Ordinary Shares. Figure 7.2 and related
notes of Jupiters' share price history shown below provide a useful summary of
key events which explain Jupiters more recent scheme price history:
FIGURE 7.2
- Volume - Jupiters - Consumer Discretionary - ASX200
[LINE GRAPH]
Source: Bloomberg
95
[PRICEWATERHOUSECOOPERS LOGO]
Section 7: Post merger analysis - are Jupiters shareholders better off?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Notes:
1 11 September 2001 - The share price of Jupiters decreased some 13% in a
9 day period, from 11 September 2001 to 20 September 2001. The
contributing factor for this was the terrorist attacks on the World
Trade Centre and the Pentagon in the United States of America. These
attacks had a material adverse impact on general economic conditions,
and the Australian share market suffered as a result. The collapse of
Ansett Airlines, a major domestic and regional airline also had an
unfavourable effect on Australia's economy and tourism sector.
February 2002 - Jupiters announced positive half yearly results.
October 2002 - The share price declined 13% on 17 October 2002. This
was as a result of a profit warning statement released by Jupiters commenting on
the 2002 financial performance and the short term future which dampened concerns
about results for the forthcoming year.
November 2002 - results of the Annual General Meeting were made public
which had a positive impact on the share price.
December 2002 - Jupiters announced that discussions with UNiTAB in
relation to a proposed merger had commenced.
January 2003 - Jupiters announced that following an approach from
TABCORP, discussions had taken place with it in relation to a merger proposal.
The Company also commented that it was continuing to have discussions with
UNiTAB in relation to a merger.
March 2003 - on 5 March 2003, Jupiters announced the proposal to merge
with TABCORP.
June 2003 - Announcement of the signing of the Merger Implementation
Agreement.
August 2003 - Announcement of full year results.
The volume of Jupiters Ordinary Shares traded was fairly constant prior to
October 2002 except for an exceptionally high number of shares being traded on
12 April 2002, which was the date of the public announcement of the share
buy-back. Average daily volumes of shares traded have increased since October
2002, particularly around the dates the above public merger announcements were
made. In particular, an unusually high number of shares were traded on 5 March
2003 which was the date of the announcement that the Jupiters board would
support the Proposed Merger with TABCORP.
Based on a midpoint of the value of the consideration for Jupiters Ordinary
Shares of $6.51 and a Jupiters Ordinary Share price (pre both the TABCORP and
UNiTAB announcements), which we assess at $4.84, we estimate the control premium
being paid by TABCORP to Jupiters shareholders is approximately 35% or $335
million in market value.
THE VALUE OF SHORT TERM REALISABLE SYNERGIES
The short term cost synergies achievable are estimated at approximately $10
million annually. Adopting a portfolio value EBITDA multiple range of 8 to 9, in
our view the short term synergies carry a value of $80 million to $90 million.
This leaves a value gap of approximately $245 million to $255 million. As set
out in Table 7.8 below:
96
[PRICEWATERHOUSECOOPERS LOGO]
Section 7: Post merger analysis - are Jupiters shareholders better off?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
TABLE 7.8
VALUE OF SYNERGIES
- -----------------------------------------------------------------
LOW HIGH
$ MILLION $ MILLION
- -----------------------------------------------------------------
Premium paid to Jupiters shareholders 335 335
Value of short term synergies 90 80
------------------
Value gap 245 255
- --------------------------------------------------------------
97
[PRICEWATERHOUSECOOPERS LOGO]
Section 7: Post merger analysis - are Jupiters shareholders better off?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
RE-RATING REQUIRED OF TABCORP TO ADDRESS VALUE GAP
The pro-forma EBITDA of the Merged TABCORP is estimated in Table 7.4 as $710
million. To bridge a value gap of $245 million to $255 million an increase in
portfolio EBITDA multiples applied to TABCORP earnings as a result of a
re-rating would have to be approximately 0.36 times EBITDA, as set out in Table
7.9 below:
TABLE 7.9
VALUE OF ANALYSIS
- --------------------------------------------------------------------
LOW HIGH
- --------------------------------------------------------------------
Value gap $245 million $255 million
EBITDA $710 million $710 million
---------------------------
Multiple increase required 0.35 0.36
- --------------------------------------------------------------------
If a base portfolio multiple range of approximately 8 to 9 times EBITDA is
assumed, this represents approximately 4.0% to 4.4%. In our view such a
re-rating should be achievable given the:
- - spreading of product, geographic and regulatory risk which results from
the merger
- - the potential to achieve long term synergies through managing the
casinos as a portfolio.
The regulatory risk for Jupiters shareholders is diversified given TABCORP's
significant operations in Victoria and New South Wales, although this is offset
to some extent by the heightened regulatory risk in Victoria resulting from the
expiry of the gaming and waging licences in 2012 and the need for TABCORP to
manage risks across a number of jurisdictions.
Successful execution of the integration plan, especially associated with the
integration of technologies and management cultures will be critical to
achieving both short term and long term synergies from the Proposed Merger. If
the integration plan is successful the merged TABCORP will enjoy a broadened
competency base with the ability to leverage off competencies throughout the
business. In the medium term, subject to appropriate capital management
disciplines, a merged TABCORP may be capable of further significant acquisitions
or investments.
In the medium term, there may also be an opportunity for TABCORP to achieve
further synergies by bringing four casinos under common management, however this
is somewhat dependent on being able to renegotiate/purchase the management
contracts BI Gaming have in place at Conrad Jupiters and Conrad Treasury until
2010.
We note that the consolidation of the gaming and wagering industry continues
both domestically and globally. This may, in time, provide the shareholders with
opportunities to realise control premiums in relation to the merged business,
subject to regulatory considerations.
98
[PRICEWATERHOUSECOOPERS LOGO]
Section 7: Post merger analysis - are Jupiters shareholders better off?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
SUMMARY
The table below summarises an assessment of whether Jupiters shareholders will
be better off after the merger in terms of advantages and disadvantages. In our
opinion, the advantages outweigh the disadvantages.
TABLE 7.10
ADVANTAGES AND DISADVANTAGES OF SHARE EXCHANGE
- -------------------------------------------------------------------------------------------
ADVANTAGES RISKS/DISADVANTAGES
- -------------------------------------------------------------------------------------------
- - Jupiters Ordinary Shareholders will - An expected multiple re-rating will
realise a significant control premium need to be sustained by the delivery of
not accessible in ordinary trading synergies from the merger
and a significant portion of the
consideration is cash - The combination of a high dividend
payout ratio and relatively high debt
- - Earnings per share and dividends per to equity ratio will require prudent
share ratios will be higher than capital management to ensure dividend
Jupiters standalone levels are sustainable and financial
risk is managed
- - Margins will improve relative to the
existing business - Integration risk, which will be
impacted by the ability of TABCORP
- - Capital expenditure ratios will management to integrate technology and
reduce indicating potential increased cultures
efficiency
- Jupiters Ordinary Shareholders who
- - Credit risk will improve marginally decide to retain their TABCORP shares
may be exposed to greater regulatory
- - Capital market considerations such as risk including the renewal risk of
liquidity and volatility are expected TABCORP's gaming and wagering licences
to be generally favourable and risk of introduction of another
Sydney casino after 2007
- -------------------------------------------------------------------------------------------
99
[PRICEWATERHOUSECOOPERS LOGO]
Alternatives - is there a better one?
As well as satisfying the criteria of being fair and making Jupiters
Ordinary Shareholders better off, for the TABCORP Proposed Merger to be in the
best interests of Jupiters Ordinary Shareholders it must also be the best
alternative available. By best alternative, we mean capable of delivering most
value to shareholders.
In assessing this criteria, we have reviewed public information on Jupiters,
including analyst and media reports, reviewed internal documents of Jupiters,
including management and Board papers; and held discussions with the Jupiters
directors, management and advisors. We have also held discussions with TABCORP
management to gain an appreciation of that company's perspective about the
benefits of the Proposed Merger to Jupiters Ordinary Shareholders.
We note that in assessing Jupiters' alternatives, this must be done in the light
of the industry dynamics, competitive positioning, growth opportunities and risk
factors which confront Jupiters at this time.
The strategic imperatives are driven out of the maturing gambling industry
domestically, and therefore require strategies which can produce growth from
expanding product ranges, diversification across geographic markets and access
to new markets, especially overseas.
In this regard, the following alternatives are relevant to Jupiters Ordinary
Shareholders:
- - the alternative proposal to merge with UNiTAB
- - a merger/acquisition/takeover of Jupiters by a third party suitor
- - an orderly realisation of the assets of Jupiters and distribution of
proceeds, or
- - a continuation of Jupiters as a stand alone company.
8A MERGER WITH UNITAB
On 16 December 2002, Jupiters and UNiTAB boards announced that they were in
discussions about a potential merger of the two entities. Subsequent
announcements and media reports set out the potential deal parameters, which can
be summarised as:
- - the merger would have most likely been effected through an acquisition
of all the shares in Jupiters by UNiTAB issuing new shares in exchange
to Jupiters shareholders, with no cash component
- - the merger was to be "of equals", implying that an exchange ratio would
not confer a premium on Jupiters shareholders but would rather be based
on the relative market values of the two companies, and
- - the merger benefits for Jupiters shareholders would be realised over
time in the form of short-term synergies and other intangible benefits
mainly in the form of diversification benefits, coupled with greater
size and scale to compete.
The synergies were identified to be in the form of cost savings and revenue
enhancements. Cost savings revolved around:
- - savings in corporate and support services costs,
- - operational efficiencies across the gaming, sports betting and wagering
businesses, and
- - revenue opportunities in on-line and sports betting, as well as the
opportunity to expand the amount of higher value commission business
through the casinos whilst
100
[PRICEWATERHOUSECOOPERS LOGO]
Section 8: Alternatives - is there a better one?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
keeping the commission revenue (and risks) at a similar percentage of
total revenue.
Upon announcement by Jupiters and UNiTAB of these discussions in December 2002,
the share prices of both organisations adjusted as set out in the following
graph.
FIGURE 8.1
[LINE GRAPH]
The information had a clear price impact in the market, with Jupiters share
price rising 6% in the days following the announcement, even though details of
the UNiTAB merger proposal were still unclear. However, this public announcement
essentially put Jupiters into "play" by signalling to the market that the
directors would be prepared to consider offers in relation to Jupiters shares
providing the value benefit was clear for shareholders. Based on market
speculation at the time, it is possible that the Jupiters share price was
reflecting both this proposal and the possibility of another bid. However, the
announcement of TABCORP's interest on 10 January 2003 produced a large increase
in Jupiters share price, clearly reflecting the market's preference for that
offer.
On an individual analysis, the UNiTAB proposal did offer benefits to
shareholders over a stand alone Jupiters strategy, in the form of greater scale
and extraction of value from synergies.
101
[PRICEWATERHOUSECOOPERS LOGO]
Section 8: Alternatives - is there a better one?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
However, in comparing this to the TABCORP proposal, in our view, for the
following reasons, the UNiTAB proposal did not offer the level of benefit
contained in the TABCORP proposal:
- - there was no control premium to be offered, compared to a significant
control premium being offered by TABCORP
- - there was to be no cash alternative, compared to a significant cash
component in the TABCORP proposal
- - the cost and revenue synergies identified in the UNiTAB proposal were
in the main also attainable by TABCORP
- - the cost and revenue synergies have been priced into the TABCORP
consideration whereas the UNiTAB proposal required Jupiters
shareholders to receive the benefit over time as the synergies were
extracted, and
- - the diversification, scale and size benefits were potentially greater
from TABCORP, given that it:
- offers greater geographical and jurisdictional spread,
compared to UNiTAB which has only small wagering and gaming
activities based outside of Queensland
- has a larger balance sheet, underlying earnings and cash flow
than UNiTAB, and
- has greater market capitalisation, and corresponding liquidity
in share price trading.
In our view, the TABCORP Proposed Merger offers benefits superior to UNiTAB, as
measured by the 15.5% premium in the Jupiters share price, calculated by
comparing the VWAP between the announcement of initial TABCORP discussions and
the TABCORP merger announcement, and the VWAP between the UNiTAB announcement
and the announcement of initial TABCORP discussions.
8B OTHER POTENTIAL SUITORS
As noted, following the UNiTAB proposal becoming public knowledge, TABCORP
quickly emerged as a competing suitor, culminating in an announcement on 10
January 2003 that discussions had commenced between it and Jupiters. A period of
negotiation and review followed, in parallel with UNiTAB discussions, which
concluded with the Jupiters board recommending the TABCORP proposal on 5 March
2003.
The process of negotiation with TABCORP has been conducted publicly and ample
opportunity has existed for other suitors to emerge, however, no other
bids/offers have been received to date.
In our view, a potential acquirer would have to be an established operator in
the gambling and entertainment sector in order to match the full price and
synergy benefits implicit in the TABCORP proposal.
Furthermore, potential acquirers would have to have a significant capital base
to afford a company of Jupiters size, with the probity aspects most likely
deterring foreign buyers from entering an active bidding war.
102
[PRICEWATERHOUSECOOPERS LOGO]
Section 8: Alternatives - is there a better one?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
These criteria in our view confine the potential acquirers to a relatively small
list of substantial and compatible companies.
In our view, because the TABCORP Merger Proposal offers a price including a
control premium for Jupiters Ordinary Shareholders, it is unlikely that another
suitor would emerge from this group who would be willing to pay a higher price,
with a similarly large cash component.
8C ORDERLY REALISATION
We have considered whether an orderly realisation would deliver more value to
Jupiters Ordinary Shareholders. In our view, such an approach would offer
reduced value for Jupiters Ordinary Shareholders, as it would crystallise costs
and taxation liabilities, and would not realise any value for synergies or
control.
103
[PRICEWATERHOUSECOOPERS LOGO]
Section 8: Alternatives - is there a better one?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
8D CONTINUATION AS A STAND ALONE ENTITY
A stand alone strategy does not provide a longer term strategic direction for
Jupiters, and would eventually require the industry imperatives to be addressed.
Furthermore, a stand alone strategy does not offer the opportunities to extract
synergies. If the Proposed Merger were not approved, such an outcome would most
likely see the Jupiters share price fall to pre-announcement levels, thus
passing up the control premium available in the Proposed Merger. Given the
discussions with UNiTAB, and the potential for synergies with some other
compatible parties, it is likely the share price would settle around the UNiTAB
proposal range, reflecting expectations of such a proposal being re-ignited.
However in our view, the additional premium in the TABCORP proposal, which we
measured at 15.5%, would then be lost.
For this reason, we conclude that it is reasonable for Jupiters Ordinary
Shareholders to approve the Proposed Merger.
104
[PRICEWATERHOUSECOOPERS LOGO]
Is it reasonable for Jupiters Ordinary Shareholders to approve the terms of the
merger resolutions?
In considering whether it is reasonable for Jupiters Ordinary Shareholders to
approve the terms of the merger resolutions we have had regard to, amongst other
things, the key terms of the MIA.
The key terms of the MIA include:
- - the merged TABCORP board will include two Jupiters Directors. It is
presently proposed those two directors will be Messrs Lawrence Willett
AO and John Story. This provides Jupiters shareholders who retain their
TABCORP shares with comfort that the Merged TABCORP board will include
members that have existing knowledge of the Jupiters businesses and
assets acquired by the merged TABCORP
- - Jupiters shareholders will receive a final ordinary dividend with
respect to the June 2003 financial year, in addition to the
consideration to be received under the terms of the Proposed Merger
- - Jupiters has provided TABCORP with a degree of exclusivity in relation
to the Proposed Merger. Jupiters is prevented from soliciting competing
proposals to the Proposed Merger. We note that Jupiters may still be
approached by parties wishing to submit a competing proposal, although
Jupiters has agreed to notify TABCORP of any such approaches
- - there are costs associated with Jupiters withdrawing from the Proposed
Merger under certain circumstances. The amount payable to TABCORP is
$12.2 million. The circumstances under which the costs are payable
relate to Jupiters withdrawing their recommendation of the Proposed
Merger (other than where it is on the basis of an Independent Expert's
Report), a third party acquires Jupiters or its businesses, or Jupiters
materially breaches one of its obligations under the MIA. TABCORP is
also subject to pay Jupiters costs of $7.5 million if it is unable to
complete the required funding arrangements or the Proposed Merger does
not proceed as a result of them materially breaching their obligations
under the MIA
- - Jupiters Ordinary Shareholders have some protection against material
adverse changes occurring in the TABCORP business between voting for
the Scheme and the Court approving the Scheme. This is because the
conditions for the merger relating to material adverse changes
including prescribed occurrences, in either the TABCORP or Jupiters
businesses apply until the first day of the Court hearing to approve
the Scheme
- - if the Centrebet sale is not completed until after 31 October 2003, the
Net Centrebet Proceeds are further reduced by a payment to TABCORP
which is the sum of $10 million and 12% of the amount by which the Net
Centrebet Proceeds exceed $30 million. Whilst this represents a loss of
value to Jupiters shareholders it is likely to be approximately $0.06
per Jupiters Ordinary Share and, given the progress made to date on the
Centrebet sale, may not occur. Should the Centrebet sale not be
completed by 30 September 2004, TABCORP will have no further
obligations to dispose of Centrebet and Jupiters Ordinary Shareholders
will effectively have their interest in Centrebet diluted. Even if
Jupiters Ordinary Shareholders receive no benefit for Centrebet, in our
view the consideration is fair.
105
[PRICEWATERHOUSECOOPERS LOGO]
Section 9: Is it reasonable for Jupiters to approve the terms of the merger
resolution?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
In our view, when considered in their entirety, the MIA terms are reasonable and
commercial from a Jupiters Ordinary Shareholders perspective. While Jupiters has
provided TABCORP with a degree of exclusivity and a commitment to reimburse
TABCORP costs if the Proposed Merger does not proceed under certain
circumstances, such terms are not commercially unusual. The exclusivity was only
provided after other parties with an interest in acquiring or merging with
Jupiters had time to express such interest. Given no other parties came forward,
other than UNiTAB who were already in discussions with Jupiters, we do not see
the exclusivity commitment as unreasonable.
In our view the terms of the merger resolutions are commercial. It is therefore
reasonable for the Jupiters Ordinary Shareholders to approve the merger
resolutions.
106
[PRICEWATERHOUSECOOPERS LOGO] APPENDIX A
QUALIFICATIONS, DISCLAIMERS AND CONSENTS
QUALIFICATIONS
PricewaterhouseCoopers Securities Ltd is a member of PricewaterhouseCoopers, a
large international firm of Chartered Accountants which has had extensive
experience in providing corporate financial advice and in the preparation of
independent expert reports. PricewaterhouseCoopers Securities Ltd is a licensed
Dealer (No 11203) under the Corporations Act. Mr Ron Higham is a Fellow of The
Institute of Chartered Accountants in Australia and holds the degrees of
Bachelor of Business (Accounting) and Masters of Financial Management. He is an
Adjunct Professor of Finance at the University of Queensland. He has been a
partner of PricewaterhouseCoopers for 17 years, and is the Chairman of
PricewaterhouseCoopers Securities Ltd. Mr Andrew Wellington is a Chartered
Accountant and an associate of the Securities Institute of Australia. He holds a
Bachelor of Commerce and a Masters of Accounting. He has been with
PricewaterhouseCoopers for 13 years. He is also a partner of
PricewaterhouseCoopers, and is an authorised representative of
PricewaterhouseCoopers Securities Ltd.
DECLARATIONS
Neither PricewaterhouseCoopers Securities Ltd nor PricewaterhouseCoopers has any
interest in the outcome of the proposed transaction to be put to shareholders.
PricewaterhouseCoopers Securities Ltd is entitled to receive a fee of $715,000
for the preparation of this report and the Independent Expert's Report prepared
in relation to the RPS Scheme, based on time spent at our normal hourly rates
for this type of work and will be reimbursed for out of pocket expenses
incurred. The fee payable to PricewaterhouseCoopers Securities Ltd is payable
regardless of the outcome of the proposed transaction. In addition,
PricewaterhouseCoopers Securities Ltd has been indemnified by Jupiters Limited
in relation to any claim arising from or in connection with its reliance on
information provided by Jupiters Limited. None of PricewaterhouseCoopers
Securities Ltd, PricewaterhouseCoopers, Mr Higham or Mr Wellington hold shares
in Jupiters Limited or TABCORP Holdings Limited and have not held any such
beneficial interest in the previous two years. Drafts of this report dated 23
June 2003 and 22 August 2003 were presented to the directors of Jupiters
Limited, TABCORP Holdings Limited and their respective advisors for review of
factual information contained in the reports. No significant changes were made
to the report as a result of those reviews.
PURPOSE OF REPORT
This report has been prepared at the request of the directors of Jupiters
Limited for inclusion in the Scheme Booklet and should not be used for any other
purpose. In particular, it is not intended that this report should serve any
purpose other than an expression of our opinion on the proposed merger. This
report has been prepared solely for the benefit of the directors of Jupiters
Limited and for the benefit of those persons who are expressly entitled to vote
at the meeting. Neither the whole or any part of this report nor any reference
to it may be included in or attached to any document, circular, resolution,
107
[PRICEWATERHOUSECOOPERS LOGO]
letter or statement (other than the Scheme Booklet mentioned above) without the
prior written consent of PricewaterhouseCoopers Securities Ltd to the form and
context in which it appears.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND FORECAST FINANCIAL
INFORMATION
- - Certain statements in this report may constitute forward-looking
statements. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause the actual
results, performance and achievements of Jupiters Limited, or industry
results, to be materially different from any future results,
performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things,
the following:
- the re-occurrence of the SARS virus in Asia, particularly
insofar as such developments impact on the patronage of
high-value overseas casino players or of local Asian players
- the continuation of relatively low levels of economic growth
in key Asian markets
- the impact of terrorism and other acts as a result of
continuing unrest in the Middle East
- - changes in laws, regulations or governmental policies (or the
interpretation of those laws, regulations or policies) which may
adversely impact upon the gaming industry in general or the Company in
particular
- - any adverse changes in general economic conditions, and a decline in
discretionary spending as a result thereof
- - other factors referenced in this report.
Shareholders' attention is drawn to the developments and to uncertainties
affecting Jupiters' business that are discussed throughout the Scheme Booklet
and this report.
DISCLAIMER AND CONSENTS
PricewaterhouseCoopers Securities Ltd's sole involvement in this Scheme Booklet
has been the preparation of this report and accordingly we take no
responsibility for the content of the Scheme Booklet as a whole.
PricewaterhouseCoopers Securities Ltd has consented to the inclusion of this
report in the form and context in which it is included as an annexure to the
Scheme Booklet to be sent to shareholders in Jupiters Limited.
In preparing this Report, Jupiters has indemnified PwCS, PricewaterhouseCoopers
and its employees, officers and agents against any claim, liability, loss or
expense, cost or damage, including legal costs on a solicitor client basis,
arising out of reliance on any information or documentation provided by Jupiters
which is false and misleading or omits any material particulars or arising from
a failure to supply relevant documentation or information.
In addition, Jupiters has agreed that if it makes any claim against
PricewaterhouseCoopers for loss as a result of a breach of our Contract, and
that loss is contributed to by its own
108
[PRICEWATERHOUSECOOPERS LOGO]
actions, then liability for its loss will be apportioned and is appropriate
having regard to the respective responsibility for the loss, and the amount
Jupiters may recover from us will be reduced by the extent of its contribution
to that loss.
109
[PRICEWATERHOUSECOOPERS LOGO] APPENDIX B
SOURCES OF INFORMATION
In preparing our report we have had access to and relied upon the following
major sources of information:
- - Annual reports (audited) for Jupiters Limited for the five years ended
30 June 2002
- - Audited financial report for Jupiters Limited for the year ended 30
June 2003
- - Audited annual report for TABCORP Holdings Limited for the year ended
30 June 2002
- - Audited financial report for TABCORP Holdings Limited for the year
ended 30 June 2003
- - Jupiters Limited 2003 Annual Plans (board approval)
- - Constitution of Jupiters Limited (as amended)
- - Jupiters Casino Agreement (as amended) dated 21 April 1983
- - Brisbane Casino Agreement (as amended) dated 6 May 1993
- - Various brokers' reports concerning Jupiters Limited and comparable
companies
- - Information on comparable listed companies (Bloomberg and Reuters)
- - Share market data and related information (Bloomberg and Reuters)
- - Australian Gambling Statistics 1975-76 to 2000-01 (Tasmanian Gaming
Commission).
- - Access Economics statistics dated 31 March 2003
- - Jupiters Reset Preference Shares Prospectus dated 28 February 2002
- - Corrs Chambers Westgarth Reset Preference Shares Paper
- - Australian Tourist Commission
- - Centrebet Information Memorandum dated 16 April 2003
- - Merger Implementation Agreement.
We have also had the benefit of discussions with the directors and senior
management of Jupiters Limited and senior management of TABCORP Holdings Limited
in relation to the historical and prospective operating and financial
performance of the company.
110
[PRICEWATERHOUSECOOPERS LOGO] APPENDIX C
VALUE OF CENTREBET PTY LIMITED (CENTREBET)
OVERVIEW OF THE BUSINESS
Centrebet is one of the world's leading internet sports bookmakers, offering
fixed odds betting services on a wide variety of sporting, entertainment and
political events around the globe. Centrebet Pty Limited is based in Alice
Springs, Northern Territory and operates through the website www.centrebet.com.
A related but separate company, Jupiters UK Limited operates www.centrebet.co.uk
from the UK.
Centrebet began operations in 1992 and was a pioneer of telephone sports betting
in Australia. Centrebet introduced internet sports wagering in August 1996 and
by July 1998, the Centrebet site was replicated in all Nordic languages in
response to strong demand from that region.
Jupiters acquired Centrebet in 1998 from the businesses founders. The Centrebet
business now comprises assets owned by Centrebet Pty Limited, Jupiters Limited
(Jupiters), Jupiters UK Limited (Jupiters UK) and Centrebet Limited (Centrebet
UK).
PRODUCTS
Centrebet offers betting options on many different sports, including more than
20 international football competitions, golf, tennis, motor racing, ice hockey,
rugby union and cricket. Australian sports such as Australian rules football and
rugby league and popular Nordic sports such as bandy, floorball and handball are
also offered. In addition, Centrebet runs books on special events including
political elections and annual events such as the Academy Awards and the
Eurovision song contest. Since May 2000, when the horseracing division of
Centrebet was sold, Centrebet has ceased to offer daily horseracing product but
does offer selected racing events.
In the year to 30 June 2003, Centrebet framed over 170,000 markets covering 50
sports. Of these sports, the major contributors to turnover are football
(soccer), tennis, ice hockey and basketball. Together these sports accounted for
over 70% of Centrebet's turnover in 2003.
Different types of fixed odds bets are offered by Centrebet, including single
bets and multiple bets (multi-bets). Higher margin multi-bets have grown at over
60% per annum on average since 2001 compared with approximately 43% for single
bets. Multi-bets represent over 70% of all bets placed with Centrebet.
DISTRIBUTION AND MARKET
Centrebet Pty Limited is licensed by the Northern Territory Government to offer
sports and race bets by both telephone and the internet. However, internet
transactions have become an increasingly dominant driver of turnover. In the 12
months to 30 June 2003, internet transactions provided approximately 90% of the
value of bets received and approximately 99% of the number of bets received.
111
[PRICEWATERHOUSECOOPERS LOGO]
As mentioned above, Centrebet accepts bets internationally and maintains its
website in English, the Nordic languages (Danish, Finnish, Swedish and
Norwegian), German, French, Italian, Spanish, Portuguese and Dutch. Northern
Europe and Australasia contribute over 80% of turnover, reflecting the strength
of Centrebet's traditional Australian base and the early-mover advantage from
its Nordic client base.
CUSTOMER NUMBERS AND BETS
Centrebet's customer base has grown at a compound annual growth rate of 56%
since 1999. At present, Centrebet has over 143,000 customer accounts with
approximately 60,000 considered active (those who have registered bets in the
last six months). The diversity of the customer base is significant with
customers in almost 100 countries.
A survey conducted in October 2002, showed that of over 10,000 customers who
responded, 56% used Centrebet exclusively for their internet sports betting
activities. The survey also indicated that approximately 63% of these customers
had been a customer for more than a year.
IT INFRASTRUCTURE
The IT facilities at Centrebet are highly sophisticated. They are required to
maintain a 24 hours a day / 7 days a week global operation experiencing
irregular peak processing periods with negligible unplanned downtime.
The primary servers are located in Alice Springs. Live bets are received from
one of three web host locations (Alice Springs, London and Brisbane), each
location having dual redundant systems with firewall protection and load
balancing.
Centrebet predominantly uses Compaq hardware for reliability and for the
presence of maintenance and support facilities in Alice Springs and the other
locations. Hardware applications typically run in redundant pairs, allowing
almost immediate fail over if required. Network infrastructure is based on Cisco
and Netgear appliances.
The main sports betting software package upon which Centrebet operates is called
'Centaur'. Centaur draws upon the functions of a Jupiters-wide hosting platform
called 'Cougar'. The Centaur system is Centrebet's second generation sports
betting package and incorporates a risk-management module to assist bookmakers
manage risk in open books.
REGULATION
Centrebet Pty Limited holds a renewable sports bookmaker's licence issued by the
Northern Territory Racing Commission (NTRC) under the Racing and Betting Act,
which authorises the sports bookmaker to conduct betting activities by phone, by
fax or via the internet. The Northern Territory licence allows Centrebet to
accept bets on national and international sports events listed on the
'Declaration of Sporting Events' issued by the NTRC.
112
[PRICEWATERHOUSECOOPERS LOGO]
Jupiters UK also holds a bookmaker's permit valid until 31 May 2006, issued
pursuant to the Betting, Gaming and Lotteries Act 1963 of the United Kingdom.
Under this permit, Jupiters acts as an internet bookmaker in and from the UK.
Under UK law, bookmakers are able to offer a variety of fixed odds betting
options, including such betting options as a Numbers game.
TAXATION
Centrebet Pty Limited is subject to the regulations and taxes as defined by the
Government of the Northern Territory. Currently, Centrebet is subject to the
following tax regime:
- - International bets:
- 0.25% of sporting and entertainment turnover
- 0.33% of racing turnover.
- - Domestic bets:
- 0.00% of sporting and entertainment turnover
- 0.33% of racing turnover
- Goods and Services Tax is applicable on domestic bets based on
a rate of one-eleventh of revenue.
- - Gaming revenues:
- the proposed rate is 4.0% of gross profits (revenue), but this
is subject to confirmation
- Jupiters UK Limited is subject to taxation levied at 15.0% of
gross profits.
113
[PRICEWATERHOUSECOOPERS LOGO]
FINANCIAL SUMMARY
FINANCIAL POSITION
The financial position of Centrebet as at 30 June 2003 is set out in table C1.
TABLE C1
- ---------------------------------------------------------
30 JUNE 2003
$'000
- ---------------------------------------------------------
CURRENT ASSETS
Cash assets 14,578
Receivables 1,199
Other current assets 14,750
Prepayments 645
------
Total current assets 31,172
NON-CURRENT ASSETS
Plant and equipment 0
Deferred tax assets 0
Intangibles 0
------
Total non-current assets 0
TOTAL ASSETS 31,172
------
CURRENT LIABILITIES
Payables 12,144
Current tax liabilities 0
Provisions 2,618
Intercompany loans 16,323
------
Total current liabilities 31,085
NON CURRENT LIABILITIES
Intercompany loan 0
Provisions 0
------
Total non-current liabilities 0
TOTAL LIABILITIES 31,085
------
NET ASSETS 87
- -------------------------------------------------------
COMMENTARY
Based on discussions with management, and our review of the financial position
of Centrebet, we make the following observations on the major balances:
- - Cash - represents cash deposits from customers and cash required for
working capital
- - Other current assets - consists primarily of equipment relating to the
operation of the website, including servers, betting software etc, with
a written down value of $5.4 million, software development costs of
$4.1 million and intangibles of $4.9 million. These assets have been
transferred from non-current assets pending sale.
114
[PRICEWATERHOUSECOOPERS LOGO]
- - Intangibles - consists primarily of goodwill arising from the
acquisition of Centrebet from its former owner. Goodwill is being
amortised over seven years on a straight line basis.
- - Payables - consists primarily of amounts held on behalf of clients,
together with trade debtors.
- - Intercompany loan - an amount of $16.3 million is owed to Jupiters and
its controlled entities, we are advised this loan will be converted to
equity on the sale of Centrebet, up to a cap of $13.0 million.
SURPLUS ASSETS AND LIABILITIES
We have not identified any surplus assets or liabilities on the balance sheet of
Centrebet as at 30 June 2003.
FINANCIAL PERFORMANCE
The following table outlines the audited financial performance for Centrebet for
the three years ended 30 June 2003.
TABLE C2
- ----------------------------------------------------------------------------------
HISTORICAL YEAR ENDING 30 JUNE
---------------------------------------
2001 2002 2003
$'000 $'000 $'000
- ----------------------------------------------------------------------------------
TURNOVER
Sports betting
Europe 137,968 244,214 268,404
Australasia 71,310 103,268 99,901
Other 42,458 53,524 83,782
-----------------------------------
Total Sports betting 251,736 401,006 452,087
Horseracing - - -
-----------------------------------
TOTAL TURNOVER 251,736 401,006 452,087
REVENUE
Total Sports betting revenue (Gross win) 18,394 28,678 30,025
WIN RATE 7.3% 7.2% 6.6%
Other revenue (excl. interest income) 1,214 1,938 899
-----------------------------------
TOTAL OPERATING REVENUE 19,608 30,616 30,924
EXPENSES
Employee & payroll related expenses (3,907) (6,035) (6,676)
Marketing expenses (419) (1,925) (1,799)
Government Gaming taxes (707) (1,285) (1,497)
Information Technology expenses (575) (1,023) (2,381)
Other operating expenses (3,530) (5,489) (8,640)
-----------------------------------
TOTAL OPERATING EXPENSES (9,138) (15,757) (20,993)
EBITDA 10,670 14,859 9,931(1)
Depreciation (611) (1,035) (2,120)
Amortisation (2,074) (2,074) (2,074)
115
[PRICEWATERHOUSECOOPERS LOGO]
- ----------------------------------------------------------------------------------
HISTORICAL YEAR ENDING 30 JUNE
---------------------------------
2001 2002 2003
- ----------------------------------------------------------------------------------
EBIT 7,985 11,750 5,737
Net interest income/(Expense) 866 590 425
---------------------------------
PROFIT BEFORE TAX 8,851 12,340 6,162
=================================
Notes: (1) The EBITDA of $9.9 million is based on the 2003 Centrebet accounts.
The variation from the previously announced numbers is due to corporate charges.
Source: Centrebet Pty Limited Statutory Accounts, 30 June 2001, 30 June 2002 and
30 June 2003 audited by Horwarths NT Partnership.
COMMENTARY
Based on discussions with Management and review of the financial performance of
Centrebet, we note the following:
- - Betting turnover has continued to increase since 2001. The growth has
slowed in 2003 reflecting the increased competition from betting
exchanges and other internet operators. Centrebet has implemented
marketing initiatives in order to maintain new client registrations
- - Turnover is seasonal and dependent upon significant sporting events
occurring around the globe. Historically, the second half of the
financial year is stronger that the first half due to a higher number
of key sports or events occurring in this period, however in 2003,
relative to the 2002 year, Centrebet will not reproduce the benefits
from the football World Cup which was held in May / June 2002
- - Win rates in 2003 were approximately 6.6% reflecting a decrease over
prior years
- - Expenses in 2003 were higher than prior years due primarily to
increased IT costs associated with the London & Brisbane server farms,
and additional costs of processing credit card transactions
- - EBITDA fell in the 2003 year as compared to the 2002 year, primarily as
a result of the increase in expenses incurred, despite higher betting
revenue
- - In particular, profitability has diminished since the decision in March
2003 to sell the business due to increased competition, regulatory
uncertainty and lower win rates.
The overall financial performance of the Centrebet business reflects the growth
in sports betting, particularly internet based sports betting both in Australia
and European markets. However, the Centrebet business was adversely impacted by
the combination of the sale and the increased competition in 2003. Future growth
will be dependent upon regulation of the industry in the various jurisdictions
around the world. For example, recent court rulings in Holland may limit the
ability of offshore entities to accept bets from Dutch citizens and new
legislation in Denmark is aimed at limiting the activities of offshore entities.
Centrebet has implemented strategies to minimise the risks of regulatory action,
but the risks remain and are likely to be felt in the ultimate sale prices.
ESTIMATE OF GROSS CENTREBET PROCEEDS
On 12 August 2003 Jupiters announced it was in final negotiations with
shortlisted parties for the sale of Centrebet. It was also disclosed that the
sale price was being negotiated in
116
[PRICEWATERHOUSECOOPERS LOGO]
the range of $60 million to $70 million. Jupiters also noted that the
consideration being discussed could be entirely cash or a mixture of cash and
securities.
As the Centrebet disposal process has been well marketed and it appears there is
a reasonable level of interest in the business, we are of the view that the
appropriate estimate of Centrebet's value is the amount which a buyer is
prepared to pay for it. This approach is consistent with the decision taken by
Jupiters to dispose of the business.
We have also considered the EBITDA multiples implied by the estimated gross sale
proceeds for the Centrebet business. In considering the implied EBITDA multiples
we have used 2003 EBITDA as the latest estimate of earnings potential. We have
adopted this approach as, given the changing regulatory and competitive
conditions under which Centrebet operates, we are of the view that prospective
buyers will place more reliance on 2003 results than 2002 results.
TABLE C3
- ---------------------------------------------------------------------
LOW HIGH
$ MILLION $ MILLION
- ---------------------------------------------------------------------
Gross sale proceeds 60.0 70.0
2003 EBITDA 9.9 9.9
---------------------
Implied EBITDA multiples 6.1 7.1
In our view the implied EBITDA multiple range of 6.1 to 7.1 is reasonable in
light of:
- - EBITDA multiples of comparable listed companies both in Australia and
overseas
- - The relative size of Centrebet
- - Regulatory uncertainty around Centrebet's operation in Nordic markets
- - Increased competition from UK based competitors in the Nordic markets
- - The competition from betting exchange, particularly at the top end or
wholesale segment of the Centrebet business.
CALCULATION OF NET CENTREBET PROCEEDS
The Net Centrebet Proceeds is the amount available to shareholders after
accounting for costs of the disposal and applicable capital gains tax. Jupiters
has announced that it is negotiating in a range of $60 million to $70 million,
however there is some risk such a price may not be achieved. At the low end of
our estimate of the gross Centrebet proceeds we have assumed Jupiters would not
sell Centrebet for less than the cost base of their investment in Centrebet
which is $23.4 million. At the upper end of our estimate, we assume Jupiters
achieves a gross price of $70 million.
On this basis we have estimated the value to Jupiters of Centrebet as being in
the range $21.5 million to $54.7 million as set out in table C4. As for the
consideration, we recognise that given the timetable set out for the Centrebet
sale under the Proposed Merger there is some possibility, albeit low, that
Jupiters Ordinary Shareholders may receive no proceeds. For this reason, in
estimating the value of the consideration offered to Jupiters Ordinary
Shareholders under the Proposed Merger we have assumed a nil value at the low
end of the range.
TABLE C4
117
[PRICEWATERHOUSECOOPERS LOGO]
- ---------------------------------------------------------------------------------------------------------
JUPITERS VALUATION CONSIDERATION
- ---------------------------------------------------------------------------------------------------------
LOW HIGH LOW HIGH
$ MILLION $ MILLION $ MILLION $ MILLION
- ---------------------------------------------------------------------------------------------------------
Value of all equity 23.4 70.0 - 70.0
Add: net purchase price adjustments(1) 2.1 2.1 - 2.1
Less: transaction costs(2) (4.0) (4.0) - (4.0)
Less: capital gains tax(3) (-) (13.4) - (13.4)
-----------------------------------------------------
Net proceeds available for distribution 21.5 54.7 - 54.7
- -------------------------------------------------------------------------------------------------------
Notes:
(1) Net purchase price adjustments are based on estimates provided by
Jupiters and reflect estimated adjustments relating to client deposits
as well as profits of the Centrebet business to the sale date.
(2) Transaction costs are based on estimates provided by Jupiters and
reflect adviser's fees and other transaction expenses.
(3) Capital gains tax has been calculated using a cost base for the shares
in Centrebet of $23.4 million.
118
APPENDIX D
[PRICEWATERHOUSECOOPERS LOGO]
COMPARABLE COMPANY ANALYSIS
AUSTRALIAN COMPANIES
INTEREST ENTERPRISE HISTORICAL HISTORICAL FORECAST FORECAST
MARKET CAP CASH BEARING DEBT VALUE EBITDA EBITDA EBITDA EBITDA
AUSTRALIAN COMPANIES NOTES ($ MILLION) ($ MILLION) ($ MILLION) ($ MILLION) ($ MILLION) MULTIPLE ($ MILLION) MULTIPLE
- -------------------------------------------------------------------------------------------------------------------------
Burswood (1) 398 9 313 702 81 8.7 69 10.2
Canbet Ltd (2) 31 15 0 16 2 8.4 n/a n/a
Publishing &
Broadcasting Ltd (3) 6,537 446 2,203 8,338 539 15.5 640 13.0
Sky City Entertainment
Group Ltd (4) 1,782 48 565 2,489 255 9.8 254 9.8
Tab Ltd (5) 1,516 28 420 1,908 166 11.5 208 9.2
UNiTAB Ltd (6) 824 30 33 827 50 16.4 76 10.8
TABCORP Holdings Ltd (7) 3,963 127 777 4,613 518 8.9 529 8.7
- -------------------------------------------------------------------------------------------------------------------------
Jupiters Ltd 1,297 85 434 1,677 207 8.1 197 8.5
- -------------------------------------------------------------------------------------------------------------------------
HISTORICAL HISTORICAL HISTORICAL HISTORICAL
NPAT EBIT EBIT EBITDA
AUSTRALIAN COMPANIES ($ MILLION) ($ MILLION) MULTIPLE MARGIN
- ---------------------------------------------------------------------
Burswood 24 56 12.6 22%
Canbet Ltd 0 0 186.0 24%
Publishing &
Broadcasting Ltd 237 414 20.1 22%
Sky City Entertainment
Group Ltd 125 211 11.8 50%
Tab Ltd 59 113 16.9 19%
UNiTAB Ltd 26 36 23.1 14%
TABCORP Holdings Ltd 241 420 11.0 27%
- ----------------------------------------------------------------
Jupiters Ltd 83 153 11.0 26%
- ----------------------------------------------------------------
Source: Bloomberg, Broker reports - All numbers are in $A. Historical = Last
Reported, forecast = Year after last Reported. Market capitalisation is based on
share prices at mid August 2003
Notes:
(1) Burswood owns and operates the Burswood International Resort Casino and
its adjacent facilities, which include the Burswood Dome, Burswood
Resort Hotel and Burswood Convention Centre. The facilities are located
in Perth.
(2) Canbet Limited is an international sports betting company which offers
internet and phone betting services. The Company offers casino style
games, Australian racing and sports betting, primarily Australian Rules
Football, American Football, baseball, basketball and hockey, through
its website.
(3) Publishing and Broadcasting Limited is a media and entertainment
company. The Company operates a broadcast network, Nine Network and
publishes consumer magazines. The Company promotes various sporting
events and distributes films and television programs, operates the
Crown Casino in Victoria and has holdings in the Internet, pay
television and telecommunications sectors.
(4) Sky City Entertainment Group Limited owns and operates 3 casinos,
including Sky City Auckland, Sky Alpine Queenstown in New Zealand and
Adelaide Casino. It also has an interest in an Australian sports
betting company and a cinema operator in New Zealand.
(5) Tab Limited provides wagering and betting services in New South Wales.
The Company offers interactive trade betting through the Internet and
telephone and also provides sky channel services and owns 2KY racing
radio.
(6) UNiTAB Limited provides wagering and betting services in Australia. The
Company holds a licence to operate both on-course and off-course
totalisators for race wagering in Queensland and also to conduct sports
betting. The Company also offers interactive trade betting through the
Internet and telephone and other services including Keno, Footy TAB and
fixed odds sports betting products.
(7) TABCORP Holdings Limited provides wagering and gaming services and
facilities in Victoria and also owns Star City Casino. The Company's
wagering division sells totalisator bets on horse and greyhound racing
and totalisator and fixed odd bets on sporting events and are offered
through a network of retail and on-course outlets and by telephone. The
gaming division owns and operates gaming machines in Victorian hotels
and clubs.
119
[PRICEWATERHOUSECOOPERS LOGO]
COMPARABLE COMPANY ANALYSIS
INTERNATIONAL COMPANIES
INTEREST ENTERPRISE HISTORICAL HISTORICAL FORECAST FORECAST
MARKET CAP CASH BEARING DEBT VALUE EBITDA EBITDA EBITDA EBITDA
US COMPANIES NOTES ($ MILLION) ($ MILLION) ($ MILLION) ($ MILLION) ($ MILLION) MULTIPLE ($ MILLION) MULTIPLE
- -------------------------------------------------------------------------------------------------------------------------
Argosy Gaming
Company (1) 553 60 891 1,384 262 5.3 239 5.8
Aztar Corp (2) 535 92 460 914 183 5.0 187 4.9
Harrah's Entertainment
Inc (3) 4,620 416 3,825 8,069 1,096 7.4 1,112 7.3
Isle of Capris Casinos
Inc (4) 471 81 1,028 1,433 179 8.0 239 6.0
Mandalay Resort
Group (5) 1,954 148 2,784 4,608 567 8.1 631 7.3
MGM Mirage (6) 5,050 211 5,221 10,059 1,148 8.8 1,151 8.7
Park Place
Entertainment Corp (7) 2,539 351 4,910 7,105 1,040 6.8 1,073 6.6
Pinnacle Entertainment
Inc (8) 165 114 494 544 43 12.7 94 5.8
Station Casinos Inc (9) 1,418 59 1,288 2,646 219 12.1 286 9.2
Trump Hotel & Casino
Resort Inc (10) 44 116 1,993 1,866 291 6.4 n/a n/a
- -----------------------------------------------------------------------------------------------------------------------
HISTORICAL HISTORICAL HISTORICAL HISTORICAL
NPAT EBIT EBIT EBITDA
US COMPANIES ($ MILLION) ($ MILLION) MULTIPLE MARGIN
- ---------------------------------------------------------------------
Argosy Gaming
Company 72 210 6.6 28%
Aztar Corp 62 131 7.0 22%
Harrah's Entertainment
Inc 348 785 10.3 26%
Isle of Capris Casinos
Inc (14) 101 14.1 17%
Mandalay Resort
Group 151 422 10.9 23%
MGM Mirage 284 750 13.4 28%
Park Place
Entertainment Corp 113 570 12.5 22%
Pinnacle Entertainment
Inc (30) (7) n/a 8%
Station Casinos Inc 43 146 18.1 28%
Trump Hotel & Casino
Resort Inc (18) 207 9.0 24%
- ----------------------------------------------------------------
Source: Bloomberg, Broker reports - All numbers are in $US. Historical = Last
reported, forecast = Year after last reported. Market capitalisation is based on
share prices at mid August 2003
120
[PRICEWATERHOUSECOOPERS LOGO]
Notes:
(1) Argosy Gaming Company owns and operates riverboat casinos and related
entertainment and hotel facilities in the Midwestern and southern
United States. The Company, through its subsidiaries and joint
ventures, owns and operates the Alton Belle Casino, the Argosy Casino,
and the Belle of Baton Rouge. Argosy is also a major partner and
operator of other casinos.
(2) Aztar Corporation operates various gaming and hotel facilities in the
United States. The Company currently operates facilities in Atlantic
City, New Jersey, as well as in Las Vegas and Laughlin, Nevada. Aztar
also operates facilities in Missouri and Indiana. The Company's
facilities include Tropicana Resort and Casino, Ramada Express Hotel
and Casino, and Casino Aztar.
(3) Harrah's Entertainment Inc. operates casinos, casino/hotels, and
riverboat casino facilities in the United States. The Company operates
its facilities under the Harrah's, Showboat and Rio brands.
(4) Isle of Capri Casinos, Inc. owns and operates various riverboat,
dockside, and land-based casinos. The Company's properties operate
under the Isle of Capri Casino, Crowne Plaza Resort, and Isle of Capri
Casino & Hotel names in Mississippi, Louisiana, and Colorado. Isle of
Capri also operates Pompano Park Harness Racing Track in Florida, as
well as the Enchanted Capri cruise ship.
(5) Mandalay Resort Group owns and operates various properties in Nevada,
including Mandalay Bay, Circus Circus, Luxor, Excalibur, and
Slots-A-Fun in Las Vegas. The Company also operates Silver City in
Las Vegas, owns a 50% interest in Silver Legacy in Reno, and owns a
50% interest in and operates Monte Carlo in Las Vegas. In addition,
Mandalay owns and operates other properties.
(6) MGM Mirage Inc. owns and operates hotel/casino resorts. The Company's
properties include the MGM Grand Las Vegas and the New York-New York
Hotel and Casino, both located in Las Vegas, Nevada. MGM also owns and
operates Bellagio, The Mirage, Treasure Island at the Mirage, the
Holiday Inn Casino Boardwalk, and other hotel/casino resorts.
(7) Park Place Entertainment Corporation owns, manages, or has an interest
in gaming properties. The Company operates under the Bally's, Caesars,
Flamingo, Grand and Hilton brand names worldwide.
(8) Pinnacle Entertainment, Inc. is a diversified gaming company that owns
and operates several casinos and casino hotels. The Company's
facilities are located in Nevada, Mississippi, Louisiana and Argentina.
Pinnacle also receives lease income from card club casinos located in
Los Angeles, California.
(9) Station Casinos, Inc. owns and operates gaming facilities in Nevada.
The Company's operations include Palace Station Hotel & Casino, the
Boulder Station Hotel & Casino, Texas Station Gambling Hall & Hotel,
Sunset Station Hotel and Casino, Station Casino St. Charles, Station
Casino Kansas City, and slot machine route management services.
(10) Trump Hotels & Casino Resorts, Inc. owns and operates Trump Plaza Hotel
& Casino, Trump Taj Mahal Casino Resort, and Trump Marina Hotel Casino
in Atlantic City, New Jersey. The Company also owns and operates Trump
Indiana, a riverboat casino located on Lake Michigan, Indiana.
121
[PRICEWATERHOUSECOOPERS LOGO]
THE DIRECTORS, JUPITERS LIMITED
GLOSSARY OF TERMS
ABC Approved Betting Competitions
ACTTAB ACTTAB Limited, the Totalisation Agency Board of the Australian Capital Territory
AFL Australian Football League
ASIC Australian Securities and Investments Commission
ASX Australian Stock Exchange Limited (ACN 008 624 691)
ATO Australian Taxation Office
Australian gambling industry Includes all legalised regulated gambling in Australia, gambling
includes lotteries, gaming, casinos and wagering.
AWA AWA Limited
BI Gaming BI Gaming Corporation
BIL Breakwater Island Limited
BIT Breakwater Island Trust
BRML Burswood Resort (Management) Ltd
Burswood Burswood Limited
Cage Refers to the float required to redeem players chips for cash
CAGR Compound Annual Growth Rate
Centrebet Centrebet Pty Ltd (ACN 082 760 610)
Centrebet Business Internet and telephone gambling business conducted, or proposed to be conducted (to the
extent of the introduction of a rapid-draw numbers game and mobile telephone betting platforms),
by Centrebet and Jupiters UK Limited (Company Number 04279246) as at 12 June 2003.
Centrebet Note An unsecured note to be issued by TABCORP Issuer, if the sale of Centrebet is not completed
by 31 October 2003.
CIHC Conrad International Hotels Corporation
Club Keno Joint Keno activity conducted by Tattersall's and TABCORP, Keno is also a Jupiters Product
Crown Casino Crown Limited
DCF Discounted Cash Flow
DPS Dividends per Share
EBIT Earnings before interest and taxation
EBITDA Earnings before interest, taxation, depreciation and amortisation
Enterprise value Value of the business (includes debt and equity)
EPS Earnings per Share
ES Explanatory Statement
FIRB Foreign Investment Review Board
Full control value Value of 100% of Jupiters that includes a full control
122
[PRICEWATERHOUSECOOPERS LOGO]
THE DIRECTORS, JUPITERS LIMITED
premium
Gambling Gambling is the (lawful) placement of a wager or bet on the outcome of a future
uncertain event.
Gambling expenditure Is the net amount lost by patrons gambling
Gambling turnover Is the amount wagered excluding any additional charges that may also be paid at the point
of purchase
Gaming Gaming is a form of gambling, generally through casinos, keno and gaming machines.
GCCEC Gold Coast Convention and Exhibition Centre
HDI Household Disposable Income defined as the net income (whether in cash or kind),
after deduction of direct taxes, that is available to households
ICB International Commission Business - see also Premium Players
IVR Interactive voice response
Jai Alai A court game in which players use a long hand-shaped basket strapped to the
wrist to propel a ball against a wall.
Jupiters Jupiters Limited (ACN 010 741 045)
Keno Keno is a game where a player wagers that their chosen numbers match any of the 20
numbers randomly selected from a group of 80 numbers via a computer system or a ball draw
device. In most states, Keno is linked to many venues within a particular jurisdiction, enabling
the operator to offer large jackpot prizes. Keno has a fixed pay scale such that the pay out
for each wager is established by rules and is independent of the total wagers made on the game.
Leighton Leighton Holdings Limited
LMO Licensed monitoring operators
Mandalay Mandalay Resort Group
Merged TABCORP TABCORP Holdings Limited after the Proposed Merger with Jupiters
MIA Merger Implementation Agreement between Jupiters and TABCORP
Net Centrebet Proceeds The balance of proceeds from the sale of Centrebet less transaction costs and capital gains
tax to be distributed to shareholders. Further detail is provided in the MIA.
NLSR Natural language speech recognition
NPAT Net profit after tax
Normalised Adjusted earnings for abnormal or non-recurring items
Ordinary Share Scheme The proposed scheme of arrangement between Jupiters and Jupiters Ordinary Shareholders,
set out in Appendix C to the Scheme Booklet, subject to any alterations or conditions made or
required by the Court under section
123
[PRICEWATERHOUSECOOPERS LOGO]
THE DIRECTORS, JUPITERS LIMITED
411(6) of the Corporations Act and approved in writing by Jupiters and TABCORP.
Pari-Mutuel A system of betting on races whereby the winners divide the total amount bet, after
deducting management expenses, in proportion to the sums they have wagered individually.
PBL Publishing and Broadcasting Limited
Portfolio value The value of a share in a company without any control premium
Premium play Comprises a lower volume of patrons who partake in regular table games of high denomination
limits
Premium players The patrons, either international visitors (typically from Asia) or Australian
citizens, prepared to bet large amounts of money, also referred to as `VIP' players
Proposed Merger The proposal pursuant to the Scheme of Arrangement, whereby TABCORP would acquire
all the ordinary shares in Jupiters
PwCS PricewaterhouseCoopers Securities Ltd
RPS Fully paid reset preference shares in the capital of Jupiters issued on the RPS Terms
RPS Scheme Proposed Scheme of Arrangement between Jupiters and RPS holders, subject to any alterations
or conditions made or required by the Court under section 411(6) of the Corporations Act and
approved in writing by Jupiters and TABCORP
SATAB Totalisator Agency of South Australia
Showboat Showboat Inc
SRN Senior Redeemable Notes
Stanley Leisure Stanley Leisure plc
Star City Star City Pty Ltd (ACN 060 510 410)
SuperTAB Combined pool of bets between TABCORP, ACTTAB and WATAB
TAB Totalisator Agency Board
TABCORP TABCORP Holdings Limited
TABCORP Group TABCORP and its Related Entities
TABCORP Investments TABCORP Investments No.2 Pty Ltd, a wholly owned subsidiary of TABCORP
TABCORP Issuer TABCORP Issuer Pty Ltd, a wholly owned subsidiary of TABCORP
Tattersall's Trustees of the Will and Estate of the late George Adams
Theoretical win The long term average statistical odds in the casino's favour
TRACKSIDE TRACKSIDE is an animated race from TABCORP that can be played in selected TABs anytime
of the day or night and other outlets internationally.
124
[PRICEWATERHOUSECOOPERS LOGO]
THE DIRECTORS, JUPITERS LIMITED
UNiTAB UNiTAB Limited is listed on ASX and provides wagering and betting services in Australia.
The Company holds a licence to operate both on-course and off-course totalisators for race
wagering in Queensland and also to conduct sports betting. The Company also offers interactive
trade betting through the Internet and telephone and other services including Keno, FootyTAB and
fixed odds sports betting products.
VCGA Victorian Casino and Gaming Authority established under the Gaming and Betting Act
VWAP Total value of shares traded divided by the total volume of shares traded on ASX during
the specified period or on the specified days.
WACC Weighted Average Cost of Capital
Wagering Wagering is a form of gambling generally through racing and sports betting.
WATAB Totalisator Agency Board of Western Australia
125
APPENDIX B
ERNST & YOUNG TAXATION OPINION FOR THE ORDINARY SHARE SCHEME
[ERNST & YOUNG LOGO]
5 September 2003
The Directors
Jupiters Limited
PO Box 1400
BROADBEACH QLD 4218
Dear Sirs and Madam
JUPITERS - ORDINARY SHARE SCHEME
AUSTRALIAN TAX CONSEQUENCES FOR JUPITERS ORDINARY SHAREHOLDERS
This letter has been prepared at the request of the Directors for inclusion in
the Scheme Booklet dated 5 September 2003 relating to the Ordinary Share Scheme
between Jupiters and Jupiters Ordinary Shareholders in respect to a recommended
merger with the TABCORP Group.
1. TAX IMPLICATIONS ADDRESSED IN THIS LETTER
This letter contains a general description of the Australian income and
capital gains tax consequences that will arise for Jupiters Ordinary
Shareholders who hold Jupiters Ordinary Shares and participate in the
Ordinary Share Scheme. Unless otherwise defined in this letter,
capitalised terms used in this letter take the meaning ascribed to them
in the Scheme Booklet.
The following summary is relevant only to those Jupiters Ordinary
Shareholders who hold their shares on capital account. Jupiters
Ordinary Shareholders who may hold their shares on revenue account,
with a profit making intention or as trading stock, such as banks,
insurance companies and professional investors should seek advice in
relation to their specific circumstances.
The following summary is limited to the Australian income tax
implications under the Ordinary Share Scheme. Jupiters Ordinary
Shareholders who are not resident in Australia for tax purposes should
seek separate advice in relation to the taxation implications under the
laws of their country of residence in relation to the Ordinary Share
Scheme and/or the subsequent ownership and disposal of TABCORP Shares.
2
[ERNST & YOUNG LOGO]
2. TAXATION IMPLICATIONS - ORDINARY SHARE SCHEME
2.1 OVERVIEW
Pursuant to the Ordinary Share Scheme, each Jupiters Ordinary
Shareholder will receive a fully franked Special Dividend and will
receive consideration for the transfer of their Jupiters Ordinary
Shares to TABCORP Investments in the form of cash and/or TABCORP
Shares. In addition, Jupiters Ordinary Shareholders may receive a
proportion of the Net Centrebet Proceeds. The tax implications of all
the forms of consideration that may be received are discussed under
separate headings below.
2.2 RECEIPT OF FRANKED DIVIDEND(S)
2.2.1 OVERVIEW
Jupiters Ordinary Shareholders will receive a fully franked
Special Dividend of $0.75 per share. Jupiters Ordinary
Shareholders may also receive a fully franked Centrebet
Dividend being a pro rata share of the Net Centrebet Proceeds.
The declaration and payment of the Centrebet Dividend is
contingent on the completion of the Centrebet Sale by 31
October 2003. If this sale is not completed by this date,
Jupiters Ordinary Shareholders will receive a Centrebet Note
from TABCORP Issuer as additional consideration for the
transfer of each of their Jupiters Ordinary Shares as
discussed further below.
2.2.2 RESIDENT JUPITERS ORDINARY SHAREHOLDERS
Jupiters Ordinary Shareholders who are Australian tax
residents should include the cash amount of the dividend(s)
received in their assessable income.
Jupiters Ordinary Shareholders will generally also be required
to include an additional amount in their assessable income
equal to the amount of the attached franking credit. The
amount of the franking credit will be shown in a distribution
statement issued by Jupiters.
A shareholder who is NOT a qualified person in relation to
their Jupiters Ordinary Shares is not required to include the
associated franking credit in their assessable income. A
qualified person is broadly a Jupiters Ordinary Shareholder
who has held the Jupiters Ordinary Shares on an at risk basis
for a period of at least 45 days. Jupiters Ordinary
Shareholders who acquire their shares within 45 days of the
Implementation Date for the Ordinary Scheme, or who have held
their shares for a period of at least 45 days but are not
fully exposed to the risks of ownership, may not be qualified
persons.
3
[ERNST & YOUNG LOGO]
Tax is payable by Australian resident Jupiters Ordinary
Shareholders in respect of the dividend(s) at each Jupiters
Ordinary Shareholder's ordinary tax rate(s).
Where a Jupiters Ordinary Shareholder is required to include a
franking credit in their assessable income (ie if they are a
qualified person), they will be able to claim a tax offset
equal to the amount of the franking credit. The tax offset
reduces the tax payable by the Jupiters Ordinary Shareholder.
Jupiters Ordinary Shareholders who are resident individuals,
complying superannuation funds and certain registered
charities may obtain a refund of the tax offset in some
circumstances.
2.2.3 NON-RESIDENT JUPITERS ORDINARY SHAREHOLDERS
Jupiters Ordinary Shareholders who are not residents of
Australia for tax purposes, will not be taxable in Australia
in respect of the dividend. Further, on the basis each
dividend that is paid will be fully franked, no Australian
dividend withholding tax will be imposed in respect of the
payment of the dividend.
2.2.4 CANCELLATION OF FRANKING CREDIT BENEFITS
The following specific provisions exist under Australian
taxation law that can be invoked by the Australian Taxation
Office (ATO) to cancel the benefits to shareholders of the
franked dividends received or to penalise the company paying
the dividends:
- - Franking Credit Streaming Rules (Subdivision 204-D of the Income Tax
Assessment Act 1997 (1997 Act));
- - Franking Credit Cancellation Rules (Section 177EA of the Income Tax
Assessment Act 1936 (1936 Act)); and
- - Dividend Stripping Rules (Section 177E of the 1936 Act).
The ATO has issued favourable tax rulings confirming that the
ATO will not seek to apply these provisions to Jupiters or to
Jupiters Ordinary Shareholders in respect of either the
Special Dividend or the Centrebet Dividend (if paid), or any
part of them, because of the disposal of Jupiters Ordinary
Shares under the Ordinary Share Scheme.
Whilst the ATO has issued favourable tax rulings in relation
to participation in the Ordinary Share Scheme, the ATO has the
ability to apply these provisions to the dividends in respect
of other disposals of Jupiters Ordinary Shares if the
circumstances surrounding those disposals warrant it.
4
[ERNST & YOUNG LOGO]
2.3 DISPOSAL OF JUPITERS ORDINARY SHARES
2.3.1 OVERVIEW
If the Ordinary Share Scheme is approved, TABCORP Investments
will acquire 100% of the Jupiters Ordinary Shares. The
taxation implications for an Australian resident Jupiters
Ordinary Shareholder of the disposal of their shares to
TABCORP Investments are discussed below.
The taxation implications described for Jupiters Ordinary
Shareholders generally will be affected in the following
circumstances:
(i) If completion of the Centrebet Sale does not occur by
31 October 2003.
(ii) If the Jupiters Ordinary Shares were acquired by
employees under the Exempt Employee Share Plan.
(iii) If a Jupiters Ordinary Shareholder is not an
Australian resident for tax purposes.
(iv) If the Jupiters Ordinary Shares were acquired by an
employee as a result of the exercise of options
issued under the Jupiters Option Plan.
The taxation implications in these specific circumstances are
outlined under separate headings after the general description
below.
Where the Centrebet Dividend is paid, Jupiters Ordinary
Shareholders will receive either $5.25 cash or 0.525 TABCORP
shares for each of their Jupiters Ordinary Shares (this is
referred to as the `Cash and Shares Component' of the
consideration payable under the Ordinary Share Scheme).
Jupiters Ordinary Shareholders have a choice as to the form in
which they receive the Cash and Shares Component. Jupiters
Ordinary Shareholders may choose the percentage of their
Jupiters Ordinary Shares for which they will receive cash and
the percentage for which they will receive TABCORP Shares, as
described in Section 6.2 of the Scheme Booklet. For example,
under the Standard Cash and Shares Offer, a Jupiters Ordinary
Shareholder will receive $5.25 cash per share for 54.286% of
their Jupiters Ordinary Shares and 0.525 TABCORP Shares per
share for 45.714% of their Jupiters Ordinary Shares. This
means that a particular number of Jupiters Ordinary Shares
will be disposed of for cash and a particular number for
shares.
5
[ERNST & YOUNG LOGO]
2.3.2 DISPOSAL OF JUPITERS ORDINARY SHARES WITHOUT CGT ROLL-OVER
RELIEF
The exchange of Jupiters Ordinary Shares gives rise to a
capital gains tax event (`CGT event') for Australian tax
purposes for each Jupiters Ordinary Shareholder. This section
of our letter deals with the implications for Jupiters
Ordinary Shareholders who are either ineligible to obtain CGT
roll-over relief, or choose not to obtain CGT roll-over
relief, in respect of any capital gain derived from the
disposal of Jupiters Ordinary Shares.
2.3.2.1 Jupiters Ordinary Shares Acquired After 19 September
1985
Jupiters Ordinary Shareholders who are Australian
residents and acquired their Jupiters Ordinary Shares
after 19 September 1985 may make a capital gain or
capital loss in respect of the CGT event. A capital
gain will arise if the capital proceeds (ie the
amount of cash received and/or the value of the
TABCORP Shares received) exceed the cost base of the
Jupiters Ordinary Shares. A capital loss will arise
where the capital proceeds are less than the reduced
cost base of those shares.
Where some or all of the capital proceeds of the CGT
event are received in the form of TABCORP Shares, the
amount of the capital proceeds in respect of those
shares will be the value of those TABCORP Shares
received. Based on the ATO view expressed in
TD2002/4, the value of TABCORP Shares should be
calculated on the date that the Ordinary Share Scheme
becomes effective. It is considered that this is the
Implementation Date for the Ordinary Share Scheme.
Jupiters Ordinary Shareholders who are individuals,
complying superannuation entities or trustees of a
trust estate may choose to adjust the cost base of
the Jupiters Ordinary Shares for indexation by
reference to changes in the consumer price index
(CPI). This choice can be made in respect of Jupiters
Ordinary Shares acquired on or before 11.45 am on 21
September 1999.
The adjustment is made for movements in CPI from the
calendar quarter in which the Jupiters Ordinary
Shares were acquired until the quarter ended 30
September 1999. Jupiters Ordinary Shareholders who
are companies will make this adjustment in respect of
Jupiters Ordinary Shares that were acquired on or
before 11.45am on 21 September 1999. These indexation
adjustments are taken into account only for the
purposes of calculating whether a capital gain
arises. They are ignored when calculating the amount
of any capital loss.
6
[ERNST & YOUNG LOGO]
Individuals, complying superannuation entities or
trustees that have held Jupiters Ordinary Shares for
at least 12 months and do not choose to index the
cost base of the Jupiters Ordinary Shares should be
entitled to discount the amount of the capital gain
(after application of capital losses, if any, from
this and other transactions). The amount of this
discount is 50% in the case of individuals and trusts
and 33 1/3% for complying superannuation entities.
Trustees should seek specific advice regarding the
tax consequences of distributions to beneficiaries
attributable to discounted capital gains.
The relative benefit of choosing to include
indexation in the cost base of Jupiters Ordinary
Shares, as compared to applying the CGT discount is
dependent on each Jupiters Ordinary Shareholder's
individual circumstances. This letter should not be
construed as providing a recommendation as to the
most appropriate action for Jupiters Ordinary
Shareholders.
Capital gains and capital losses of a taxpayer in a
year of income are aggregated to determine whether
there is a net capital gain. Any net capital gain is
included in assessable income and is subject to
income tax at each Jupiters Ordinary Shareholder's
ordinary tax rate(s). Net capital losses may not be
deducted against other income for income tax
purposes, but may be carried forward to offset
against capital gains derived in future income years.
Specific loss carry forward rules will apply to
Jupiters Ordinary Shareholders who are companies or
trustees.
2.3.2.2 Jupiters Ordinary Shares Deemed to be Acquired Before
20 September 1985
Some Jupiters Ordinary Shares that were actually
acquired after 19 September 1985 may be deemed to
have been acquired before 20 September 1985. For
example, this situation may arise for former Jupiters
Trust unitholders who participated in the merger
between Jupiters Trust and Jupiters Limited (formerly
Jupiters Development Ltd) in 1991.
If the Jupiters Ordinary Shares were deemed to be
acquired before 20 September 1985, any capital gain
in respect of the CGT event is disregarded, unless
the shares were later deemed to have been acquired
after this date. Shares held by companies or trustees
may be deemed to be acquired after this date if
certain continuity of ownership tests are failed.
2.3.3 DISPOSAL OF JUPITERS ORDINARY SHARES WITH CGT ROLL-OVER RELIEF
Jupiters Ordinary Shareholders may be able to obtain CGT
roll-over relief in respect of a capital gain derived from the
disposal of Jupiters Ordinary Shares in some circumstances.
7
[ERNST & YOUNG LOGO]
2.3.3.1 Availability of Roll-over Relief
Jupiters Ordinary Shareholders who would otherwise
make a capital gain in respect of the disposal of
Jupiters Ordinary Shares may choose to obtain CGT
roll-over relief to the extent their Jupiters
Ordinary Shares are exchanged for TABCORP Shares.
Roll-over relief is not available for a capital gain
derived in respect of any Jupiters Ordinary Shares
that are exchanged for cash. Further, no roll-over is
available where the exchange results in a capital
loss or if the Jupiters Ordinary Shares were deemed
to be acquired before 20 September 1985.
A number of conditions must be satisfied in order for
scrip for scrip roll-over relief to be available.
These conditions should be satisfied in respect of
the Ordinary Share Scheme. A Class Ruling application
has been lodged with the ATO seeking confirmation
that these conditions are satisfied and that scrip
for scrip roll-over relief is available. A draft
ruling has been received as at the date of this
letter confirming rollover relief is available. This
ruling will only be binding on the ATO once it is
published. We understand that shareholders will be
advised of the outcome of the ruling process once the
final ruling has issued.
2.3.3.2 Effect of Roll-over Relief
Where roll-over is chosen for Jupiters Ordinary
Shares exchanged for TABCORP Shares, any capital gain
in respect of the disposal of Jupiters Ordinary
Shares is disregarded. However, whilst the capital
gain is disregarded, the taxation of the capital gain
is effectively only deferred until the disposal of
the TABCORP Shares received in exchange for the
Jupiters Ordinary Shares. That is, choosing the
roll-over will affect the cost base of the TABCORP
Shares acquired by the Jupiters Ordinary Shareholder.
This will in turn affect the tax consequences of a
future disposal of those TABCORP Shares. These
consequences are discussed in section 3.4 below.
The relative benefit of choosing to obtain CGT
roll-over relief is dependent on each Jupiters
Ordinary Shareholder's individual circumstances.
Choosing CGT roll-over relief may benefit
shareholders who hold Jupiters Ordinary Shares that
have a low CGT cost base, or shareholders who intend
to hold TABCORP Shares for an extended period of
time. However, this letter should not be construed as
providing a recommendation as to the most appropriate
action for Jupiters Ordinary Shareholders.
8
[ERNST & YOUNG LOGO]
2.3.3.3 Choosing Roll-over Relief
A choice to obtain CGT roll-over relief must
generally be made before the lodgement of the income
tax return for the year in which the relevant CGT
event happened. The exclusion of the portion of the
capital gain, in respect of which roll-over relief is
obtained, from a Jupiters Ordinary Shareholder's tax
return is regarded as sufficient evidence of the
making of the choice.
2.3.4 DISTRIBUTION OF NET CENTREBET PROCEEDS
2.3.4.1 Overview
This section applies if the Centrebet Sale does not
complete by 31 October 2003. In this case, the
Centrebet Dividend will not be paid. Instead, a
Centrebet Note will be issued by TABCORP Issuer in
respect of each Jupiters Ordinary Share that is
transferred to TABCORP Investments. If a Centrebet
Sale subsequently completes by 30 September 2004
(under a Centrebet Sale Agreement entered into by 30
June 2004), each Centrebet Note will be redeemed for
a proportionate amount of the Net Centrebet Proceeds.
This section describes the effect on the tax
consequences of the disposal of Jupiters Ordinary
Shares (as described in Sections 2.3.2 and 2.3.3 of
this letter) if the Net Centrebet Proceeds are
distributed to Jupiters Ordinary Shareholders by the
issue of Centrebet Notes.
2.3.4.2 Effect on the CGT Calculation
If the Net Centrebet Proceeds are distributed by the
issue of Centrebet Notes, the capital proceeds in
relation to the CGT event described in section 2.3.2
will be increased by the amount of this additional
consideration received. The amount of additional
capital proceeds for each Jupiters Ordinary Share
will be the market value of one Centrebet Note.
The capital gain will therefore be increased or the
amount of the capital loss reduced.
2.3.4.3 Availability of CGT Roll-over Relief if Centrebet
Notes Issued
This section deals with the availability of CGT scrip
for scrip roll-over relief if the Centrebet Notes are
issued as additional consideration for the transfer
of Jupiters Ordinary Shares.
9
[ERNST & YOUNG LOGO]
(a) Jupiters Ordinary Shares Exchanged for Cash
CGT roll-over relief will remain unavailable in
respect of any capital gain realised on the disposal
of Jupiters Ordinary Shares where the Jupiters
Ordinary Shareholders receive the Cash and Shares
Component of the consideration as cash.
(b) Jupiters Ordinary Shares Exchanged for
TABCORP Shares
For Jupiters Ordinary Shares for which the Cash and
Shares Component of consideration is received in the
form of TABCORP Shares, only partial CGT roll-over
relief will be available. CGT roll-over relief is not
available in respect of the additional consideration
received in the form of Centrebet Notes.
Jupiters Ordinary Shareholders who choose to obtain
partial CGT roll-over for their Jupiters Ordinary
Shares that are exchanged for TABCORP Shares, must
calculate any capital gain arising on that part of
each share for which no roll-over is available. To do
this, the cost base of each Jupiters Ordinary Share
needs to be apportioned between that part of the
share for which roll-over is available (ie the part
for which proceeds are received in the form of part
of a TABCORP Share) and that part for which no
roll-over is available (ie proceeds received in the
form of a Centrebet Note).
This apportionment is based on the relative market
value of the part of the TABCORP Share received
compared to the market value of the Centrebet Note.
For this purpose, the market value of the TABCORP
Shares and the Centrebet Note should be determined on
the Implementation Date for the Ordinary Scheme.
2.3.4.4 Redemption of a Centrebet Note
If the Centrebet Sale does not complete by 31 October
2003, and a Centrebet Note is issued in respect of
each Jupiters Ordinary Share that is transferred to
TABCORP Investments, the redemption of each Centrebet
Note may give rise to additional taxation
consequences.
A taxable capital gain or loss may arise on the
redemption of the Centrebet Note. This will occur if
the cost base of the Centrebet Note and the capital
proceeds received on redemption are different
amounts. The cost base of each Centrebet Note will be
equal to the value of the part of the Jupiters
Ordinary Share which was transferred in consideration
of the issue of the Centrebet Note. This should be
equal to the market value of the Centrebet Note
itself.
10
[ERNST & YOUNG LOGO]
Centrebet Noteholders will therefore need to
recognise on redemption either:
- a capital gain equal to the amount received on
redemption less the value of the Centrebet Note
on the Implementation Date for the Ordinary
Share Scheme; or
- a capital loss equal to the excess of the value
of the Centrebet Note on the Implementation Date
for the Ordinary Share Scheme over the cash
received on redemption.
On the basis each Centrebet Note will be redeemed
within 12 months of the date it is issued, the CGT
discount provisions will not apply.
Any capital loss from a Centrebet Note would not be
able to be offset against the Jupiters Ordinary
Shareholder's other income. As the redemption may
take place in a subsequent tax year to that year in
which the disposal of the Jupiters Ordinary Shares
takes place, any capital loss may not be able to be
used to offset any capital gains made on the sale of
the Jupiters Ordinary Shares.
2.3.5 JUPITERS EXEMPT EMPLOYEE SHARE PLAN (EESP) PARTICIPANTS
This section applies to current employees of the Jupiters
Group who hold Jupiters Ordinary Shares acquired under the
EESP. The taxation outcomes from the disposal of Jupiters
Ordinary Shares by these employees depend on whether the
employee made a tax election in respect of the year in which
the Jupiters Ordinary Shares were acquired (`electing
employees').
2.3.5.1 Electing Employees
The disposal of the Jupiters Ordinary Shares should
give rise to the same CGT implications for these
employees as described above for other Jupiters
Ordinary Shareholders.
Prior to implementation of the Ordinary Scheme the
EESP will be terminated. A Class Ruling has been
sought from the ATO to confirm that termination of
the EESP and transfer of the Jupiters Ordinary Shares
under the Ordinary Scheme will not result in a loss
of tax concessions available to electing employees in
relation to shares acquired under the EESP. A
favourable ruling has been issued in draft form as at
the date of this letter. The ruling will not be
binding until finalised and published in the
Government Gazette. We understand that EESP
participants will be advised of the outcome of this
process.
2.3.5.2 Non-Electing Employees
The EESP will be terminated after the second Court
date and prior to implementation of the Ordinary
Share Scheme. On termination,
11
[ERNST & YOUNG LOGO]
employees will become absolutely entitled to the
Jupiters Ordinary Shares held under the EESP. For
non-electing employees, the proceeds from disposal of
the Jupiters Ordinary Shares to TABCORP Investments
will be subject to ordinary income tax at the
employee's ordinary tax rates.
Employees will not be entitled to apply the CGT
discount provisions. Further, no CGT scrip for scrip
roll-over relief will be available.
2.3.6 NON-RESIDENT JUPITERS ORDINARY SHAREHOLDERS
This section applies to Jupiters Ordinary Shareholders who are
not resident of Australia for tax purposes. This section
describes the tax consequences of disposal of their Jupiters
Ordinary Shares.
2.3.6.1 Tax Implications Generally
Jupiters Ordinary Shareholders who are not resident
in Australia for tax purposes are generally only
subject to Australian CGT on the disposal of assets
that have the necessary connection with Australia.
Jupiters Ordinary Shares will generally only have the
necessary connection with Australia if:
(i) The Jupiters Ordinary Shareholder and their
associates have held 10% or more by value of
the Jupiters Ordinary Shares at any time in
the five years preceding the Implementation
Date for the Ordinary Scheme; or
(ii) The Jupiters Ordinary Share is held in
connection with the conduct of a business by
the Jupiters Ordinary Shareholder through a
permanent establishment in Australia.
Where a non-resident Jupiters Ordinary Shareholder
holds Jupiters Ordinary Shares that do not have the
necessary connection with Australia, the Jupiters
Ordinary Shareholder should not generally be subject
to tax in Australia on disposal under the Ordinary
Share Scheme.
12
[ERNST & YOUNG LOGO]
Where a non-resident shareholder holds Jupiters
Ordinary Shares that have the necessary connection
with Australia, the Australian taxation implications
of the transfer of such shares to TABCORP Investments
are as discussed above in relation to Australian
resident shareholders. However, relief from taxation
in Australia may be available for some non-resident
Jupiters Ordinary Shareholders pursuant to a Double
Tax Agreement (DTA) between Australia and their
country of residence. The availability of such relief
will be dependent on the Jupiters Ordinary
Shareholder's individual circumstances and the terms
of the relevant DTA. Jupiters Ordinary Shareholders
should seek their own professional advice in relation
to this matter.
2.3.6.2 Ineligible Overseas Shareholders
Where a Jupiters Ordinary Shareholder is an
Ineligible Overseas Shareholder, any TABCORP Shares
that they would otherwise be entitled to receive
under the Ordinary Share Scheme will be issued to a
nominee appointed by TABCORP who will sell those
shares and pay the proceeds (net of certain selling
costs) to the Ineligible Overseas Shareholder.
In these circumstances, the taxation implications of
the disposal of the Jupiters Ordinary Shares
described in paragraph 2.3.6.1 above will still
apply. In addition, Ineligible Overseas Shareholders
will need to consider the implications of the sale of
the TABCORP Shares addressed in Section 3.4 below.
2.3.7 JUPITERS OPTIONHOLDERS
This section applies to Jupiters Optionholders who are current
employees of the Jupiters Group. If the Court approves the
Ordinary Share Scheme, a portion of the Jupiters Options will
become exercisable for the first time. This section describes
the tax implications for Jupiters Optionholders who choose to
exercise some or all of those Jupiters Options, as well as the
tax implications on the subsequent disposal under the Ordinary
Share Scheme of the Jupiters Ordinary Shares acquired by the
exercise of the Jupiters Options.
The tax implications depend on whether the Jupiters
Optionholder made a tax election in respect of the year in
which the Jupiters Options were acquired. A Jupiters
Optionholder who made this election is referred to as an
`electing employee'. A Jupiters Optionholder who did not make
this election is referred to as a `non-electing employee'.
2.3.7.1 Electing Employee
The exercise of the Jupiters Options by these
employees should not give rise to any tax liability
for the Jupiters Optionholder.
13
[ERNST & YOUNG LOGO]
The capital gains tax (CGT) cost base of a Jupiters
Ordinary Share acquired as a result of the exercise
of the Jupiters Option will be equal to the sum of
exercise price paid, plus the market value of the
Jupiters Option at the time the Jupiters Option was
granted (as defined under taxation legislation). The
date of acquisition of the Jupiters Ordinary Share
for the purposes of applying the CGT discount
provisions is the date the Jupiters Option was
exercised.
The tax consequences of the subsequent disposal of
the Jupiters Ordinary Shares under the Ordinary
Scheme are as set out in Sections 2.3.2 and 2.3.3 of
this letter.
2.3.7.2 Non-electing Employee
The exercise of the Jupiters Options by these
employees will give rise to a tax liability. Because
the Jupiters Ordinary Shares acquired as a result of
exercise of the Jupiters Options will be disposed of
to TABCORP Investments under the Ordinary Share
Scheme within 30 days of the date of exercise, the
two transactions (exercise and disposal) are
effectively treated as one. That is, the tax
liability arising on exercise of the options is
calculated by reference to the proceeds received on
the subsequent disposal.
As a result, the gross proceeds from disposal of a
Jupiters Ordinary Share to TABCORP Investments less
the amount paid to exercise the Jupiters Option will
be subject to ordinary income tax at the employee's
marginal tax rates. Employees will not be entitled to
apply the CGT discount provisions.
There will be no further tax consequences for these
employees on the disposal of the Jupiters Ordinary
Shares under the Ordinary Share Scheme.
3. IMPLICATIONS OF HOLDING TABCORP SHARES
3.1 OVERVIEW
The Australian tax consequences of owning TABCORP Shares are
substantially the same as those relating to the ownership of Jupiters
Ordinary Shares.
TABCORP shareholders may receive either franked or unfranked dividends
in respect of their shareholding and may subsequently dispose of their
TABCORP Shares. The Australian tax consequences of each of these events
are discussed below.
14
[ERNST & YOUNG LOGO]
3.2 FRANKED DIVIDENDS
3.2.1 RESIDENT SHAREHOLDERS
TABCORP shareholders who are Australian tax residents should
include the cash amount of any dividend received in their
assessable income.
Shareholders will generally also be required to include an
additional amount in their assessable income equal to the
amount of any franking credit attached to any dividend. The
amount of the franking credit will be shown in a distribution
statement issued by TABCORP.
A shareholder who is NOT a qualified person in relation to the
TABCORP Shares will not be required to include the associated
franking credit in their assessable income. A qualified person
is broadly a shareholder who will hold the shares on an at
risk basis for a period of at least 45 days.
Tax is payable by Australian resident shareholders in respect
of any dividend received at each shareholder's ordinary tax
rate(s).
Where a shareholder is required to include a franking credit
in their assessable income, they will be able to claim a tax
offset equal to the amount of the franking credit. The tax
offset reduces the tax payable by the shareholder. Resident
individuals, complying superannuation funds and certain
registered charities may obtain a refund of the tax offset in
some circumstances.
3.2.2 NON-RESIDENT SHAREHOLDERS
Shareholders who are not residents of Australia, will not be
taxable in Australia in respect of franked dividends received.
Further, to the extent the dividend is franked, no Australian
dividend withholding tax will be imposed in respect of the
payment of the dividend.
3.3 UNFRANKED DIVIDENDS
3.3.1 RESIDENT SHAREHOLDERS
If TABCORP pays an unfranked dividend, holders of TABCORP
Shares who are Australian tax residents will be required to
include the amount of the dividend in their assessable income.
However, no additional amount is required to be included in
assessable income in respect of franking credits. Further, no
tax offset will be available in respect of franking credits.
Shareholders will pay tax in respect of unfranked dividends at
their ordinary tax rate(s).
15
[ERNST & YOUNG LOGO]
3.3.2 NON-RESIDENT SHAREHOLDERS
Shareholders who are not residents of Australia for tax
purposes will be subject to a final Australian dividend
withholding tax in respect of the receipt of unfranked
dividends.
The base dividend withholding tax rate is 30%. However, where
a shareholder is a resident of a country with whom Australia
has concluded a DTA, this rate may be reduced. Non-resident
shareholders should seek their own advice concerning the
existence of a DTA between Australia and their country of
residence and the applicable withholding tax rate.
3.4 IMPLICATIONS OF DISPOSAL OF TABCORP SHARES
3.4.1 OVERVIEW
The Australian tax consequences of a subsequent disposal of
TABCORP Shares in a normal on-market transaction should
generally be similar to the consequences that arise on the
disposal of Jupiters Ordinary Shares for cash consideration as
described at Section 2.3.2 above. The following additional
points should be noted.
3.4.2 TABCORP SHARES RECEIVED FOR JUPITERS ORDINARY SHARES DEEMED TO
BE ACQUIRED BEFORE 20 SEPTEMBER 1985
Where a shareholder was deemed to acquire their Jupiters
Ordinary Shares prior to 20 September 1985, any replacement
TABCORP Shares acquired under the Ordinary Scheme will NOT
inherit the pre-CGT status of the original Jupiters Ordinary
Shares.
The CGT cost base of the replacement TABCORP Shares will be
equal to the market value of the TABCORP Shares on the
Implementation Date of the Ordinary Share Scheme. The
acquisition date for the purposes of applying the CGT discount
provisions to a future disposal of the TABCORP Shares is the
Implementation Date of the Ordinary Share Scheme.
3.4.3 TABCORP SHARES RECEIVED FOR JUPITERS ORDINARY SHARES ACQUIRED
AFTER 19 SEPTEMBER 1985
3.4.3.1 CGT Roll-over relief chosen
For those Jupiters Ordinary Shareholders who acquired
their Jupiters Ordinary Shares after 19 September
1985 and choose to obtain roll-over relief on the
exchange for TABCORP Shares, the CGT cost base of the
replacement TABCORP Shares acquired is equal to the
portion of the cost base of the Jupiters Ordinary
Shares which is reasonably attributable to the
TABCORP Shares acquired.
This will generally mean that the cost base of the
TABCORP Shares acquired in exchange for Jupiters
Ordinary Shares will simply be the
16
[ERNST & YOUNG LOGO]
cost base of the Jupiters Ordinary Shares that were
exchanged. However, if the Net Centrebet Proceeds are
distributed in the form of a Centrebet Note, the cost
base of the TABCORP Shares will be equal to only a
percentage of the cost base of the Jupiters Ordinary
Shares in respect of which the TABCORP Shares were
received. This percentage should be calculated as the
value of the TABCORP Shares divided by the value of
the total proceeds received (ie TABCORP Shares and
Centrebet Notes).
For the purposes of applying the CGT discount
provisions to a future disposal of the TABCORP
Shares, the acquisition date is the date of
acquisition of the Jupiters Ordinary Shares that were
transferred in exchange for the TABCORP Shares.
3.4.3.2 CGT Roll-over relief not chosen
Where CGT roll-over is not chosen, the CGT cost base
of the TABCORP Shares which are received in exchange
for Jupiters Ordinary Shares is equal to the value of
those Jupiters Ordinary Shares on the Implementation
Date for the Ordinary Share Scheme. However, if the
Net Centrebet Proceeds are distributed in the form of
a Centrebet Note, the cost base of the TABCORP Shares
will be equal to only a percentage of the value of
those Jupiters Ordinary Shares. This percentage
should be calculated as the value of the TABCORP
Shares received divided by the value of the total
proceeds received (ie TABCORP Shares and Centrebet
Notes).
For the purposes of applying the CGT discount
provisions to a future disposal of the TABCORP
Shares, the acquisition date is the Implementation
Date for the Ordinary Share Scheme.
3.4.4 SHAREHOLDERS WHO ARE NON-RESIDENTS OF AUSTRALIA
As discussed in section 2.3.6 above, non-residents are only
liable to capital gains tax in respect of the disposal of
assets that have the necessary connection with Australia.
A shareholding in TABCORP acquired by a former Jupiters
Ordinary Shareholder will have the necessary connection with
Australia if the shareholder together with their associates
hold a beneficial interest of at least 10% in the shares in
TABCORP at any time in the 5 years preceding the disposal. A
shareholding will also have the necessary connection if a
shareholder had a capital gain in respect of the exchange of
Jupiters Ordinary Shares for TABCORP Shares and chose to
obtain CGT roll-over relief in respect of that gain.
17
[ERNST & YOUNG LOGO]
4. OTHER MATTERS
Our letter is based upon the law in effect at the date of the Scheme Booklet. It
is not intended to be an authoritative or complete statement of the law
applicable to the particular circumstances of every Jupiters Ordinary
Shareholder. The above statements are not binding on the ATO and there can be no
assurance that the ATO will not take a position contrary to the statements
expressed herein.
Tax laws are complicated and there could be implications for shareholders in
addition to those described above. Jupiters Ordinary Shareholders should seek
independent professional advice in relation to their particular circumstances.
Ernst & Young's involvement is limited to the preparation of this letter. This
letter does not constitute an endorsement of the Ordinary Share Scheme or a
recommendation as to how Jupiters Ordinary Shareholders should vote in respect
of the Ordinary Share Scheme. Ernst & Young expresses no opinion and gives no
assurance or guarantee in respect of the commercial benefits of the Merger.
We have provided consent for the inclusion of this letter in the Scheme Booklet.
This consent has not been withdrawn at the date of this letter.
Yours faithfully
(ERNST & YOUNG.)
Ernst & Young
18
APPENDIX C
ORDINARY SHARE SCHEME
Scheme of Arrangement
SCHEME OF ARRANGEMENT
PURSUANT TO SECTION 411 OF THE CORPORATIONS ACT 2001 (CTH)
BETWEEN
JUPITERS LIMITED (ABN 78 010 741 045) of 17 Victoria Avenue,
Broadbeach, Queensland, Australia
AND
THE HOLDERS OF FULLY PAID ORDINARY SHARES IN JUPITERS LIMITED
(other than any person holding fully paid ordinary shares in
Jupiters Limited on behalf of, or for the benefit of, TABCORP
or any of its Related Entities)
1 DEFINITIONS AND INTERPRETATION
DEFINITIONS
In this document, the following definitions apply unless the context
requires otherwise.
ASIC means the Australian Securities and Investments Commission.
ASX means Australian Stock Exchange Limited (ABN 98 008 624 691).
ASX LISTING RULES means the official listing rules of ASX.
BUSINESS DAY has the meaning given in the ASX Listing Rules.
CASH CONSIDERATION is defined in clause 5.1(a).
CASH CONSIDERATION CAP means $2.85 multiplied by the number of Scheme
Shares.
CASH CONSIDERATION SHARES means, in relation to a Scheme Shareholder,
the number of that Scheme Shareholder's Scheme Shares determined in
accordance with clause 5.3.
CENTREBET DIVIDEND means a fully franked special dividend of a cash
amount equal to the Net Centrebet Proceeds divided by the number of
Jupiters Ordinary Shares on issue at the Record Date, to be declared by
the Jupiters Board and paid by Jupiters in accordance with clause 4.5.
CENTREBET NOTE means the unsecured note to be issued by TABCORP Issuer
in accordance with clause 5.1(c) under the Centrebet Note Deed,
providing for a potential cash payment to holders.
CENTREBET NOTE DEED means the Centrebet Notes Trust Deed dated 3
September 2003 between TABCORP, TABCORP Issuer and Equity Trustees
Limited (ABN 46 004 031 298).
SCHEME OF ARRANGEMENT
CENTREBET SALE AGREEMENT means a definitive and legally binding
agreement, whether conditional or unconditional, for the sale, to a
person other than Jupiters or any of its Related Entities, of the
internet and telephone gambling business conducted (or proposed to be
conducted, to the extent of the introduction of a rapid draw numbers
game and mobile telephone betting platforms) by Centrebet Pty Limited
(ABN 76 082 760 610) and Jupiters UK Limited (Company Number 04279246),
entered into in accordance with the manner agreed between Jupiters and
TABCORP.
CENTREBET SALE COMPLETION means the first time at which both of the
following are satisfied:
(a) completion under a Centrebet Sale Agreement has occurred; and
(b) the purchase price payable by the purchaser under that
Centrebet Sale Agreement has been received by Jupiters and its
relevant Related Entities, and any adjustments to that
purchase price have been made, and any disputes in relation to
any such adjustments have been finally determined, in
accordance with that Centrebet Sale Agreement.
CHESS means the Clearing House Electronic Subregister System for the
electronic transfer of securities, operated by ASX Settlement and
Transfer Corporation Pty Limited (ABN 49 008 504 532).
CONDITIONS PRECEDENT means the conditions precedent set out in clause
3.1.
CORPORATIONS ACT means the Corporations Act 2001 (Cth).
COURT means the Supreme Court of Queensland.
DEED POLL means the Deed Poll dated 3 September 2003 executed by
TABCORP, TABCORP Investments and TABCORP Issuer, pursuant to which each
of TABCORP, TABCORP Investments and TABCORP Issuer has, amongst other
things, covenanted in favour of Scheme Shareholders to perform the
obligations contemplated of it under the Ordinary Share Scheme.
EFFECTIVE DATE means the date on which the Scheme Order comes into
effect pursuant to section 411(10) of the Corporations Act.
ELECTION means a valid election made by a Scheme Shareholder as to the
form of Ordinary Share Scheme Consideration (to the extent it comprises
Cash Consideration or Scrip Consideration) which that Scheme
Shareholder wishes to receive for the maximum possible number of their
Scheme Shares in accordance with clause 5.2.
ELIGIBLE SCHEME SHAREHOLDER means a Scheme Shareholder other than an
Ineligible Overseas Shareholder.
EXCLUDED SHARE means a Jupiters Ordinary Share held by any person on
behalf of, or for the benefit of, TABCORP or any of its Related
Entities.
IMPLEMENTATION DATE means the third Business Day after the Record Date.
INELIGIBLE NOTE DEED means the trust deed to be entered into between
TABCORP, TABCORP Issuer and the Ineligible Note Trustee relating to the
Centrebet Notes (if any) that are attributable to Ineligible Overseas
Shareholders.
SCHEME OF ARRANGEMENT
INELIGIBLE NOTE TRUSTEE means Equity Trustees Limited (ABN 46 004 031
298) or such other person nominated by TABCORP and approved by
Jupiters.
INELIGIBLE OVERSEAS SHAREHOLDER means a Scheme Shareholder whose
address as shown in the Jupiters Share Register at the Record Date is
in a jurisdiction other than Australia or its external territories,
Hong Kong, the United Kingdom or the United States of America, except
where:
(a) in the case of the issue of TABCORP Shares, TABCORP is
reasonably satisfied that such issue to that Scheme
Shareholder is not prohibited, not unduly onerous and not
unduly impracticable in that jurisdiction; and
(b) in the case of the issue of Centrebet Notes, TABCORP is
reasonably satisfied that such issue to that Scheme
Shareholder is not prohibited, not unduly onerous and not
unduly impracticable in that jurisdiction.
JUPITERS means Jupiters Limited (ABN 78 010 741 045).
JUPITERS BOARD means the board of directors of Jupiters.
JUPITERS ORDINARY SHARE means a fully paid ordinary share in the
capital of Jupiters.
JUPITERS ORDINARY SHAREHOLDER means each person registered in the
Jupiters Share Register as the holder of Jupiters Ordinary Shares.
JUPITERS SHARE REGISTER means the register of members of Jupiters
maintained pursuant to the Corporations Act.
JUPITERS SHARE REGISTRY means Computershare Investor Services Pty
Limited (ABN 48 078 279 277) of Level 27, Central Plaza One, 345 Queen
Street, Brisbane, Queensland.
MAXIMUM CASH ELECTION has the meaning given in clause 5.3(c).
MAXIMUM SCRIP ELECTION has the meaning given in clause 5.4(c).
MERGER IMPLEMENTATION AGREEMENT means the Merger Implementation
Agreement dated 12 June 2003 between TABCORP and Jupiters.
NET CENTREBET PROCEEDS has the meaning given in the Merger
Implementation Agreement.
ORDINARY SHARE SCHEME means this scheme of arrangement, subject to any
alterations or conditions made or required by the Court under section
411(6) of the Corporations Act.
ORDINARY SHARE SCHEME CONSIDERATION means the consideration to be
provided to Scheme Shareholders for the transfer to TABCORP Investments
of their Scheme Shares, ascertained in accordance with clause 5.
RECORD DATE means 5.00pm on the fifth Business Day after the Effective
Date.
REGISTERED ADDRESS means, in relation to a Jupiters Ordinary
Shareholder, the address shown in the Jupiters Share Register.
RELATED ENTITY means, in relation to a person, any entity which is
related to that person within the meaning of section 50 of the
Corporations Act or which is an economic entity (as defined in any
approved Australian accounting standard) that is controlled by that
person.
SCHEME OF ARRANGEMENT
SALE AGENT means the person nominated by TABCORP and approved by
Jupiters to sell the TABCORP Shares that are attributable to Ineligible
Overseas Shareholders under the terms of the Ordinary Share Scheme.
SCHEME BOOKLET means the information dispatched to Jupiters Ordinary
Shareholders and approved by the Court, including the Ordinary Share
Scheme, an explanatory statement in relation to the Ordinary Share
Scheme issued pursuant to section 412 of the Corporations Act and
registered with ASIC, an independent expert's report, summaries of each
of the Merger Implementation Agreement and the Deed Poll, and a notice
convening the Scheme Meeting (together with proxy forms).
SCHEME MEETING means the meeting ordered by the Court to be convened
pursuant to section 411(1) of the Corporations Act in relation to the
Ordinary Share Scheme.
SCHEME ORDER means the order of the Court made for the purposes of
section 411(4)(b) of the Corporations Act in relation to the Ordinary
Share Scheme.
SCHEME SHAREHOLDER means each person registered in the Jupiters Share
Register as the holder of Scheme Shares as at the Record Date.
SCHEME SHARES means the Jupiters Ordinary Shares on issue at the Record
Date other than the Excluded Shares.
SCRIP CONSIDERATION is defined in clause 5.1(b).
SCRIP CONSIDERATION CAP means the number of TABCORP Shares (rounded up
or down to the nearest whole number of TABCORP Shares, with fractions
of 0.5 rounded up to the nearest whole number of TABCORP Shares) equal
to 0.24 multiplied by the number of Scheme Shares.
SCRIP CONSIDERATION SHARES means, in relation to a Scheme Shareholder,
the number of that Scheme Shareholder's Scheme Shares determined in
accordance with clause 5.4.
SECOND COURT DATE means the first day on which an application made to
the Court for the Scheme Order is heard or, if the application is
adjourned for any reason, the first day on which the adjourned
application is heard.
SPECIAL DIVIDEND means a fully franked dividend of $0.75 cash for each
Jupiters Ordinary Share on issue at the Record Date.
SPECIAL DIVIDEND RESOLUTION means a resolution of the Jupiters Board to
approve, in accordance with clause 4.4, the declaration and payment by
Jupiters of the Special Dividend.
TABCORP means TABCORP Holdings Limited (ABN 66 063 780 709).
TABCORP INVESTMENTS means TABCORP Investments No.2 Pty Ltd (ABN 74 105
341 375), a wholly-owned Related Entity of TABCORP.
TABCORP ISSUER means TABCORP Issuer Pty Ltd (ABN 72 105 341 366), a
wholly-owned Related Entity of TABCORP.
TABCORP SHARE means a fully paid ordinary share in the capital of
TABCORP.
SCHEME OF ARRANGEMENT
TABCORP SHARE REGISTER means the register of members of TABCORP
maintained pursuant to the Corporations Act.
TABCORP SHARE REGISTRY means ASX Perpetual Registrars Limited (ABN 54
083 214 537) of Level 4, 333 Collins Street, Melbourne, Victoria.
INTERPRETATION
Headings are for convenience only and do not affect interpretation. The
following rules apply unless the context requires otherwise.
(a) The singular includes the plural and conversely.
(b) A gender includes all genders.
(c) If a word or phrase is defined, its other grammatical forms
have a corresponding meaning.
(d) A reference to a person, corporation, trust, partnership,
unincorporated body, government agency or other entity
includes any of them.
(e) A reference to a clause is a reference to a clause of this
document.
(f) A reference to a person includes a reference to the person's
executors, administrators, successors, substitutes (including,
without limitation, persons taking by novation) and assigns.
(g) A reference to an agreement or document (including, without
limitation, a reference to this document) is to the agreement
or document as amended, varied, supplemented, novated or
replaced, except to the extent prohibited by this document or
that other agreement or document.
(h) A reference to any legislation or to a provision of any
legislation includes a modification or re-enactment of it, any
legislative provision substituted for it and all regulations
and statutory instruments issued under it.
(i) Words and phrases not specifically defined in this document
have the same meanings (if any) given to them in the
Corporations Act.
(j) A reference to time is a reference to time in Brisbane,
Australia.
(k) A reference to $ is to the lawful currency of Australia.
PRELIMINARY
JUPITERS
Jupiters is a public company incorporated in Australia and registered
in Queensland and is a company limited by shares. Its
registered office is at Level 9, Niecon Tower, 17 Victoria
Avenue, Broadbeach, Queensland.
Jupiters has been admitted to the official list of ASX and Jupiters
Ordinary Shares have been granted official quotation on the
stock market conducted by ASX.
As at 31 August 2003, 201,784,202 Jupiters Ordinary Shares were on
issue.
SCHEME OF ARRANGEMENT
TABCORP
(a) TABCORP is a public company incorporated in Australia
and registered in Victoria and is a company limited
by shares. Its registered office is at 5 Bowen
Crescent, Melbourne, Victoria.
(b) TABCORP has been admitted to the official list of ASX
and TABCORP Shares have been granted official
quotation on the stock market conducted by ASX.
(c) As at 31 August 2003, 365,885,021 TABCORP Shares were
on issue.
TABCORP INVESTMENTS
TABCORP Investments is a proprietary company incorporated in
Australia and registered in Victoria and is a company limited
by shares. Its registered office is at 5 Bowen Crescent,
Melbourne, Victoria.
TABCORP ISSUER
TABCORP Issuer is a proprietary company incorporated in
Australia and registered in Victoria and is a company limited
by shares. Its registered office is at 5 Bowen Crescent,
Melbourne, Victoria.
SUMMARY OF THE ORDINARY SHARE SCHEME
(a) If the Ordinary Share Scheme becomes effective (by
virtue of the Scheme Order coming into effect in
accordance with section 411(10) of the Corporations
Act) then:
all the Scheme Shares will be transferred to TABCORP Investments, and
TABCORP, TABCORP Investments and (if required) TABCORP Issuer will provide the
Ordinary Share Scheme Consideration to Scheme Shareholders in accordance with
the provisions of the Ordinary Share Scheme;
Jupiters will pay the Special Dividend and (if required) the Centrebet
Dividend to Jupiters Ordinary Shareholders in accordance with the provisions of
the Ordinary Share Scheme; and
Jupiters will enter the name and address of TABCORP Investments in the
Jupiters Share Register as the holder of the Scheme Shares.
(b) TABCORP has executed the Deed Poll in favour of the
Scheme Shareholders, pursuant to which it has
covenanted to perform the obligations contemplated of
it under the Ordinary Share Scheme, and to procure
that TABCORP Investments performs the obligations
contemplated of TABCORP Investments, and TABCORP
Issuer performs the obligations contemplated of
TABCORP Issuer, under the Ordinary Share Scheme.
(c) TABCORP Investments has executed the Deed Poll in
favour of the Scheme Shareholders, pursuant to which
it has covenanted to perform the obligations
contemplated of it under the Ordinary Share Scheme.
SCHEME OF ARRANGEMENT
(d) TABCORP Issuer has executed the Deed Poll in favour
of the Scheme Shareholders, pursuant to which it has
covenanted to perform the obligations contemplated of
it under the Ordinary Share Scheme.
CONDITIONS PRECEDENT
CONDITIONS
The Ordinary Share Scheme is conditional on each of the
following conditions precedent:
(a) as at 8.00am on the Second Court Date, all of the
conditions set out in clause 3.1 of the Merger
Implementation Agreement have been satisfied or
waived in accordance with the terms of the Merger
Implementation Agreement;
(b) as at 8.00am on the Second Court Date, the Merger
Implementation Agreement has not been terminated;
(c) the Ordinary Share Scheme has been approved by the
requisite majorities of Jupiters Ordinary
Shareholders in accordance with section 411(4)(a) of
the Corporations Act at the Scheme Meeting;
(d) the Court has approved the Ordinary Share Scheme,
with or without modification, pursuant to section
411(4)(b) of the Corporations Act; and
(e) such other conditions made or required by the Court
under section 411(6) of the Corporations Act in
relation to the Ordinary Share Scheme as are
acceptable to TABCORP and Jupiters have been
satisfied,
and the Ordinary Share Scheme will be of no force or effect
unless and until the Conditions Precedent are satisfied.
CERTIFICATE
At the hearing by the Court of the application for the Scheme
Order, TABCORP and Jupiters will each provide to the Court a
certificate confirming whether or not all of the conditions
set out in clause 3.1 of the Merger Implementation Agreement
have been satisfied or waived in accordance with the terms of
the Merger Implementation Agreement.
TERMINATION OF MERGER IMPLEMENTATION AGREEMENT
In the event that the Merger Implementation Agreement is
terminated, each of Jupiters, TABCORP, TABCORP Investments and
TABCORP Issuer is released from:
(a) any further obligation to take steps to implement the
Ordinary Share Scheme; and
(b) any liability with respect to the Ordinary Share
Scheme.
SCHEME OF ARRANGEMENT
IMPLEMENTATION OF THE ORDINARY SHARE SCHEME
LODGEMENT
Jupiters must lodge with ASIC an office copy of the Scheme
Order promptly after, and in any event by 5.00pm on the first
Business Day after the date on which, the Court makes that
order.
TRANSFER OF SCHEME SHARES
On the Implementation Date, all of the Scheme Shares (together
with all rights and entitlements attaching to the Scheme
Shares, other than any entitlement to the Special Dividend or
to the Centrebet Dividend) will be transferred to TABCORP
Investments, without the need for any further act by any
Scheme Shareholder, by Jupiters effecting a valid transfer or
transfers of the Scheme Shares to TABCORP Investments under
section 1074D of the Corporations Act or, if that procedure is
not available for any reason, by:
(a) Jupiters delivering to TABCORP duly completed and
executed share transfer forms (which may be a master
transfer of all or part of the Scheme Shares) to
transfer all of the Scheme Shares to TABCORP
Investments;
(b) TABCORP Investments executing and delivering the
share transfer forms to Jupiters; and
(c) Jupiters entering the name and address of TABCORP
Investments in the Jupiters Share Register as the
holder of all of the Scheme Shares.
PROVISION OF ORDINARY SHARE SCHEME CONSIDERATION
In consideration for the transfer to TABCORP Investments of
each Scheme Share on the Implementation Date:
(a) TABCORP Investments will pay to each Scheme
Shareholder such amount of cash as is due to that
Scheme Shareholder under clause 5 as Cash
Consideration;
(b) TABCORP will issue to each Eligible Scheme
Shareholder such number of TABCORP Shares as are due
to that Eligible Scheme Shareholder under clause 5 as
Scrip Consideration;
(c) TABCORP will issue to the Sale Agent in accordance
with clause 5.6(a) such number of TABCORP Shares as
are attributable to Ineligible Overseas Shareholders
under clause 5 as Scrip Consideration;
(d) TABCORP Issuer will issue to each Eligible Scheme
Shareholder such number of Centrebet Notes (if any)
as are due to that Eligible Scheme Shareholder under
clause 5.1(c); and
(e) TABCORP Issuer will issue to the Ineligible Note
Trustee in accordance with clause 5.6(b) such number
of Centrebet Notes (if any) as are attributable to
Ineligible Overseas Shareholders under clause 5.1(c).
SCHEME OF ARRANGEMENT
PAYMENT OF SPECIAL DIVIDEND
Jupiters will:
(a) procure that, after the Effective Date and on or
before the Record Date, the Jupiters Board passes the
Special Dividend Resolution, on the basis that the
record date for the Special Dividend is the Record
Date; and
(b) pay to each Scheme Shareholder a cash amount by way
of the Special Dividend in respect of each of their
Scheme Shares.
PAYMENT OF CENTREBET DIVIDEND
If a Centrebet Sale Agreement is entered into by Jupiters and
its relevant Related Entities, and the Centrebet Sale
Completion occurs, on or before 31 October 2003, Jupiters
will:
(a) procure that, after the Effective Date and on or
before the Record Date, the Jupiters Board passes a
resolution to approve the declaration and payment by
Jupiters of the Centrebet Dividend, on the basis that
the record date for the Centrebet Dividend is the
Record Date; and
(b) pay to each Scheme Shareholder a cash amount by way
of the Centrebet Dividend in respect of each of their
Scheme Shares.
ORDINARY SHARE SCHEME CONSIDERATION
FORMS OF ORDINARY SHARE SCHEME CONSIDERATION
Subject to clauses 5.2, 5.6, 5.7 and 5.8, the Ordinary Share
Scheme Consideration in respect of the Scheme Shares held by a
Scheme Shareholder at the Record Date comprises:
$5.25 in respect of each of their Cash Consideration Shares (the CASH
CONSIDERATION);
0.525 TABCORP Shares in respect of each of their Scrip Consideration
Shares (the SCRIP CONSIDERATION); and
(a) if required by clause 5.5, one Centrebet Note in
respect of each of their Scheme Shares.
ELECTION MECHANISM
A Scheme Shareholder may make an Election by:
completing and signing, in accordance with the instructions on it, the
form of election made available for that purpose by Jupiters and included in, or
accompanying, the Scheme Booklet; and
returning the completed and signed form to TABCORP at the address of
the Jupiters Share Registry by the Record Date.
A Scheme Shareholder may make only a Maximum Cash Election or a Maximum
Scrip Election, but not both. An Election may not be withdrawn or revoked. An
Election will be taken to have been made in respect of all of the Scheme
Shareholder's Scheme Shares, whether or not the number of
SCHEME OF ARRANGEMENT
those Scheme Shares is more or less than the number of the Scheme Shareholder's
Jupiters Ordinary Shares at the time of making the Election.
Any purported Election made otherwise than in accordance with clauses
5.2(a) and (b) will not be valid for any purpose and will not be recognised by
TABCORP or Jupiters.
The entitlement to Ordinary Share Scheme Consideration of each Scheme
Shareholder who does not make an Election will not be affected by any Elections
made by other Scheme Shareholders.
ALLOCATION OF CASH CONSIDERATION
The number of Scheme Shares in respect of which a Scheme
Shareholder will be entitled, subject to clause 5.8, to
receive Cash Consideration is (in each case rounded up or down
to the nearest whole number of Scheme Shares, with fractions
of 0.5 rounded up to the nearest whole number of Scheme
Shares):
in the case of a Scheme Shareholder who does not make an Election,
54.286% of their Scheme Shares;
in the case of a Scheme Shareholder who makes a Maximum Scrip Election,
the number of their Scheme Shares other than their Scrip Consideration Shares;
and
in the case of a Scheme Shareholder who makes an Election to receive
Cash Consideration for the maximum possible number of
their Scheme Shares (a MAXIMUM CASH ELECTION), the
lesser of the number of their Scheme Shares and the
number determined in accordance with the formula:
((C - N) / A) x E
where:
C is the amount of cash comprising the Cash
Consideration Cap (which need not be a whole
number);
N is the total amount of cash (which need not
be a whole number) which Scheme Shareholders
who have not made an Election are entitled
to receive as Cash Consideration under the
Ordinary Share Scheme;
A is the amount of cash (which need not be a
whole number) equal to $5.25 multiplied by
the total number of Scheme Shares held by
Scheme Shareholders making Maximum Cash
Elections; and
E is the number of the Scheme Shareholder's
Scheme Shares.
The principle of this clause 5.3 is that, subject to the effects of
rounding, TABCORP Investments will not be obliged under the Ordinary
Share Scheme to pay an aggregate amount as Cash Consideration which is
greater than the Cash Consideration Cap.
ALLOCATION OF SCRIP CONSIDERATION
The number of Scheme Shares in respect of which a Scheme Shareholder
will be entitled, subject to clauses 5.6 and 5.8, to receive Scrip
Consideration is (in each case rounded up or down to the nearest whole
number of Scheme Shares, with fractions of 0.5 rounded up to the
nearest whole number of Scheme Shares):
SCHEME OF ARRANGEMENT
in the case of a Scheme Shareholder who does not make an Election,
45.714% of their Scheme Shares;
in the case of a Scheme Shareholder who makes a Maximum Cash
Election, the number of their Scheme Shares other
than their Cash Consideration Shares; and
in the case of a Scheme Shareholder who makes an Election to receive
Scrip Consideration for the maximum possible number
of their Scheme Shares (a MAXIMUM SCRIP ELECTION),
the lesser of the number of their Scheme Shares and
the number determined in accordance with the formula:
((C - N) / A) x E
where:
C is the number of TABCORP Shares comprising
the Scrip Consideration Cap;
N is the number of TABCORP Shares which Scheme
Shareholders who have not made an Election
are, or would but for the operation of
clause 5.6 be, entitled to receive as Scrip
Consideration under the Ordinary Share
Scheme;
A is the number of TABCORP Shares (which need
not be a whole number) equal to 0.525
multiplied by the total number of Scheme
Shares held by Scheme Shareholders making
Maximum Scrip Elections; and
E is the number of the Scheme Shareholder's
Scheme Shares.
The principle of this clause 5.4 is that, subject to the
effects of rounding, TABCORP will not be obliged under the
Ordinary Share Scheme to issue an aggregate number of TABCORP
Shares which is greater than the Scrip Consideration Cap.
CENTREBET NOTE
If:
(b) a Centrebet Sale Agreement is entered into by
Jupiters and its relevant Related Entities on or
before 31 October 2003, but the Centrebet Sale
Completion does not occur on or before that date; or
a Centrebet Sale Agreement has not been entered into by Jupiters and
its relevant Related Entities on or before 31 October 2003,
TABCORP Issuer will issue the Centrebet Notes in accordance
with clause 5.1(c) and otherwise in accordance with the
Ordinary Share Scheme.
INELIGIBLE OVERSEAS SHAREHOLDERS
TABCORP will be under no obligation under the Ordinary Share Scheme to
issue, and will not issue, any TABCORP Shares to an Ineligible Overseas
Shareholder, and instead:
the TABCORP Shares which would otherwise be required to be issued to
the Ineligible Overseas Shareholder under the Ordinary Share Scheme will be
issued to the Sale Agent;
SCHEME OF ARRANGEMENT
TABCORP will procure that, as soon as reasonably practicable (and in
any event not more than 15 Business Days after the Implementation Date), the
Sale Agent sells on the stock market conducted by ASX all of the TABCORP Shares
issued to the Sale Agent pursuant to clause 5.6(a)(i) in such manner, at such
price and on such other terms as the Sale Agent determines in good faith (and at
the risk of the Ineligible Overseas Shareholder), and remits to TABCORP
Investments the proceeds of sale (after deduction of any applicable brokerage
and other selling costs, taxes and charges) (the PROCEEDS); and
TABCORP Investments will pay to the Ineligible Overseas Shareholder
such fraction of the Proceeds as is equal to the number of TABCORP Shares which
would have been issued to the Ineligible Overseas Shareholder but for the
application of this clause 5.6(a), divided by the total number of TABCORP Shares
issued to the Sale Agent under this clause 5.6(a) in respect of all Ineligible
Overseas Shareholders, promptly after the last sale of TABCORP Shares by the
Sale Agent,
in full satisfaction of TABCORP's obligations to the
Ineligible Overseas Shareholder under the Ordinary Share
Scheme in respect of the Scrip Consideration.
TABCORP Issuer will be under no obligation under the Ordinary Share
Scheme to issue, and will not issue, any Centrebet Notes to an Ineligible
Overseas Shareholder, and instead:
the Centrebet Notes which would otherwise be required to be issued to
the Ineligible Overseas Shareholder under the Ordinary Share Scheme will be
issued to the Ineligible Note Trustee; and
TABCORP Issuer will procure that the Ineligible Note Trustee holds the
Centrebet Notes issued to the Ineligible Note Trustee pursuant to clause
5.6(b)(i) in accordance with, and makes the payments in respect of the Centrebet
Notes which would otherwise have been issued to the Ineligible Overseas
Shareholder but for the application of this clause 5.6(b) that are required by,
the Ineligible Note Deed,
in full satisfaction of TABCORP Issuer's obligations to the
Ineligible Overseas Shareholder under the Ordinary Share
Scheme in respect of the Centrebet Notes.
FRACTIONAL ENTITLEMENTS
If a fractional entitlement to a TABCORP Share arises from the
calculation of the total Scrip Consideration in respect of a Scheme
Shareholder, then any such fractional entitlement:
of less than 0.5 will be rounded down to the nearest whole number of
TABCORP Shares; and
of 0.5 or more will be rounded up to the nearest whole number of
TABCORP Shares.
SHAREHOLDING SPLITTING OR DIVISION
If TABCORP is of the opinion that two or more Scheme Shareholders,
each of whom holds a number of Scheme Shares which results in
rounding in accordance with clause 5.3, 5.4 or 5.7, have, before
the Record Date, been party to shareholding splitting or division
in an attempt to obtain unfair advantage by reference to such
rounding, TABCORP may give notice to those Scheme Shareholders:
setting out the names and Registered Addresses of all of them;
stating that opinion; and
SCHEME OF ARRANGEMENT
(c) attributing to one of them specifically identified in
the notice the Scheme Shares held by all of them,
and, after the notice has been so given, the Scheme
Shareholder specifically identified in the notice will, for
the purposes of the other provisions of this clause 5, be
taken to hold all those Scheme Shares and each of the other
Scheme Shareholders whose names and Registered Addresses are
set out in the notice will, for the purposes of the other
provisions of this clause 5, be taken to hold no Scheme
Shares. Each of TABCORP, TABCORP Investments and TABCORP
Issuer, in complying with the other provisions of this clause
5 relating to it in respect of the Scheme Shareholder
specifically identified in the notice as the deemed holder of
all the specified Scheme Shares, will be taken to have
satisfied and discharged its obligations to the other Scheme
Shareholders named in the notice under the terms of the
Ordinary Share Scheme.
PROVISION OF ORDINARY SHARE SCHEME CONSIDERATION
PAYMENT OF CASH AMOUNTS
The obligations of:
(d) TABCORP Investments to pay the Cash Consideration;
(e) TABCORP Investments to make any payment pursuant to
clause 5.6(a);
(f) Jupiters to pay the Special Dividend; and
(g) Jupiters to pay the Centrebet Dividend,
will be satisfied by TABCORP Investments or Jupiters (as the
case may be):
(h) within five Business Days after the Implementation
Date, in the case of Eligible Scheme Shareholders in
respect of all payments, and in the case of
Ineligible Overseas Shareholders in respect of the
payments referred to in clauses 6.1(c) and (d); or
(i) within the time contemplated (in respect of the
payment referred to in clause 6.1(b)) by clause
5.6(a)(iii), in the case of Ineligible Overseas
Shareholders in respect of the payments referred to
in clauses 6.1(a) and (b),
either, in relation to each Scheme Shareholder:
dispatching, or procuring the dispatch of, a
cheque to the Scheme Shareholder by pre-paid post to
their Registered Address (as at the Record Date),
such cheque being drawn in the name of the Scheme
Shareholder; or
making a deposit in an account with any ADI
(as defined in the Banking Act 1959 (Cth)) in
Australia notified by the Scheme Shareholder to
Jupiters and recorded in or for the purposes of the
Jupiters Share Register at the Record Date,
for the relevant amount, with that amount being denominated in
Australian dollars.
SCHEME OF ARRANGEMENT
PROVISION OF SCRIP CONSIDERATION
(j) The TABCORP Shares to be issued pursuant to the
Ordinary Share Scheme will be validly issued and
fully paid and will rank pari passu in all respects
with all other TABCORP Shares then on issue (other
than in respect of any dividend already declared and
not yet paid by TABCORP, where the record date for
entitlements to that dividend has passed).
(k) The obligation of TABCORP to issue TABCORP Shares to
an Eligible Scheme Shareholder entitled to be issued
TABCORP Shares under the Ordinary Share Scheme will
be satisfied by TABCORP:
on the Implementation Date, causing the name and Registered Address (as
at the Record Date) of that Eligible Scheme Shareholder to be entered in the
TABCORP Share Register as the holder of the TABCORP Shares issued to that
Eligible Scheme Shareholder; and
within five Business Days after the Implementation Date, procuring the
dispatch to that Eligible Scheme Shareholder (if their TABCORP Shares are held
on the issuer sponsored subregister of TABCORP), by pre-paid post to their
Registered Address (as at the Record Date), of an uncertificated holding
statement in the name of that Eligible Scheme Shareholder relating to the number
of TABCORP Shares issued to that Eligible Scheme Shareholder.
(l) Each Scheme Shareholder to whom TABCORP Shares are to
be issued pursuant to the Ordinary Share Scheme
agrees:
to become a member of TABCORP for the purposes of section 231 of the
Corporations Act;
to have their name and address entered in the TABCORP Share Register;
and
to be bound by the constitution of TABCORP as in force from time to
time in respect of the TABCORP Shares.
(m) Except for a Scheme Shareholder's tax file number,
any binding instruction or notification between a
Scheme Shareholder and Jupiters relating to Scheme
Shares at the Record Date (including, without
limitation, any instructions relating to payment of
dividends or to communications from Jupiters) will
from the Record Date be deemed (except to the extent
determined otherwise by TABCORP in its sole
discretion) to be a similarly binding instruction or
notification to, and accepted by, TABCORP in respect
of the TABCORP Shares issued to the Scheme
Shareholder until that instruction or notification is
revoked or amended in writing addressed to TABCORP at
the TABCORP Share Registry. Any such instructions or
notifications accepted by TABCORP will apply to and
in respect of the issue of TABCORP Shares as part of
the Ordinary Share Scheme Consideration only to the
extent that they are not inconsistent with the other
provisions of the Ordinary Share Scheme.
(n) Each Scheme Shareholder, without the need for any
further act, irrevocably appoints TABCORP and each of
its directors and officers, jointly and severally, as
that Scheme Shareholder's attorney and agent for the
purpose of executing any form of application required
for TABCORP Shares to be issued to that Scheme
Shareholder pursuant to the Ordinary Share Scheme.
SCHEME OF ARRANGEMENT
PROVISION OF CENTREBET NOTES
(o) The obligations of TABCORP Issuer to issue Centrebet
Notes to an Eligible Scheme Shareholder under the
Ordinary Share Scheme will be satisfied by TABCORP
Issuer, on the Implementation Date, causing the name
and Registered Address (as at the Record Date) of
that Eligible Scheme Shareholder to be entered in the
register for the Centrebet Notes as the holder of the
Centrebet Notes issued to that Eligible Scheme
Shareholder.
(p) Each Scheme Shareholder to whom Centrebet Notes are
to be issued pursuant to the Ordinary Share Scheme
agrees:
to have their name and address entered in the register for the
Centrebet Notes; and
to be bound by the terms and conditions of issue of the Centrebet Notes
(including the Centrebet Note Deed).
(q) Each Scheme Shareholder, without the need for any
further act, irrevocably appoints TABCORP Issuer and
each of its directors and officers, jointly and
severally, as that Scheme Shareholder's attorney and
agent for the purpose of executing any form of
application required for Centrebet Notes to be issued
to that Scheme Shareholder pursuant to the Ordinary
Share Scheme.
JOINT HOLDERS
In the case of Scheme Shares held in joint names:
(r) any cheque required to be paid to Scheme Shareholders
will be payable to the joint holders; and
(s) any uncertificated holding statements for TABCORP
Shares to be issued to Scheme Shareholders will be
issued in the names of the joint holders,
and be forwarded to the holder whose name appears first in the
Jupiters Share Register at the Record Date.
TRADING OF TABCORP SHARES
TABCORP will use its best endeavours to procure that the
TABCORP Shares to be issued pursuant to the Ordinary Share
Scheme will be quoted on the stock market conducted by ASX
with effect as soon as practicable after the Effective Date,
taking into account the requirements of ASX in connection with
the making of Elections, initially on a deferred settlement
basis and thereafter on an ordinary settlement basis.
DEALINGS IN JUPITERS ORDINARY SHARES
DEALINGS PRIOR TO RECORD DATE
(t) For the purpose of establishing the persons who are
Scheme Shareholders, dealings in Jupiters Ordinary
Shares will only be recognised if:
SCHEME OF ARRANGEMENT
in the case of dealings of the type to be effected using CHESS, the
transferee is registered in the Jupiters Share Register as the holder of the
relevant Jupiters Ordinary Shares by the Record Date; and
in all other cases, registrable transfers or transmission applications
in respect of those dealings are received at the Jupiters Share Registry by the
Record Date.
(u) Jupiters will register registrable transfers or
transmission applications of the kind referred to in
clause 8.1(a)(ii) by the Record Date. Jupiters will
not accept for registration, nor recognise for any
purpose, any transfer or transmission application in
respect of Jupiters Ordinary Shares received after
the Record Date (other than the transfers
contemplated by clause 4.2).
DEALINGS AFTER RECORD DATE
(v) For the purpose of determining entitlements to the
Ordinary Share Scheme Consideration, Jupiters will,
until the Ordinary Share Scheme Consideration has
been provided in accordance with the Ordinary Share
Scheme, maintain or procure the maintenance of the
Jupiters Share Register in accordance with this
clause 8, and the Jupiters Share Register in this
form will solely determine entitlements to the
Ordinary Share Scheme Consideration. Each entry on
the Jupiters Share Register at the Record Date
relating to Scheme Shares will cease to have any
effect other than as evidence of the entitlement to
the Ordinary Share Scheme Consideration, to the
Special Dividend and to the Centrebet Dividend in
respect of those Scheme Shares.
(w) From the Record Date, all certificates and holding
statements for Scheme Shares existing as at the
Record Date will cease to have effect as documents of
title in respect of those Scheme Shares, other than
for the purpose of registering dealings in Jupiters
Ordinary Shares in accordance with clause 8.1.
PROVISION OF INFORMATION
On or before 9.00am on the Implementation Date, Jupiters must
give to TABCORP details of the names, Registered Addresses and
holdings of Scheme Shares of every Scheme Shareholder as shown
in the Jupiters Share Register at the Record Date, such
details to be provided in such form as TABCORP may reasonably
require.
GENERAL SCHEME PROVISIONS
ORDINARY SHARE SCHEME ALTERATIONS AND CONDITIONS
If the Court proposes to approve the Ordinary Share Scheme
subject to any alterations or conditions, Jupiters may, by its
counsel or solicitors but subject to the prior approval of
TABCORP, consent on behalf of all persons concerned to those
alterations or conditions.
COVENANTS BY SCHEME SHAREHOLDERS
Each Scheme Shareholder:
SCHEME OF ARRANGEMENT
(x) agrees to the transfer of their Scheme Shares to
TABCORP Investments, in accordance with the Ordinary
Share Scheme;
(y) without the need for any further act, irrevocably
appoints Jupiters and each of the directors and
officers of Jupiters, jointly and severally, as the
Scheme Shareholder's attorney and agent for the
purpose of executing any document or doing any other
act necessary to give full effect to the Ordinary
Share Scheme and the transactions contemplated by it
(including, without limitation, the provision of a
proper instrument of transfer of the Scheme
Shareholder's Scheme Shares for the purposes of
section 1071B of the Corporations Act (which may be a
master transfer of all or part of the Scheme Shares))
and the communication of the Scheme Shareholder's
instructions and notifications under clause 6.2(d);
and
(z) consents to Jupiters doing all things and executing
all deeds, instruments, transfers and other documents
as may be necessary or desirable to give full effect
to the Ordinary Share Scheme and the transactions
contemplated by it.
STATUS OF SCHEME SHARES
(aa) Each Scheme Shareholder is deemed to have warranted
to TABCORP and to TABCORP Investments that all their
Scheme Shares (including any rights and entitlements
attaching to those shares) transferred to TABCORP
Investments under the Ordinary Share Scheme will, as
at the date of the transfer, be fully paid and free
from all mortgages, charges, liens, encumbrances,
pledges, security interests and other interests of
third parties of any kind, whether legal or
otherwise, and that they have full power and capacity
to sell and to transfer their Scheme Shares
(including any rights and entitlements attaching to
those shares) to TABCORP Investments under the
Ordinary Share Scheme.
(bb) The Scheme Shares transferred to TABCORP Investments
under the Ordinary Share Scheme will be transferred
free from all mortgages, charges, liens,
encumbrances, pledges, security interests and other
interests of third parties of any kind, whether legal
or otherwise, that will bind TABCORP Investments.
(cc) Pending registration by Jupiters of the name and
address of TABCORP Investments in the Jupiters Share
Register as the holder of the Scheme Shares:
TABCORP Investments will be beneficially entitled to the Scheme Shares
transferred to it under the Ordinary Share Scheme; and
each Scheme Shareholder irrevocably appoints TABCORP Investments as its
sole proxy and, where appropriate, its corporate representative to attend
shareholders' meetings of Jupiters, exercise the votes attached to the Scheme
Shares registered in the name of the Scheme Shareholder and sign any
shareholders' resolution of Jupiters, and the Scheme Shareholder may not itself
attend or vote at any such meetings or sign any such resolutions, whether in
person, by proxy or by corporate representative.
SCHEME OF ARRANGEMENT
EFFECT OF ORDINARY SHARE SCHEME
The Ordinary Share Scheme binds Jupiters and all Jupiters
Ordinary Shareholders from time to time and, to the extent of
any inconsistency, overrides the constitution of Jupiters.
NOTICES
Where a notice, transfer, transmission application, direction
or other communication referred to in the Ordinary Share
Scheme is sent by post to Jupiters, it will not be deemed to
be received in the ordinary course of post or on a date other
than the date (if any) on which it is actually received at
Jupiters' registered office or at the Jupiters Share Registry.
FURTHER ASSURANCES
Jupiters will do all things and execute all deeds,
instruments, transfers and other documents as may be necessary
or desirable to give full effect to the Ordinary Share Scheme
and the transactions contemplated by it.
COSTS AND STAMP DUTY
Jupiters will pay the costs of the Ordinary Share Scheme,
except that TABCORP Investments will pay any stamp duty
payable on the transfer by Scheme Shareholders of the Scheme
Shares to TABCORP Investments.
PROPER LAW
The proper law of the Ordinary Share Scheme is the law of
Queensland.
APPENDIX D
CENTREBET NOTE TERMS
CONDITIONS OF THE NOTES
1. GENERAL
STATUS OF NOTES
The Notes constitute direct and unsecured debt obligations of the
Issuer, guaranteed by the Guarantor, and rank equally in all respects
(including as to payment) amongst themselves.
1.1 TERMS OF ISSUE
The Notes are:
redeemable in accordance with Condition 2; and
(a) created under and subject to the Terms of Issue.
Each Noteholder is entitled to the benefit of, and is bound by, the
Terms of Issue.
1.2 DEALINGS
(a) Each of the Notes is transferable in accordance with Condition
8.
(b) Notwithstanding anything else in the Terms of Issue, neither
the Issuer nor the Guarantor is under any obligation to seek
quotation of any or all of the Notes on any stock exchange or
otherwise create or facilitate a market for the Notes.
1.3 ENFORCEMENT
The obligations of the Issuer in respect of each Note constitute
separate and independent obligations which the Note Trustee and,
subject to the Terms of Issue, the Noteholder to which those
obligations are owed are each entitled to enforce independently from
each other Noteholder (and any predecessor in title of a Noteholder).
1.4 TITLE
(a) Subject to the Terms of Issue, the person whose name appears
in the Register as the holder of a Note will be treated by the
Issuer, the Guarantor and the Note Trustee as, and the Issuer,
the Guarantor and the Note Trustee will be entitled to
recognise that person as, the absolute owner of that Note.
(b) The Issuer will not be obliged to enter on the Register notice
of any trust, Encumbrance or other interest whatsoever in
respect of any Note and the Issuer, the Guarantor and the Note
Trustee will not be bound or affected by any trust affecting
the ownership of any Note, unless ordered by a court or
required by statute.
1.5 STATUS OF GUARANTEE
The obligations of the Guarantor in respect of its guarantee under
clause 5 of this deed constitute direct and unsecured obligations of
the Guarantor.
2. REDEMPTION
2.1 CONDITIONS PRECEDENT
The Notes will only be redeemable if each of the Redemption Conditions
is satisfied. If either or both of the Redemption Conditions are not
satisfied:
(a) no obligation to pay the Redemption Amount in respect of any
Note will arise; and
(b) the Notes will automatically lapse on the End Date (or, if a
Sale Agreement has not been entered into on or before the Sale
Deadline, the day immediately following the Sale Deadline) and
will not be redeemable.
2.2 REDEMPTION
If each of the Redemption Conditions is satisfied, the Issuer will, in
accordance with the Terms of Issue, redeem the Notes by paying to each
Noteholder, on the Payment Date and in accordance with Condition 3, the
Redemption Amount in respect of each Note held by the Noteholder as at
5.00pm on the Record Date.
2.3 NOTIFICATION OF AMOUNTS
The Issuer will make, or cause to be made, an announcement to
Australian Stock Exchange Limited specifying the amount of the Net Sale
Proceeds, and the Redemption Amount in respect of each Note, as soon as
practicable (and in any event not later than three Business Days) after
the date of final determination of the amount of the Net Sale Proceeds
in accordance with schedule 3.
2.4 CANCELLATION OF NOTES
All Notes redeemed under Condition 2.2 or lapsing under Condition 2.1
will, upon such redemption or lapse, be cancelled and may not be
reissued.
3. PAYMENTS
3.1 RECORD DATE
The payment of the Redemption Amount in respect of each Note will be
made to the person whose name is entered in the Register as the
Noteholder in respect of that Note as at 5.00pm on the Record Date.
3.2 METHOD OF PAYMENT
Subject to Condition 6.4, any amount (including the Redemption Amount)
payable under or in respect of a Note must be paid in Australian
dollars only:
(a) by payment of cheque marked `not negotiable' and sent through
the post to the address of the Noteholder in the Register, or,
where the Note is held by joint Noteholders, to the address of
the Noteholder whose name stands first in the Register in
respect of the Note; or
(b) by deposit to any account with any ADI (as that expression is
defined in the Banking Act 1959 (Cth)) in Australia as the
Noteholder (or, where the Note is held by joint
Noteholders, the Noteholder whose name stands first in the
Register), by written notice to the Issuer, may direct; or
(c) by any other method of transferring money approved by the
Issuer Board and the Note Trustee from time to time.
Every cheque referred to in clause 3.2(a) will be sent at the risk of
the person entitled to the money represented by the cheque. Payment
will be deemed to have been made when the cheque is posted, the deposit
is made or the transfer is effected (as the case may be) in accordance
with this clause 3.2.
3.3 PAYMENT CONSTITUTES RELEASE
Any payment made by the Issuer or the Note Trustee for the account of a
person whose name is, on the Record Date, entered in the Register as
the holder of a Note constitutes for all purposes an absolute and
unconditional release and discharge of the Issuer, the Guarantor and
the Note Trustee, to the extent of such payment, of all obligations and
indebtedness in respect of the Note under or in respect of which the
payment was made.
3.4 TIME LIMIT FOR CLAIMS
A claim against the Issuer for a payment under or in respect of a Note
is void unless made within five years of the due date for that payment.
3.5 GROSSING UP
All payments under or in respect of a Note will be made free and clear
of, and without withholding or deduction for, any Taxes, unless such
withholding or deduction is required by law. In that event, the Issuer
will:
(a) make the withholding or deduction;
(b) pay in accordance with the relevant law the full amount
withheld or deducted; and
(c) have no obligation to pay to the relevant Noteholder any
additional amounts for or in respect of that withholding or
deduction.
4. RIGHTS ATTACHING TO NOTES
4.1 NO VOTING RIGHTS
The Notes do not carry any right, and Noteholders in that capacity will
not have any right, to vote at any general meeting of the Issuer or of
the Guarantor.
4.2 NO PARTICIPATION RIGHTS
The Notes carry no right for any Noteholder in that capacity to
participate in any offering or issue of securities by the Issuer or the
Guarantor, and each of the Issuer and the Guarantor reserve the right
at all times to offer or issue securities to any person in any manner.
5. NOTE CERTIFICATES
5.1 ISSUE OF NOTE CERTIFICATES
(a) If required by the Corporations Act or if the Issuer so
determines, the Issuer will issue Note Certificates in respect
of the Notes.
(b) If the Issuer issues Note Certificates in respect of the Notes
then, subject to the Terms of Issue, each Noteholder will be
entitled to one Note Certificate for the Notes in respect of
which the Noteholder is registered as the holder. No
Noteholder may waive their entitlement to a Note Certificate.
5.2 DEFACED NOTE CERTIFICATES
Subject to the Terms of Issue, if any Note Certificate becomes defaced
then, on production and delivery of that Note Certificate to the Issuer
together with any other evidence as the Issuer may require, the Issuer
will, subject to the Terms of Issue, cancel that Note Certificate and
issue a new Note Certificate in its place.
5.3 LOST OR DESTROYED NOTE CERTIFICATES
Subject to the Corporations Act and the Terms of Issue, if any Note
Certificate is lost or destroyed then the Issuer will issue a duplicate
Note Certificate in its place on application in writing by the
Noteholder accompanied by:
(a) a statutory declaration or any other evidence that the Issuer
may require that the Note Certificate has been lost or
destroyed and has not been pledged, mortgaged, charged, sold
or otherwise disposed of and, if lost, that proper searches
for that Note Certificate have been made;
(b) an undertaking in writing that if the original Note
Certificate is found or received by the Noteholder, it will be
returned promptly to the Issuer;
(c) payment to the Issuer of such out-of-pocket expenses of the
Issuer as the Issuer Board deems adequate for attending to the
application; and
(d) any other matter or thing which the Issuer reasonably
requires.
5.4 STAMP DUTY
Any stamp, transaction or registration tax or duty payable on a new
Note Certificate issued under Condition 5.2 or 5.3 must be paid by the
Noteholder.
5.5 CANCELLATION OF NOTE CERTIFICATE
The ranking of a Note will in no way be affected by the cancellation of
the Note Certificate in respect of that Note.
5.6 NOTE CERTIFICATE NOT EVIDENCE OF TITLE
A Note Certificate is not evidence of title or ownership of any Notes.
Condition 1.5 applies to the Notes.
JOINT NOTEHOLDERS
5.7 NATURE OF INTEREST
Where two or more persons are registered as the holders of any Notes,
they are considered to hold the Notes as joint tenants with benefits of
survivorship, subject to the terms of this Condition 6.
5.8 LIMIT ON NUMBER OF JOINT NOTEHOLDERS
Subject to Condition 8.4, the Issuer is not bound to register more than
three persons as the holders of any Note.
5.9 LIABILITY FOR PAYMENTS
The joint Noteholders in respect of any Note are liable severally as
well as jointly in respect of all payments which ought to be made by
the joint Noteholders in respect of the Note.
5.10 PAYMENT TO JOINT NOTEHOLDERS
Any one of the joint Noteholders in respect of a Note may give a
receipt for any amount (including the Redemption Amount) payable to the
joint Noteholders, and the payment of any such amount to any one of the
joint Noteholders will be an effective discharge by the Issuer of its
obligations in relation to that Note.
5.11 DEATH OF JOINT NOTEHOLDER
On the death of any one of the joint Noteholders in respect of any
Note, the remaining joint Noteholders will be the only persons
recognised by the Issuer as having any title to the Note, but the
Issuer Board may require evidence of death and the estate of the
deceased joint Noteholder is not released from any liability in respect
of the Note.
5.12 NOTICES AND NOTE CERTIFICATES
Only the person whose name stands first in the Register as one of the
joint Noteholders in respect of any Note is entitled, subject to the
Terms of Issue, to delivery of a Note Certificate relating to the Note
or to receive notices from the Issuer, and any notice given to that
person is considered notice to all the joint Noteholders.
5.13 JOINT ACTION BY JOINT NOTEHOLDERS
Subject to the Terms of Issue, all of the joint Noteholders in respect
of any Note must join in:
(a) any transfer of the relevant Note; or
(b) any application for the replacement of a Note Certificate
which has been lost or destroyed.
NON-RESIDENT NOTEHOLDERS
Where Notes are held by, or on behalf of, a person resident outside the
Commonwealth of Australia, then, despite anything to the contrary
contained in or implied by the Terms of Issue, it is a condition
precedent to any right of the Noteholder:
(c) to receive payment of the Redemption Amount for each of those
Notes; and
(d) to receive payment of any other amount under or in respect of
those Notes,
that all necessary Authorisations are obtained or made, and all other
applicable regulatory requirements are satisfied, at the cost of the
Noteholder.
6. TRANSFER OF NOTES
6.1 METHOD OF TRANSFER
(a) A transfer of any Notes may be effected by a written transfer
in the usual or common form or in any form the Issuer Board
may prescribe or in a particular case accept, properly stamped
(if necessary), being delivered to the Issuer.
(b) A written transfer:
may comprise two or more documents;
(i) subject to the Corporations Act, must be executed by
the transferor and the transferee; and
(ii) must also be endorsed or accompanied by an instrument
executed by the transferee to the effect that the
transferee agrees to accept the Notes subject to the
terms and conditions on which the transferor held
them, to become a Noteholder and to be bound by the
Terms of Issue. Such instrument must be in any form
the Issuer Board may prescribe or in a particular
case accept.
(c) Every transfer must be left for registration at the place
where the Register is maintained or any other place the Issuer
Board determines and notifies to Noteholders by an
announcement made, or caused to be made, by the Issuer to
Australian Stock Exchange Limited. Unless the Issuer Board
otherwise determines either generally or in a particular case,
the transfer is to be accompanied by the Note Certificate (if
any) for the Notes to be transferred. In addition, the
transfer is to be accompanied by any other evidence which the
Issuer Board may require to prove the title of the transferor,
the transferor's right to transfer the Notes, execution of the
transfer or compliance with the provisions of any law relating
to stamp duty.
6.2 TRANSFER OF TITLE
The transferor of a Note is considered to remain the holder of the Note
transferred until the name of the transferee is entered in the Register
in respect of the Note. Upon registration the transferee will have all
the rights and obligations of the transferor, and all of the rights and
obligations of a Noteholder under the Terms of Issue. A transfer of
Notes does not pass the right to any amount payable or any other rights
on the Notes until such registration.
6.3 REFUSAL TO REGISTER
(a) The Issuer Board may refuse to register any transfer of Notes:
(i) where the transfer is not in accordance with
Condition 8.1; or
(ii) on which the Issuer has a lien.
(b) The decision of the Issuer Board relating to the registration
of a transfer is absolute. Failure to give notice of refusal
to register any transfer as may be required under the
Corporations Act does not invalidate the decision of the
Issuer Board.
6.4 LIMIT ON NUMBER OF TRANSFEREES
No transfer of a Note may be made to more than three transferees
jointly unless the transferees are the personal representatives of a
deceased Noteholder who is the transferor of the Note.
6.5 CHARGES FOR TRANSFER
Transfers of Notes will be registered without charge by the Issuer to
the transferor or the transferee.
6.6 STATUS OF DOCUMENTS
(a) Subject to Condition 8.1(c), on each application to register
the transfer of any Notes or to register any person as the
holder in respect of any Notes transmitted to that person by
operation of law or otherwise, the Note Certificate (if any)
specifying the Notes in respect of which registration is
required must be delivered to the Issuer for cancellation and
on registration the Note Certificate is considered to have
been cancelled.
(b) Each transfer which is registered may be retained by the
Issuer for any period determined by the Issuer Board, after
which the Issuer may destroy it. Any transfer which is not
registered will (except in the case of fraud or suspected
fraud) be returned on demand to the person depositing the
transfer.
7. TRANSMISSION ON DEATH OR BY LAW
7.1 TRANSMISSION ON DEATH
The personal representative of a deceased Noteholder (which Noteholder
is not a joint Noteholder) is the only person recognised by the Issuer
as having any title to Notes registered in the name of the deceased
Noteholder. Subject to compliance by the transferee with the Terms of
Issue, the Issuer Board may register any transfer signed by a
Noteholder prior to the Noteholder's death, despite the Issuer having
notice of the Noteholder's death.
7.2 TRANSMISSION BY OPERATION OF LAW
A person (a TRANSMITTEE) who establishes to the satisfaction of the
Issuer Board that the right to any Notes has devolved on the
transmittee by will or by operation of law may be registered as a
holder in respect of the Notes or may (subject to the provisions of the
Terms of Issue relating to transfers) transfer the Notes. The Issuer
Board has the same right to refuse to register the transmittee under
Condition 8.3(a) as if the transmittee was the transferee named in a
transfer presented for registration (provided that the transmittee will
not be required to comply with Conditions 8.1(a) or (b)(i) or (ii)).
8. INDEMNITY TO THE ISSUER
8.1 LIABILITY OF THE ISSUER
Condition 10.2 applies if any law imposes or purports to impose any
immediate or future or possible liability on the Issuer to make any
payment, or empowers any Governmental Agency
to require the Issuer to make any payment, in respect of any Notes held
either jointly or solely by any Noteholder, or in respect of any
transfer of those Notes, or in respect of any money due or payable or
accruing due or which may become due or payable to the Noteholder by
the Issuer under or in respect of any Notes or for or on account or in
respect of any Noteholder, whether because of:
(a) the death of the Noteholder;
(b) the non-payment of any income Tax or other Tax by the
Noteholder;
(c) the non-payment of any estate, probate, succession, death,
stamp or other duty by the Noteholder or a personal
representative of that Noteholder or by or out of the
Noteholder's estate; or
(d) any other act or thing in relation to a Note or the
Noteholder.
8.2 INDEMNITY
In each case referred to in Condition 10.1:
(a) the Issuer is to be fully indemnified, as a continuing
indemnity, against all liability by the Noteholder or the
Noteholder's personal representative and by any person who
becomes registered as the holder of the Notes on the
distribution of the deceased Noteholder's estate;
(b) the Issuer has a lien or charge on the Notes for all money
paid by the Issuer in respect of the Notes under or because of
any law;
(c) the Issuer has a lien on all money payable under or in respect
of the Notes registered in the Register as held either jointly
or solely by the Noteholder for all money paid or payable by
the Issuer in respect of the Notes under or in consequence of
any law, together with interest at a rate the Issuer Board may
reasonably determine from the date of payment by the Issuer to
the date of repayment by the Noteholder, the Noteholder's
personal representative or any person who becomes registered
as the holder of the Notes on the distribution of the deceased
Noteholder's estate, and may deduct from or set off against
any money payable any money paid or payable by the Issuer
together with interest;
(d) the Issuer may recover as a debt due from the Noteholder or
the Noteholder's personal representative, or any person who
becomes registered as the holder of the Notes on the
distribution of the deceased Noteholder's estate, any money
paid by the Issuer under or in consequence of any law which
exceeds any money then due or payable by the Issuer to the
Noteholder, together with interest at a rate the Issuer Board
may determine from the date of payment to the date of
repayment; and
(e) the Issuer may, if any money is paid or payable by the Issuer
under any law, refuse to register a transfer of any Notes by
the Noteholder or the Noteholder's personal representative
until the money and interest is set off or deducted or, in
case the money and interest exceeds the amount of any money
then due or payable by the Issuer to the Noteholder, until the
excess is paid to the Issuer.
8.3 REMEDIES CUMULATIVE
Nothing in Conditions 10.1 and 10.2 affects any right or remedy which
any law confers on the Issuer and any right or remedy is enforceable by
the Issuer whether against the Noteholder or the Noteholder's personal
representative.
9. NOTICES
9.1 NOTICES TO NOTEHOLDERS
Any notice, demand, consent or other communication (a Notice) given or
made under the Terms of Issue by the Issuer, the Guarantor or the Note
Trustee to a Noteholder is valid if delivered by prepaid ordinary post
(airmail if posted to a place outside Australia) or by hand to the
address of the Noteholder specified in the Register (or, in the case of
joint Noteholders, to the address of the Noteholder whose name stands
first in the Register). If the Notice is signed, the signature may be
original or printed.
9.2 NOTICES TO ISSUER, GUARANTOR OR NOTE TRUSTEE
Any Notice from a Noteholder to the Issuer, the Guarantor or the Note
Trustee:
(a) must be in writing and signed by a person duly authorised by
the Noteholder;
(b) must be delivered to the intended recipient by prepaid
ordinary post (airmail if posted from a place outside
Australia) or by hand or fax to the address below or the
address last notified by the intended recipient:
(i) to the Issuer or to the 5 Bowen Crescent
Guarantor: Melbourne Victoria 3000
Attention: The Company Secretary
Fax No: (03) 9868 2726
(ii) to the Note Trustee: Equity Trustees Limited
575 Bourke Street
Melbourne Victoria 3000
Attention: General Manager,
Corporate Trust and RE Services
Fax No: (03) 8623 5300.
9.3 DELIVERY
Subject to the Terms of Issue, a Notice will be taken to be duly given
or made:
(a) in the case of delivery in person, when delivered;
(b) in the case of delivery by post, two Business Days after the
date of posting (if posted to an address in the same country)
or seven Business Days after the date of posting (if posted to
an address in another country); and
(c) in the case of delivery by fax, on receipt by the sender of a
transmission control report from the dispatching machine
showing the relevant number of pages and the correct
destination fax machine number or name of recipient and
indicating that the transmission has been made without error.
9.4 NOTICE TO TRANSFEROR BINDS TRANSFEREE
Every person who, by operation of law, transfer or any other means,
becomes entitled to be registered as the holder of any Notes is bound
by every Notice which, prior to the person's name and address being
entered in the Register in respect of the Notes, was properly given to
the person from whom the person derived title to those Notes.
9.5 SERVICE ON DECEASED NOTEHOLDERS
A Notice delivered in accordance with this Condition 11 is (despite the
fact that the Noteholder is then dead and whether or not the Issuer has
notice of the Noteholder's death) considered to have been properly
delivered in respect of any Notes, whether held solely or jointly with
other persons by the Noteholder, until some other person or persons
(including the surviving joint Noteholders) is or are registered in the
Noteholder's place as the Noteholder or joint Noteholders. The delivery
is sufficient delivery of the Notice on the Noteholder's personal
representative and any persons jointly interested with the Noteholder
in the Notes.
10. GOVERNING LAW AND JURISDICTION
10.1 GOVERNING LAW
The Notes are governed by the laws of Victoria, Australia.
10.2 JURISDICTION
The Issuer and each Noteholder submits to the non-exclusive
jurisdiction of courts exercising jurisdiction in Victoria, Australia
in connection with matters concerning the Notes. The Issuer and each
Noteholder waives any right they have to an action being brought in
those courts, or to claim that the action has been brought in an
inconvenient forum, or to claim those courts do not have jurisdiction.
11. DEFINITIONS AND INTERPRETATION
11.1 DEFINITIONS
In this schedule 1, the following definitions apply unless the context
requires otherwise.
AUTHORISATION means:
(a) any consent, authorisation, registration, filing, lodgement,
permit, franchise, agreement, notarisation, certificate,
permission, licence, approval, direction, declaration,
authority or exemption from, by or with a Governmental Agency;
or
(b) in relation to anything which will be fully or partly
prohibited or restricted by law if a Governmental Agency
intervened or acted in any way within a specified period after
lodgement, filing, registration or notification, the expiry of
that period without intervention or action.
BUSINESS DAY means a day, other than a Saturday, Sunday or public
holiday, on which banks are open for business in Melbourne, Australia.
CORPORATIONS ACT means the Corporations Act 2001 (Cth).
ENCUMBRANCE means any mortgage, pledge, charge, lien, assignment by way
of security, hypothecation, security interest, title retention,
preferential right or trust arrangement and any other security
agreement or security arrangement or any other arrangement having the
same effect as any of the foregoing, of whatever nature, other than
liens arising by operation of law.
END DATE means 30 September 2004.
GOVERNMENTAL AGENCY means a government or a governmental,
semi-governmental or judicial entity or authority. It includes a
self-regulatory organisation established under statute or any stock
exchange.
GUARANTOR means TABCORP Holdings Limited (ABN 66 063 780 709).
ISSUER means TABCORP Issuer Pty Ltd (ABN 72 105 341 366).
ISSUER BOARD means the board of directors of the Issuer from time to
time.
JUPITERS means Jupiters Limited (ABN 78 010 741 045).
NET SALE PROCEEDS has the meaning given in schedule 3.
NOTE means an unsecured note issued by the Issuer on the Terms of Issue
and having no fixed maturity date and for the time being outstanding,
and a reference to a Note that is outstanding as at a particular date
means a Note that has not been redeemed, or otherwise cancelled, prior
to that date.
NOTE CERTIFICATE means a certificate issued by the Issuer in accordance
with Condition 5.
NOTE TRUSTEE means Equity Trustees Limited (ABN 46 004 031 298) or any
replacement appointed under the Terms of Issue.
NOTEHOLDER means, in relation to a Note, the person whose name is
entered in the Register as the holder of that Note from time to time.
PAYMENT DATE means the date which is 5 Business Days after the Record
Date.
RECORD DATE means the date which is 10 Business Days after the date of
final determination of the amount of the Net Sale Proceeds in
accordance with schedule 3.
REDEMPTION AMOUNT means, in relation to each Note, the amount
calculated as follows:
R = P / N
where:
R is the Redemption Amount;
P is the amount of the Net Sale Proceeds; and
N is the total number of fully paid ordinary shares in
Jupiters on issue at the record date for implementation of
the Ordinary Share Scheme.
REDEMPTION CONDITIONS means each of:
(a) Jupiters and its relevant Related Bodies Corporate entering
into a Sale Agreement on or before the Sale Deadline; and
(b) the Sale Completion occurring on or before the End Date.
REGISTER means the register of persons who hold Notes required to be
established and maintained by the Issuer in accordance with this deed
and the Corporations Act.
RELATED BODY CORPORATE means, in relation to a body corporate, a body
corporate which is related to that body corporate within the meaning of
section 50 of the Corporations Act.
SALE AGREEMENT has the meaning given in schedule 3.
SALE COMPLETION has the meaning given in schedule 3.
SALE DEADLINE means 30 June 2004.
TAX means any tax, levy, impost, deduction, charge, rate, duty,
compulsory loan or withholding which is levied or imposed by a
Governmental Agency, and any related interest, penalty, charge, fee or
other amount. It includes GST.
TERMS OF ISSUE means the terms of issue of the Notes, as set out in
this deed (including this schedule 1 and schedules 2 and 3).
11.2 INTERPRETATION
In this schedule 1, headings are for convenience only and do not affect
interpretation, and the following rules apply unless the context
requires otherwise.
(a) The singular includes the plural and conversely.
(b) A gender includes all genders.
(c) If a word or phrase is defined, its other grammatical forms
have a corresponding meaning.
(d) A reference to a person, corporation, trust, partnership,
unincorporated body or other entity includes any of them.
(e) A reference to a Condition is to a condition of this schedule
1, as amended, varied, supplemented, novated or replaced.
(f) A reference to an agreement or document is to the agreement or
document as amended, varied, supplemented, novated or
replaced, except to the extent prohibited by that agreement or
document.
(g) A reference to a person includes a reference to the person's
executors, administrators, successors, substitutes (including
persons taking by novation) and assigns.
(h) A reference to legislation or to a provision of legislation
includes a modification or re-enactment of it, a legislative
provision substituted for it and a regulation or statutory
instrument issued under it.
(i) A reference to $ is to the lawful currency of Australia.
(j) Words and phrases not specifically defined in this schedule 1
have the same meanings (if any) given to them in the
Corporations Act.
(k) A reference to time is a reference to time in Melbourne,
Australia.
(l) If the day on which any act, matter or thing is to be done is
a day other than a Business Day, such act, matter or thing
must be done on the immediately succeeding Business Day.
The meaning of general words is not limited by specific examples introduced by
INCLUDING, or FOR EXAMPLE, or similar expressions.
APPENDIX E
CALCULATION OF NET CENTREBET PROCEEDS
Under the Merger Implementation Agreement, where Centrebet Sale Completion
occurs by 31 October 2003, Jupiters is responsible for calculating the amount of
the Net Centrebet Proceeds. The Merger Implementation Agreement prescribes a
procedure for TABCORP to review, and, if necessary, dispute Jupiters'
calculations. Any dispute that cannot be resolved between TABCORP and Jupiters
will be referred to an expert accountant for determination.
Under the Centrebet Note Deed (which will apply where Centrebet Sale Completion
occurs after 31 October 2003), TABCORP Issuer is responsible for calculating the
amount of the Net Centrebet Proceeds. TABCORP Issuer's calculations are subject
to audit by Ernst & Young.
The amount of the Net Centrebet Proceeds will be determined by:
ADDING - the adjusted purchase price received by the Jupiters
Group under the Centrebet Sale Agreement and any
related assignment documents in respect of the
Centrebet Sale;
- the amount adjusted in favour of the purchaser under
the Centrebet Sale Agreement on account of Centrebet
Business client deposits made before completion;
- the amount adjusted in favour of the purchaser under
the Centrebet Sale Agreement on account of Centrebet
Business wagers which are undecided at completion;
and
- an amount equal to the net profit after tax of the
Centrebet Business from 1 July 2003 to the date of
Centrebet Sale Completion;
SUBTRACTING - the amount of cash forming part of the assets sold
under the Centrebet Sale Agreement, or remaining with
Centrebet in the case of a sale of Centrebet to the
purchaser (except for client deposits and undecided
wagers referred to above);
- the aggregate amount of all costs, taxes and charges
(including income tax, capital gains tax and stamp
duty) incurred or payable by, or which will be
charged back to, the Jupiters Group in connection
with the Centrebet Sale Agreement or in connection
with any restructuring of the assets or liabilities
sold under the Centrebet Sale Agreement, including
costs of advisers, any employee redundancy costs,
costs incurred by the Jupiters Group in terminating
any Centrebet Business contracts that cannot be
transferred to the purchaser, and the net present
value of any further costs likely to be incurred by
the Jupiters Group under or in relation to
termination of any such contracts;
- any amount in excess of $13 million of any
intercompany loans owed by Centrebet or the Centrebet
Business to Jupiters at any time between 12 June 2003
and Centrebet Sale Completion, unless the excess has
been repaid to Jupiters prior to Centrebet Sale
Completion out of cashflow of the Centrebet Business
in excess of the net profit after tax of the
Centrebet Business (referred to as an addition above)
or responsibility for the excess has been assumed by
the purchaser under the Centrebet Sale Agreement; and
- $500,000;
SUBTRACTING - the costs of any expert accountant engaged to resolve
(in the case of any dispute between TABCORP and Jupiters as to the
Centrebet Sale calculation of the Net Centrebet Proceeds, if the
Completion expert accountant determines that adjustments of at
occurring by least $1 million in aggregate are required to be made
31 October 2003) to Jupiters' initial calculations;
SUBTRACTING - $10 million; and
(in the case of - 12% of the excess over $30 million of the amount
Centrebet Sale calculated above (before subtraction of the $10
Completion million).
occurring after
31 October 2003)
APPENDIX F
INDEPENDENT EXPERT'S REPORTS ON THE RPS SCHEME
[PRICEWATERHOUSECOOPERS LETTERHEAD]
The Directors
Jupiters Limited
Level 9
Niecon Tower
17 Victoria Avenue
Broadbeach QLD 4128
4 September 2003
Dear Directors
INDEPENDENT EXPERT'S REPORT IN RELATION TO THE RPS SCHEME
INTRODUCTION
On 5 March 2003, the directors of Jupiters Limited (Jupiters) and TABCORP
Holdings Limited (TABCORP) jointly announced a proposal to create Australia's
largest gambling and entertainment company through the Proposed Merger of
Jupiters and TABCORP.
The Proposed Merger is to be implemented by way of TABCORP Investments, a wholly
owned subsidiary of TABCORP, acquiring all of the ordinary shares in Jupiters
and will be effected by a Scheme of Arrangement between Jupiters and the holders
of Jupiters Ordinary Shares (Ordinary Share Scheme). Jupiters will also propose
a scheme for the holders of Jupiters RPS (RPS Scheme).
The RPS Scheme is conditional upon the Ordinary Share Scheme becoming effective.
The Ordinary Share Scheme (which will establish the merger of Jupiters and
TABCORP) is not conditional upon the RPS Scheme becoming effective.
The details of the Proposed Merger are embodied in the Merger Implementation
Agreement dated 12 June 2003, which sets out the main terms and conditions of
the merger, as well as the process leading to the approval of the Schemes of
Arrangement.
In summary, the Proposed Merger is conditional upon various regulatory
approvals, including the Queensland Government, approval of the Supreme Court of
Queensland, approval of Jupiters Ordinary Shareholders, TABCORP's financing
facilities becoming unconditional and certain prescribed events not occurring.
SHAREHOLDER APPROVAL
Pursuant to the MIA, Jupiters must propose the Schemes of Arrangement in
accordance with Part 5.1 of the Corporations Act. Details of each Scheme are
contained in the Scheme Booklet which has been approved by the Court, registered
with the Australian Securities & Investments Commission (ASIC) and in which this
letter and accompanying report are enclosed.
2
[PRICEWATERHOUSECOOPERS LOGO]
Relevant shareholders will be asked to vote on the Schemes at meetings ordered
by the Court under section 411(1) of the Corporations Act.
In making their decision as to whether they should accept the RPS Scheme, the
RPS holders need to compare the benefits of approving the RPS Scheme against the
benefits offered by other alternatives available to them.
INDEPENDENT EXPERT'S REPORT
To assist RPS holders in their decision whether to approve the RPS Scheme, the
Jupiters directors have requested PricewaterhouseCoopers Securities Ltd (PwCS)
to prepare this Independent Expert's Report addressing whether or not the RPS
Scheme is fair and reasonable and in the best interests of RPS holders. This
letter contains our opinion which is based on the evaluation criteria and
analysis set out in the accompanying Independent Expert's Report.
In developing our evaluation criteria for the meaning of "best interests" and
"fair and reasonable", we have considered precedents, as well as the policy and
practice statements issued by the Australian Securities and Investments
Commission (ASIC). In our view, the criteria we have applied for assessing best
interests incorporates the fair and reasonable tests embodied in the
Corporations Act and in ASIC's policy statements.
Our approach, decision criteria and evaluation process in relation to the
interests of the RPS holders are set out in the attached report. Our report is
directed at the interests of the RPS holders and therefore we do not directly
consider the interests of the Jupiters Ordinary Shareholders in the report. A
separate report has been prepared on the Ordinary Share Scheme.
TERMS OF THE RPS SCHEME
Under the RPS Scheme, TABCORP Investments will offer to acquire all the RPS,
paying for each RPS held:
(a) cash of $105.26, and
(b) an additional cash amount equal to the dividend accrued up to
the Implementation Date for the RPS Scheme.
RIGHTS OF THE RPS
The RPS were issued under a Prospectus dated 28 February 2002. The RPS are 10
year redeemable preference shares that entitle holders to a cumulative unfranked
dividend. The terms of the RPS are resettable on 9 April 2007 and have a
maturity date of 6 April 2012. The RPS rank in priority to ordinary shares for
payment of dividends and for a return of capital on a winding up of Jupiters.
The RPS pay an unfranked cumulative dividend of 8.15% per annum, payable half
yearly on 9 April and 9 October.
The terms and conditions of the RPS provide that holders of RPS may request
early conversion to Jupiters Ordinary Shares in prescribed circumstances,
including where a Scheme of Arrangement takes place (Trigger Event). On receipt
of a conversion notice, Jupiters has the option of either converting the RPS
into Jupiters Ordinary Shares, redeeming the RPS or arranging for their sale to
a third party. If the RPS are redeemed or on-sold, Jupiters is required to
ensure the holders of RPS are paid a cash amount set out in clause 8(a) of the
RPS Terms (Repurchase Amount) together with any outstanding dividends.
The calculation for the Repurchase Amount is the greater of:
(a) $100 + (25% of Premium over VWAP x Conversion Minimum); or
3
[PRICEWATERHOUSECOOPERS LOGO]
(b) VWAP on Conversion Date x Conversion Minimum.
We note that the Repurchase Amount is approximately 5% below the value which
would accrue from the Conversion option. In our view the Repurchase right held
by Jupiters places a limiting value on the RPS. The incorporation of a discount
in the Repurchase Amount is designed to produce a consistent value outcome with
proceeds under the Conversion option. The Conversion option would require a
premium to the cash amount to compensate holders for transaction costs that
would be incurred in realising the value of the ordinary shares received and the
timing risk over the period between exercising the Conversion option and
receiving the shares.
Each of the components of the Repurchase Amount calculations are briefly
discussed below.
PREMIUM OVER VWAP
The Premium over VWAP represents the difference between the Offer Price and the
VWAP of Jupiters Ordinary Shares over the 20 business days immediately preceding
the announcement of the Scheme of Arrangement.
The Offer Price is the value of the consideration to be received by Jupiters
Ordinary Shareholders under the Scheme of Arrangement. It is defined as:
(a) the cash consideration offered (as at the date when the
conversion notice is given) in respect of each Jupiters
Ordinary Share under the Ordinary Share Scheme; and
(b) if the consideration offered for each ordinary share includes
any amount which is not cash, the value of the non-cash
consideration as determined by an independent expert appointed
by the directors proposed at the time of announcement of the
Scheme of Arrangement or, if the non-cash consideration has
been increased after announcement, the date of the most recent
increase prior to the date when the conversion notice is
given.
The consideration offered to ordinary shareholders includes non cash
consideration in the form of TABCORP shares and franking credits.
In valuing the TABCORP shares, we have adopted the date of announcement of the
Ordinary Share Scheme as being 5 March 2003. We have calculated the midpoint of
the range of value of the consideration at the date of announcement as being
$6.35. This amount differs from the mid point of the range of value of the
consideration in our Independent Expert's Report for the Ordinary Share Scheme
as that value is at the date of that report, which is 4 September 2003, whereas
under the RPS terms the value at the date of announcement is to be used as the
value of the consideration.
The VWAP of Jupiters Ordinary Shares over the 20 business days immediately
preceding the announcement of the scheme of arrangement was $6.31, and therefore
the premium over VWAP is $0.04.
CONVERSION MINIMUM
The Conversion Minimum for the purposes of calculating the Repurchase Amount has
been set under the terms of the RPS at 15.5324.
VWAP ON CONVERSION DATE
The VWAP on Conversion Date is the VWAP for the Jupiters Ordinary Shares for 20
days prior to the Conversion Date. The Conversion Date will be 50 business days
after the notification of a Trigger Event.
4
[PRICEWATERHOUSECOOPERS LOGO]
Hence the VWAP will be for a period 30 to 50 business days after the
notification of the Trigger Event. For the purposes of reaching our opinion, we
have taken the best estimate of the VWAP on Conversion Date as being the
midpoint of our valuation of consideration to be paid to Jupiters Ordinary
Shareholders which is $6.51, or approximately 1.1% below trading levels for
Jupiters Ordinary Shares at 1 September 2003. Again, the value of $6.51 differs
from the value of $6.35 used to calculate the premium over VWAP as the $6.51
value is at the date of our Independent Expert's Report for the Ordinary Share
Scheme, whereas the $6.35 is at the date of announcement.
BASIS OF EVALUATION
The release of our report on the Ordinary Share Scheme to ASX represents a
Trigger Event under which certain rights crystallise for the RPS holders
pursuant to the RPS terms. These are discussed more fully at Section 4 and are
outlined in the Scheme Booklet. In summary, the potential outcomes for RPS
holders include:
- - remaining as RPS holders. This may occur if the RPS Scheme is not
approved and no Conversion Right is exercised.
- - receiving the Repurchase Amount as defined in the RPS terms, as a
result of the exercise of the Trigger Event Conversion Right which
arises as a result of the Trigger Event. The Conversion Right is
exercised in the knowledge that Jupiters has the option to exercise its
over-riding right to repurchase the RPS or arrange their sale to a
third party.
- - receiving the cash amount payable on the exercise of a Special
Conversion Right which is available to RPS holders at any time.
- - approving the RPS Scheme and accepting the offer from TABCORP.
Essentially, we have applied four criteria to assess whether the RPS Scheme is
fair and reasonable and is in the best interests of Jupiters RPS holders:
(a) Does the RPS Scheme offer fair value to RPS holders? In
comparing the offer to the fair value of the RPS, we have
given consideration to:
(i) the value of holding the RPS to maturity
the value of exercising the Conversion Right, in light of the right of
Repurchase option which exists for Jupiters; and the value of approving the RPS
Scheme.
(b) Will RPS holders be better off after the transaction?
(c) Is the Proposed Merger the best alternative available?; and
(d) Is it reasonable for RPS holders to approve the terms of the
RPS Scheme?
OPINION
29 In our opinion, the RPS Scheme IS FAIR AND REASONABLE AND IN THE BEST
INTERESTS OF RPS HOLDERS. Our reasons for this opinion are summarised as
follows:
(a) THE CONSIDERATION OFFERED OF $105.26 IS FAIR, because on our
assessment it is not less than the value available to a RPS
holder either through continuing to hold the RPS or exercising
the Conversion Right arising from the RPS Scheme:
5
[PRICEWATERHOUSECOOPERS LOGO]
(i) the value of holding the RPS is estimated at $103.77.
This value is the mid point of the trading range for
the 20 trading days prior to the announcement of the
Proposed Merger (after adjusting for accrued
interest).
(ii) the repurchase value of the RPS which is estimated as
$100.16 based on RPS holders receiving $100 plus a
portion of the Premium over VWAP. The alternative leg
to the repurchase calculation is based on a 20 day
VWAP of Jupiters Ordinary Shares at the Conversion
Date. Based on our assessment of the consideration
being offered to Jupiters shareholders as being $6.51
we estimate the result of this calculation at
$101.12.
(iii) the VWAP of Jupiters shares prior to the Conversion
date must exceed $6.77 before the Repurchase Amount
exceeds $105.26. On 1 September 2003 Jupiters
Ordinary Shares closed at $6.58, although this is cum
$0.12 dividend that will be paid before the VWAP
calculation period commences and therefore will not
be included in the Jupiters VWAP calculation. We have
placed an upper value of $6.85 on the consideration
to be provided to each of the Jupiters Ordinary
Shareholders for their ordinary shares. Hence, while
it is possible Jupiters Ordinary Shares could trade
above $6.77, given the trading history, we do not
consider it likely that Jupiters Ordinary Shares will
trade at a VWAP significantly above $6.77 for 20 days
prior to the Conversion date. Our upper value
includes an assumed realisation value for Centrebet
which, at the time of writing, is uncertain. We
recommend RPS holders monitor the trading range of
Jupiters Ordinary Shares prior to making any election
whether to convert the RPS. To the extent the market
assumes the Ordinary Share Scheme will become
effective, the factors likely to influence the
Jupiters VWAP will be the TABCORP share price and the
market expectation as to the Net Centrebet Proceeds.
if RPS holders were able to exercise the Conversion Right with no right of
repurchase for Jupiters, we calculate the value of the Conversion Right to be
$107.94. Whilst this is in excess of the $105.26 offered under the RPS Scheme,
the Conversion Right triggers the Jupiters Repurchase Right. The RPS terms
provide that Jupiters has the right to repurchase the RPS where a holder
requests a conversion to ordinary shares, and the Merger Implementation
Agreement contains an undertaking by Jupiters to TABCORP that it will exercise
this right. In our view, the Repurchase Amount places a limitation on the value
of the Conversion Right. RPS holders may exercise a Special Conversion Right,
however under that alternative, the RPS holder receives no benefit for accrued
dividends. We therefore are of the view it is likely the amount payable under
the Special Conversion Right would be less than any amount payable under the
Trigger Event Conversion Right. In addition, given our conclusion as to the
fairness of the current offer, should TABCORP compulsorily acquire RPS at some
point in the future, in the absence of a fundamental change to market
conditions, we have no reason to expect TABCORP would be required to pay an
amount in excess of $105.26.
(b) RPS HOLDERS WILL BE BETTER OFF AFTER THE SCHEME, because they
will have received an amount of cash that has a higher value
than any of the alternatives.
(c) THE PROPOSED MERGER IS THE BEST ALTERNATIVE AVAILABLE because
it delivers most value to RPS holders. A better alternative
could only be received if there was a higher bid for Jupiters
shares or the VWAP of Jupiters Ordinary Shares prior to the
Conversion Date exceeds $6.77. We do not believe this is
likely because:
(ii) the Proposed Merger offers greater value and benefits
than the alternative proposal to merge with UNiTAB
no alternative offers have been received, and, in any case, we are of the view
that the Proposed Merger values Jupiters with a full control premium, therefore
we would not expect a materially higher price to be paid by an alternative
acquirer; and
6
[PRICEWATERHOUSECOOPERS LOGO]
given the trading history of Jupiters Ordinary Shares, we do not consider it
likely that Jupiters Ordinary Shares will trade at a VWAP significantly above
$6.77 for 20 days prior to the Conversion Date. We recommend RPS holders monitor
the trading range of Jupiters Ordinary Shares prior to making any election
whether to convert the RPS. To the extent the market assumes the Ordinary Share
Scheme will become effective, the factors likely to influence the VWAP of
Jupiters Ordinary Shares will be the TABCORP share price and the market
expectation as to the Net Centrebet Proceeds.
(d) IT IS REASONABLE FOR RPS HOLDERS TO APPROVE THE RPS SCHEME,
because of the combination of the above factors.
30 FOR THE REASONS SET OUT ABOVE, IN OUR OPINION, RPS HOLDERS SHOULD
APPROVE THE RPS SCHEME RESOLUTION.
7
[PRICEWATERHOUSECOOPERS LOGO]
GENERAL
31 THE FULL ANALYSIS AND REASONING FOR OUR OPINION IS SET OUT IN THE
ACCOMPANYING REPORT.
Yours sincerely
/s/ Ron Higham /s/ Andrew Wellington
Ron Higham Andrew Wellington
Director and Authorised Representative Authorised Representative
PricewaterhouseCoopers Securities Ltd
8
[PRICEWATERHOUSECOOPERS LOGO]
INDEPENDENT EXPERT'S REPORT
PREPARED FOR THE DIRECTORS OF JUPITERS LIMITED IN RELATION TO THE RPS SCHEME
PROPOSED AS PART OF THE MERGER WITH TABCORP HOLDINGS LIMITED
4 SEPTEMBER 2003
[PRICEWATERHOUSECOOPERS LOGO]
TABLE OF CONTENTS
- ------------------------------------------------------------------------------------------
SECTION TITLE PAGE
- ------------------------------------------------------------------------------------------
1 INTRODUCTION AND PURPOSE OF OUR REPORT 3
2 DETAILS OF THE PROPOSED MERGER 4
2A Scheme of Arrangement for RPS
2B Scheme of Arrangement for Ordinary Shares
2C Resolutions
3 BASIS OF OUR EVALUATION 8
4 THE VALUE OF THE RPS 9
4A Value of continuing to hold RPS
4B Value under Repurchase Right
4C Value under Trigger Event Conversion Right
4D Value under Special Conversion Right
4E Fairness Conclusion
5 OPPORTUNITIES FOR A HIGHER VALUE 17
5A Merger with UNiTAB
5B Other potential suitors
5C VWAP of Jupiters Ordinary Shares
6 IS IT REASONABLE FOR RPS HOLDERS TO APPROVE THE RPS SCHEME? 21
- ------------------------------------------------------------------------------------------
APPENDICES
- ------------------------------------------------------------------------------------------
A Qualifications, disclaimers and consents 22
B Sources of information 24
C The Merger Consideration for Jupiters Ordinary Shares 25
D Value of Centrebet 29
E Glossary of terms 36
- ------------------------------------------------------------------------------------------
10
[PRICEWATERHOUSECOOPERS LOGO]
Introduction and purpose of our report
On 5 March 2003, the directors of Jupiters and TABCORP jointly announced the
Proposed Merger of Jupiters and TABCORP.
The Proposed Merger is to be implemented by way of TABCORP Investments, a wholly
owned subsidiary of TABCORP, acquiring all of the Ordinary Shares in Jupiters
and will be effected by a Scheme of Arrangement between Jupiters and the holders
of Jupiters Ordinary Shares (Ordinary Share Scheme). Jupiters will also propose
a scheme for the holders of Jupiters RPS (RPS Scheme).
The Proposed Merger is conditional upon the Ordinary Share Scheme becoming
effective, but is not conditional upon the RPS Scheme becoming effective. The
RPS Scheme is conditional on the Ordinary Share Scheme becoming effective.
The details of the Proposed Merger are embodied in the MIA dated 12 June 2003
which sets out the terms and conditions of the merger, as well as the process
leading to the approval of the Schemes of Arrangement. In summary, the Proposed
Merger is conditional upon various regulatory approvals, approval of the
Queensland Government, approval of the Supreme Court of Queensland, approval of
Jupiters Ordinary Shareholders, TABCORP's financing becoming unconditional and
certain prescribed events not occurring.
Pursuant to the MIA, Jupiters must propose the Schemes of Arrangement in
accordance with Part 5.1 of the Corporations Act. Details of each Scheme are
contained in the Scheme Booklet which has been approved by the Court, registered
with the Australian Securities & Investments Commission (ASIC) and in which this
report is enclosed. Relevant shareholders will be asked to vote on the Schemes
at meetings ordered by the Court under section 411(1) of the Corporations Act.
To assist Jupiters RPS holders in their decision whether to approve the RPS
Scheme, the Jupiters directors have requested PwCS prepare this Independent
Expert's Report addressing whether or not the RPS Scheme is fair and reasonable
and in the best interests of RPS holders. We therefore do not directly consider
the interests of the Jupiters Ordinary Shareholders in this report.
Our approach, decision criteria and evaluation process in relation to the
interests of the RPS holders are set out in the succeeding Sections of this
report. Users of this report should have regard to the qualifications,
disclaimers and consents contained in Appendix A. All amounts referred to in
this report are in Australian dollars, unless otherwise specifically stated.
Abbreviations and definitions are contained in the Glossary of Terms at Appendix
E.
11
[PRICEWATERHOUSECOOPERS LOGO]
Details of the Proposed Merger
The terms of the Proposed Merger are described in the accompanying Scheme
Booklet. For convenience, we have summarised the terms and effects of the
Proposed Merger in the following paragraphs.
If approved, the essential outcome of the Schemes of Arrangement will be that:
- - TABCORP Investments will acquire all the outstanding Jupiters Ordinary
Shares and RPS and all of the executive options in Jupiters will be
cancelled, making Jupiters a wholly owned subsidiary of TABCORP, and
- - as part of the consideration offered under the Ordinary Share Scheme
comprises TABCORP shares, Jupiters Ordinary Shareholders will most
likely hold shares in the merged TABCORP, thereby retaining an indirect
but diluted interest in Jupiters.
The release of our report in relation to the Ordinary Share Scheme to ASX is an
event which represents a Trigger Event under the RPS terms. As discussed more
fully below, this provides RPS holders with the opportunity to deliver a Trigger
Event Conversion notice which, at Jupiters' election, will result in the RPS
being either converted into ordinary shares, on-sold to a third party or
redeemed. Jupiters has agreed with TABCORP in the Merger Implementation
Agreement that it will sell any such RPS to TABCORP Investments, a wholly owned
subsidiary of TABCORP, for the Repurchase Amount. The RPS terms provide a
formula for calculation of the Repurchase Amount.
In evaluating the TABCORP offer for their RPS, the RPS holders will need to
compare this offer to the value which resides in the right to convert, which is
in turn subject to Jupiters' right to arrange that the RPS be sold to a third
party or redeemed, as well as compare it to the value of continuing to hold the
RPS.
The quantum of the Repurchase Amount depends on the extent to which the value of
consideration offered to ordinary shareholders exceeds the trading range of
Jupiters Ordinary Shares pre-announcement of the merger and the likely trading
range of Jupiters Ordinary Shares for a period prior to the sale of RPS to
TABCORP Investments. We therefore describe below the Proposed Merger and the
nature and value of consideration to be paid to ordinary shareholders.
2A SCHEME OF ARRANGEMENT FOR RPS
Under the RPS Scheme, TABCORP Investments will acquire all the RPS, paying for
each RPS held:
- - cash of $105.26, plus
- - an additional cash amount equal to the dividend accrued up to the
Implementation Date for the RPS Scheme
The release of our report in relation to the Ordinary Share Scheme to ASX
represents a Trigger Event under which certain rights crystallise for the RPS
holders pursuant to the Jupiters RPS terms. These are discussed more fully at
Section 4 and are outlined in the Scheme Booklet. In summary, the potential
outcomes for RPS holders include:
- - remaining as RPS holders. This may occur if the RPS Scheme is not
approved and no Conversion Right is exercised
12
[PRICEWATERHOUSECOOPERS LOGO]
Section 2: Details of the Proposed Merger
- - receiving the Repurchase Amount as defined in the RPS terms as a result
of exercise of the Trigger Event Conversion Right which arises as a
result of the Trigger Event. The Conversion Right is exercised in the
knowledge that Jupiters has the option to exercise its over-riding
right to repurchase the RPS or arrange their sale to a third party
- - receiving the cash amount payable on the exercise of a Special
Conversion Right which is available to RPS holders at any time
- - approving the RPS Scheme and accepting the proposal from TABCORP.
We have considered the impact of these alternatives in our assessment of the
TABCORP offer.
2B SCHEME OF ARRANGEMENT FOR ORDINARY SHARES
CONSIDERATION OFFERED
The consideration offered to the ordinary shareholders will determine the "Offer
Price" under the RPS terms and the amount by which the Offer Price exceeds the
VWAP over the 20 business days immediately preceding the announcement of the
Scheme of Arrangement ("Premium over VWAP"), both of which are variables which
influence the value received pursuant to a Trigger Event conversion notice. We
have therefore described the Ordinary Share Scheme proposal in some detail.
Under the Proposed Merger, Jupiters Ordinary Shareholders will ultimately
receive, for their Jupiters Ordinary Shares, a combination of cash and shares
(with limited exceptions). It is important to note that the consideration
comprises a component of cash and shares to be provided by the TABCORP Group
directly, another component being delivered by Jupiters in the form of a special
dividend, and a further component relating to the Net Centrebet Proceeds from
the sale of Jupiters' Centrebet business, which may be provided by the TABCORP
Group or by Jupiters.
The salient aspect for Jupiters Ordinary Shareholders, which is addressed in our
Independent Expert's Report on the Ordinary Share Scheme, is whether the total
consideration offers sufficient value to compensate them for the disposal of
their ordinary shares in Jupiters. For the purposes of our report, the total
consideration reflects the aggregate entitlements under the Ordinary Share
Scheme as set out in the Scheme Booklet.
The cash and shares component of the TABCORP consideration is set out in the
Scheme Booklet and is described as a cash amount and quantum of TABCORP shares
for each 100 Jupiters Ordinary Shares held (subject to the effects of rounding).
Throughout our report we have converted the offer to an equivalent cash amount
and quantum of TABCORP Shares for one Jupiters Ordinary Share, to allow
comparison to the value of one Jupiters Ordinary Share.
Leaving aside the proceeds from the sale of the Centrebet business, the
consideration from the TABCORP Group, for each Jupiters Ordinary Share held, is
(on average):
- - 0.24 shares in TABCORP, and
- - $2.85 in cash.
13
[PRICEWATERHOUSECOOPERS LOGO]
Section 2: Details of the Proposed Merger
Leaving aside the proceeds from the sale of the Centrebet business, the
component of consideration from Jupiters, for each Jupiters Ordinary Share held,
is $0.75 in cash via payment of a fully franked special dividend.
Additional consideration is provided for in relation to the sale of the
Centrebet business:
- - if the sale of Centrebet completes before 31 October 2003, the
consideration will be the Net Centrebet Proceeds from Jupiters by way
of a fully franked dividend; or
- if the sale of Centrebet completes after 31 October
2003, the consideration will be an unsecured note from TABCORP
Issuer under which TABCORP Issuer will pay the value of the
Net Centrebet Proceeds to Jupiters Ordinary Shareholders when
such proceeds are received; or
- should a sale agreement for the sale of Centrebet not
be entered into by 30 June 2004 or not be completed by 30
September 2004, provided TABCORP has exercised reasonable
endeavours to sell Centrebet, the notes will lapse and TABCORP
will have no further obligation to sell Centrebet or account
to Jupiters Ordinary Shareholders for any proceeds received.
The TABCORP shares, unsecured notes and franking credits represent a non-cash
component of the total consideration and our Independent Expert's Report on the
Ordinary Share Scheme addresses the value of these, as well as the value of the
other components of consideration.
The Ordinary Share Scheme will allow Jupiters Ordinary Shareholders to elect to
receive varying amounts of cash and shares from the TABCORP Group as follows:
Option 1: Cash and shares - 0.24 TABCORP shares plus $2.85
for each Jupiters Ordinary Share held (this is the base
offer as described above, and is subject to the effects of
rounding described in the Scheme Booklet).
Option 2: Maximum cash - Jupiters Ordinary Shareholders may
elect to receive an additional cash payment of up to $2.40
per Jupiters Ordinary Share in lieu of TABCORP shares. This
option is limited to the extent cash is available from a
cash pool of approximately $575 million (as adjusted for
the exercise of executive options in Jupiters).
Option 3: Maximum shares - Jupiters Ordinary Shareholders
may elect to receive up to an additional 0.285 shares in
TABCORP per Jupiters Ordinary Share in lieu of cash. This
option is limited to the extent the shares are available
from a share pool of approximately 48.4 million shares (as
adjusted for the exercise of executive options in
Jupiters). Any fractional entitlement to a TABCORP share
will be rounded up or down to the nearest whole number of
TABCORP shares.
Effectively, as both the cash paid and shares issued will reach their respective
pool limits if all shareholders chose the `average' of $2.85 and 0.24 TABCORP
shares for each Jupiters Ordinary Share, additional cash and shares will only be
available to the extent some ordinary shareholders elect to take different
mixtures of cash and shares.
14
[PRICEWATERHOUSECOOPERS LOGO]
Section 2: Details of the Proposed Merger
CENTREBET DIVESTMENT
The MIA provides that Jupiters will use all reasonable endeavours to dispose of
the Centrebet business prior to 31 October 2003. The net proceeds of such a sale
are to be distributed to Jupiters Ordinary Shareholders as additional
consideration under the Ordinary Share Scheme. As discussed in Appendix D the
process for selling the Centrebet business is well advanced at the date of this
report.
At the date of this report, the quantum of the Net Centrebet Proceeds is
uncertain. For the purposes of this report, we have made an estimate of this
amount and this is contained in Appendix D. This estimate is not material to our
opinion, in that the value of the consideration will eventually be determined by
the actual net proceeds, subject to the rider in the next paragraph.
The Proposed Merger covers the contingency that the Centrebet business may not
be disposed of prior to 31 October 2003 in which case TABCORP Issuer will issue
an unsecured note to Jupiters Ordinary Shareholders as part of the consideration
under the Ordinary Share Scheme. In this event, the TABCORP Group will assume
responsibility for the disposal of the Centrebet business, under the control of
a committee comprising a TABCORP director and the two Jupiters directors who
will join the TABCORP board. Overall, the Proposed Merger contemplates the
following scenarios for Centrebet with varying outcomes for Jupiters Ordinary
Shareholders as follows:
- - if the sale is completed prior to 31 October 2003, 100% of the Net
Centrebet Proceeds will be distributed (as discussed above)
- - if the sale contract is not completed by 31 October 2003, but a sale
agreement is entered into by 30 June 2004 and completed by 30 September
2004, TABCORP will retain the first $10 million of the net proceeds
plus 12% of net proceeds in excess of $30 million and the balance of
the net proceeds will be distributed to Jupiters Ordinary Shareholders
via redemption of the Centrebet Note to be issued
- - if an agreement to sell the Centrebet business has not been entered
into by 30 June 2004, or if the Centrebet business is not sold by 30
September 2004 it will remain a part of the TABCORP Group (subject to
certain restrictions) and Jupiters Ordinary Shareholders will not have
any economic interest in it other than as TABCORP shareholders.
2C RESOLUTIONS
Jupiters Ordinary Shareholders and RPS holders will be asked to vote on the
respective Schemes in accordance with the resolutions contained in the Scheme
Booklets. The RPS Scheme is conditional upon the Ordinary Share Scheme becoming
effective.
The Ordinary Share Scheme is not conditional on the RPS Scheme becoming
effective. If the resolutions are passed by the relevant majorities, Jupiters
must apply to the Court for orders approving the relevant Scheme(s), and if that
approval is given, lodge the orders with ASIC and do all things necessary to
give effect to the relevant Schemes.
15
[PRICEWATERHOUSECOOPERS LOGO]
Basis of our evaluation
Jupiters has asked the Independent Expert to form an opinion as to whether the
RPS Scheme is fair and reasonable and is in the best interests of RPS holders.
In developing our "best interests" and "fair and reasonable" evaluation criteria
for the RPS Scheme, we have considered the terms of the RPS and the options of
the RPS holders under those terms and the RPS Scheme.
We have also had regard to the relevant Policy Statements and Practice Notes
issued by the ASIC. In particular, we have had regard to Policy Statement 75:
Independent Expert Reports to Shareholders, and Practice Note 43: Valuation
Reports and Profit Forecasts. Policy Statement 75 states that:
- - a transaction is "fair" if the value of the consideration offered is
equal to or greater than (that is not less than) the value of the asset
or assets which are the subject of the transaction
- - a transaction is "reasonable" if it is fair. It may also be reasonable
if, despite not being fair, after considering other significant
factors, shareholders should accept the terms of the transaction.
In our view, for the RPS Scheme to be fair and reasonable and in the best
interests of RPS holders, it must be capable of satisfying four key criteria:
- - DOES THE RPS SCHEME OFFER FAIR VALUE TO RPS HOLDERS? This involves a
comparison of the total value of the consideration being offered to the
value of RPS being given up. If the total value of the consideration
offered is not less than the value of RPS the transaction will offer
fair value
- - WILL RPS HOLDERS BE BETTER OFF AFTER THE TRANSACTION? As the RPS
holders are simply receiving cash for the RPS, the RPS holders will be
better off after the transaction if the first test is satisfied, that
is the cash received exceeds the value of the RPS being given up
- - IS THE PROPOSED MERGER THE BEST ALTERNATIVE AVAILABLE? RPS holders
participate in some upside in the value of Jupiters Ordinary Shares
including upside arising from a Takeover or Scheme of Arrangement under
certain circumstances. Hence for the RPS Scheme to be the best
alternative available the RPS holders must be satisfied that there is
no other alternatives that are likely to deliver a higher Jupiters
Ordinary Share price
- - IS IT REASONABLE FOR RPS HOLDERS TO APPROVE THE TERMS OF THE MERGER
RESOLUTION? This involves a consideration of the above three factors on
an overall basis along with any other commercial arrangements or
contractual conditions that may be relevant.
In our view, our "best interests" criteria we have adopted incorporate the "fair
and reasonable" tests embodied in the Corporations Act and in ASIC's policy
statements. In undertaking our assessment, we have considered the likely impact
of the RPS Scheme on the RPS holders as a whole. We have not considered how the
RPS Scheme may affect individual RPS holders. Individual RPS holders have
different financial and tax circumstances and it is not practicable or possible
to consider the implications of the RPS Scheme on individuals as their
respective financial circumstances are not known to us. Individual shareholders
should seek their own professional advice.
16
[PRICEWATERHOUSECOOPERS LOGO]
The Value of the RPS
The RPS were issued under a Prospectus dated 28 February 2002 and are quoted on
the ASX. The RPS are 10 year redeemable preference shares that entitle holders
to a cumulative unfranked dividend. The terms of the RPS are resettable on 9
April 2007 and have a maturity date of 6 April 2012. The RPS rank in priority to
ordinary shares for payment of dividends and for a return of capital on a
winding up of Jupiters. The key features of the RPS include:
- - the receipt of an unfranked cumulative dividend of at least 8.15% per
annum, payable half yearly on 9 April and 9 October
- - the ability to convert RPS into ordinary shares subject to Jupiters
rights to repurchase the RPS or (in some cases) arrange their sale to a
third party
- - the opportunity to participate in an increase in Jupiters Ordinary
Share price above a value of $6.44.
The RPS terms also set out the rights of RPS holders and Jupiters under what is
described as a `Trigger Event'. The definition of a Trigger Event includes an
event where Jupiters lodges with ASIC a draft Explanatory Statement for a Scheme
of Arrangement that Jupiters propose to enter into under Part 5.1 of the
Corporations Act, which, if approved and implemented, will result in a person
acquiring a relevant interest in more than 50% of the Jupiters Ordinary Shares
and either the Company releases to the market an opinion from an independent
expert that the proposed Scheme is fair and reasonable or the Scheme is approved
by the Court.
In this instance a Trigger Event will occur on the release of the Scheme Booklet
to the ASX. The Scheme Booklet includes a separate Independent Expert's Report
also prepared by PricewaterhouseCoopers Securities Ltd in relation to the
Ordinary Share Scheme which opines that the Ordinary Share Scheme is fair and
reasonable and in the best interests of Jupiters Ordinary Shareholders.
The terms and conditions of the RPS provide that holders of RPS may request
early conversion to Jupiters Ordinary Shares where a Trigger Event takes place.
On receipt of a conversion notice, Jupiters has the option of either converting
the RPS into Jupiters Ordinary Shares, redeeming the RPS or arranging for their
sale to a third party. If the RPS are redeemed or on-sold, Jupiters is required
to ensure the RPS holders are paid a cash amount set out in clause 7(a) or 8(a)
of the RPS Terms (the Repurchase Amount plus any accrued dividends).
In this regard, under the terms of the MIA, (subject to limited exceptions)
Jupiters has undertaken, on the receipt of Trigger Event conversion notices, to
make an election in accordance with clause 5.3(b) of the RPS terms, the effect
of which is to arrange for the RPS subject to such conversion notices to be
acquired by a third party. In this case that third party will be TABCORP
Investments.
Under the terms of the MIA, TABCORP or one of its related entities must then
acquire the RPS subject to the conversion notice for the Repurchase Amount, as
defined in the RPS terms. Immediately before that acquisition, Jupiters will pay
any accrued dividends in relation to the RPS subject to the conversion notice.
Under the RPS terms, the calculation for the Repurchase Amount is the greater
of:
- - $100 + (25% of Premium over VWAP x Conversion Minimum),
or
17
[PRICEWATERHOUSECOOPERS LOGO]
Section 4: The Value of the RPS
- - VWAP on Conversion Date x Conversion Minimum.
The formula that applies to the conversion ratio if Jupiters were to elect to
allow RPS that are the subject of a Trigger Event conversion notice to convert
into ordinary shares (the "Conversion Option") is the greater of:
($100 + accrued and unpaid dividends)
The lesser of (95% of Offer price) and (VWAP + 75% of Premium over VWAP);
or
the Conversion Minimum.
We note that the intention of the formulae appears to be that the Repurchase
Amount provides an amount which is approximately 5% below the value which would
accrue from the Conversion Option. While on the face of it, this potentially
makes the Conversion Option the most attractive option for RPS holders, in
reality the Conversion Option cannot be realised by RPS holders (unless Jupiters
enables it to occur) as exercise of the Conversion Option simply triggers the
right by Jupiters to exercise its repurchase option or on-sale option.
The 5% discount appears to reflect the fact that the Conversion Option provides
shares rather than cash and if the shares are to be realised into cash,
transaction costs will be incurred. In addition, the Conversion Option carries
some timing risk in that the RPS holder is exposed to movements in the Jupiters
Ordinary Share price between lodging a Trigger Event conversion notice and
receiving the shares.
Given that the repurchase and on-sale options are at a 5% discount, Jupiters'
overall interest would generally be served by exercising one of these options.
Hence, in our view the repurchase and on-sale rights held by Jupiters places a
limiting value on the RPS, particularly in light of the fact that Jupiters has
committed in the MIA to exercise the right to arrange for RPS to be transferred
to a third party (TABCORP Investments) on the receipt of Trigger Event
conversion notices.
RPS holders are also able to deliver a Special Conversion Notice to Jupiters at
any time. Jupiters has also committed to repurchase any RPS which are the
subject of a Special Conversion Notice. Payments to be made under the repurchase
of RPS do not include accrued dividends. The Special Conversion Right is
discussed further in Section 4D of this report.
In assessing the value of the RPS we have therefore focused on the value of
continuing to hold the RPS and the value calculated under the Repurchase Amount.
We have also focused on the value before accrued dividends as each of the
options would result in approximately the same amount of accrued dividend being
paid in addition to the capital sum.
4A VALUE OF CONTINUING TO HOLD RPS
The value of continuing to hold the RPS will reflect the net present value of
holding the RPS to maturity. This value will mainly be influenced by prevailing
interest rates and the probability of either Jupiters defaulting on the RPS or
the Jupiters share price significantly outperforming the level at which RPS
holders participate in upside share price performance.
18
[PRICEWATERHOUSECOOPERS LOGO]
Section 4: The Value of the RPS
The value to hold can be estimated by performing a discounted cash flow
valuation of the expected proceeds from holding the RPS. Alternatively, the
market trading of RPS prior to the announcement of the Proposed Merger adjusted
for interest rate movements may be used to estimate the value of holding the RPS
to maturity.
Given the sensitivity of the value of the RPS to the discount rate assumed when
a discounted cash flow model is used we have adopted the market trading levels
of the RPS as an estimate for the value of holding the RPS to maturity and cross
checked that to a discounted cash flow valuation to examine the implied yield on
the RPS.
In the 20 trading days prior to the date of announcement of the Proposed Merger,
the RPS traded in a range of $106.25 to $107.20. After adjusting for accrued
dividends we estimate the trading range for the RPS ex accrued dividend was
$102.99 to $104.54.
The midpoint of the above trading range is $103.77. A value of $103.77 implies a
yield of approximately 7.5%. This represents a return above the cost of the
commercial bill facility for Jupiters in 2003 of approximately 5.6% and is less
than our estimate of the cost of equity for Jupiters. This is consistent with
our view of the risk profile of the RPS which ranks behind lenders in the event
of a winding up of Jupiters but ahead of ordinary shareholders and does not
carry the volatility of an ordinary share in Jupiters. In the period 4 March
2003 to 1 September 2003, long term bond rates had risen by approximately 0.5%.
Being a fixed interest instrument, rising interest rates would normally result
in decreases in value of the RPS. In addition, the circumstances under which the
RPS would be held must also be taken into account. If the Ordinary Share Scheme
is approved and the RPS Scheme is not approved, RPS holders may be holding
securities issued by an unlisted entity. The Scheme Booklet notes that if the
Ordinary Share Scheme is approved, TABCORP intends to procure that Jupiters
apply to be removed from the official list of the ASX. If the ASX removes
Jupiters from its official list, the RPS will cease to be quoted. Even if the
RPS continue to be quoted, where the Ordinary Share Scheme is approved, Jupiters
Ordinary Shares will cease to be quoted and this may impact on the liquidity of
the RPS. If this occurs there would be very little liquidity for remaining RPS
holders. Whilst RPS holders could still exercise the Special Conversion Right,
under the RPS terms they forgo any accrued dividend entitlement under that
option. Hence, in our view, the negative impacts of the changed circumstances of
the RPS, including the potential reduction in the liquidity, accentuate the
impact of the increase in interest rates. Therefore, we do not believe the value
to hold the RPS exceeds $103.77.
The RPS Scheme documents also note that in circumstances where the Ordinary
Share Scheme is implemented and the RPS Scheme is not, if it is entitled to do
so, TABCORP Investments will seek to compulsorily acquire all of the RPS which
it does not own under the general compulsory acquisition provisions of chapter
6A of the Corporations Act, although TABCORP Investments would have to pay a
fair value for the RPS under those circumstances and have an Independent
Expert's Report confirm fair value was being offered.
To the extent we conclude the existing offer of $105.26 is fair, in the absence
of any changed circumstances, such as a significant reduction in investment
rates or a significant increase in trading values of Jupiters Ordinary Shares,
under a compulsory acquisition process we have no reason to expect TABCORP
Investments would be required to pay an amount in excess of $105.26.
19
[PRICEWATERHOUSECOOPERS LOGO]
Section 4: The Value of the RPS
4B VALUE UNDER REPURCHASE RIGHT
The formula for calculation of the Repurchase Amount is:
- - $100 + (25% of Premium over VWAP x Conversion Minimum) ("first leg"),
or
- - VWAP on Conversion Date x Conversion Minimum ("second leg").
Each of the components of the Repurchase Amount calculations are briefly
discussed below.
PREMIUM OVER VWAP
The Premium over VWAP represents the difference between the Offer Price and the
VWAP of Jupiters Ordinary Shares over the 20 business days immediately preceding
the announcement of the Scheme of Arrangement.
The Offer Price is the value of the consideration to be received by Jupiters
Ordinary Shareholders under the Scheme of Arrangement. It is defined as:
- - the cash consideration offered (as at the date when the conversion
notice is given) in respect of each ordinary share under the scheme,
and
- - if the consideration offered for each ordinary share includes any
amount which is not cash, the value of the non-cash consideration as
determined by an independent expert appointed by the directors proposed
at the time of announcement of the Scheme of Arrangement or, if the
non-cash consideration has been increased after announcement, the date
of the most recent increase prior to the date when the conversion
notice is given.
The consideration offered to ordinary shareholders includes: non-cash
consideration in the form of TABCORP shares, franking credits and potentially
Centrebet Notes. In valuing the TABCORP shares, we have adopted the date of
announcement of the Ordinary Share Scheme as being 5 March 2003. We have
calculated the midpoint of the range of value of the consideration at the date
of announcement as being $6.35. The components of that consideration are set out
in Table 4.1 below:
TABLE 4.1
TABCORP share value $ 10.07
-------
TABCORP shares received 0.24
-------
Value of TABCORP shares received 2.42
Cash 2.85
-------
TABCORP Consideration 5.27
Net Centrebet Proceeds 0.14
Special dividend 0.75
Value of franking credits 0.19
-------
Total Consideration $ 6.35(1)
- ---------------------------------------------------
Note (1) The total consideration calculated in this table differs from the total
consideration calculated in our Independent Expert's Report for the
Ordinary Share Scheme as for the purposes of this report the TABCORP
shares are valued as at 5 March 2003, in accordance with the RPS terms.
In addition, the value of franking credits includes some value for
franking credits that may be received by Jupiters Ordinary Shareholders
on receipt of the Net Centrebet Proceeds. This reflects a probability
that the Centrebet sale will be completed by 31 October 2003.
20
[PRICEWATERHOUSECOOPERS LOGO]
Section 4: The Value of the RPS
The VWAP price for TABCORP shares on 5 March 2003 was $10.07 and so we have
adopted that price as a reasonable reflection of the value of TABCORP shares on
that day. In forming that view we have reviewed trading volumes for TABCORP
shares and trading patterns and are of the view that TABCORP shares were trading
in an informed market and were trading with sufficient liquidity to allow
adoption of trading levels as the most appropriate estimate of market value at a
point in time.
For the purposes of preparing our Independent Expert's Report for the Ordinary
Share Scheme we had to consider the value of the franking credits and Net
Centrebet Proceeds. A discussion of our estimate of the value of those
components of the total consideration is set out at Appendices C and D
respectively.
The VWAP of Jupiters Ordinary Shares over the 20 business days immediately
preceding the announcement of the Scheme of Arrangement was $6.31, and therefore
the Premium over VWAP is $0.04.
CONVERSION MINIMUM
The Conversion Minimum for the purposes of calculating the Repurchase Amount
under the terms of the RPS is 15.5324.
VWAP ON CONVERSION DATE
The VWAP on Conversion Date is the VWAP for the Jupiters Ordinary Shares for 20
days prior to the Conversion Date. The Conversion Date will be 50 business days
after the notification of a Trigger Event. Hence the VWAP will be for a period
30 to 50 business days after the notification of the Trigger Event. For the
purposes of reaching our opinion, we have taken the best estimate of the VWAP on
Conversion Date as being the midpoint of our valuation of consideration to be
paid to Jupiters Ordinary Shareholders which is $6.51 or approximately 1.1%
below trading levels for Jupiters Ordinary Shares at 1 September 2003. However
at 1 September 2003 Jupiters Ordinary Shares were trading on a cum dividend
basis (including a $0.12 dividend). The Jupiters Ordinary Shares will go ex
dividend prior to the period for calculation of the VWAP on Conversion Date.
CALCULATION OF REPURCHASE AMOUNT
Based on the inputs above, the calculation of the two legs of the Repurchase
Amount are set out in Tables 4.2 and 4.3.
TABLE 4.2
$100 + (25% OF PREMIUM OVER VWAP X CONVERSION MINIMUM):
- -----------------------------------------------------
Premium over VWAP $ 0.04
- -----------------------------------------------------
At 25% $ 0.01
- -----------------------------------------------------
Conversion Minimum 15.5324
- -----------------------------------------------------
25% of Premium over VWAP x
Conversion Minimum $ 0.16
- -----------------------------------------------------
Add: $100 $ 100
- -----------------------------------------------------
TOTAL $ 100.16
- -----------------------------------------------------
21
[PRICEWATERHOUSECOOPERS LOGO]
Section 4: The Value of the RPS
TABLE 4.3
VWAP ON CONVERSION DATE X CONVERSION MINIMUM:
- ------------------------------------------------------
VWAP on Conversion Date (Estimate) $ 6.51
- ------------------------------------------------------
Multiply by Conversion Minimum 15.5324
- ------------------------------------------------------
TOTAL $ 101.12
- ------------------------------------------------------
As the Repurchase Amount is the greater of the two legs of the calculation, it
is the second leg of the calculation that provides a Repurchase Amount of
$101.12.
Our calculation of the Repurchase Amount is based on an estimate of the VWAP on
Conversion Date. The VWAP on Conversion Date could exceed our estimate depending
on market and trading conditions at the time. The VWAP of Jupiters shares prior
to the Conversion Date must exceed $6.77 before the Repurchase Amount exceeds
the $105.26 offered by TABCORP. We have placed an upper value of $6.85 on the
consideration to be provided to the Jupiters Ordinary Shareholders for their
ordinary shares. Hence, it is possible for the Jupiters shares to trade at a
VWAP of $6.77 or above for twenty days prior to the Conversion Date. Our upper
value includes an assumed realisation value for Centrebet which, at the time of
writing, is uncertain.
However, given the trading history, in our view it is unlikely that the VWAP for
20 days prior to the Conversion Date will be significantly higher than $6.77. As
the VWAP is calculated for a period after the point by which RPS holders must
elect whether or not to convert, they will not know the VWAP at the time of
making the conversion election. We recommend RPS holders monitor the trading
range of Jupiters Ordinary Shares. Prior to making any decision to convert, RPS
holders should be aware that if they elect to convert, and the VWAP is less than
$6.77, if their RPS are sold to TABCORP Investments they will receive less than
the $105.26 offered by TABCORP under the RPS Scheme. If the VWAP exceeds $6.77,
RPS holders who have elected to convert, whose RPS are sold to TABCORP
Investments, will receive more than the $105.26 offered by TABCORP. To the
extent the market assumes the Ordinary Share Scheme will become effective, the
factors likely to influence the Jupiters VWAP will be the TABCORP share price
and the market expectation as to the Net Centrebet Proceeds.
4C VALUE UNDER TRIGGER EVENT CONVERSION RIGHT
We calculate the value of the Conversion Option in Tables 4.4 and 4.5. In
performing our calculation we have assumed no accrued dividends to keep the
comparison consistent with the calculations of the Repurchase Amount and the
$105.26 TABCORP offer.
TABLE 4.4
($100 + accrued and unpaid dividends)
The lesser of (95% of Offer price) or (VWAP + 75% of Premium over VWAP);
- -----------------------------------------------------------------------------------
Numerator $ 100
- -----------------------------------------------------------------------------------
95% of Offer Price 95% of$ 6.35 $ 6.03
- -----------------------------------------------------------------------------------
VWAP + 75% of Premium over VWAP $ 6.31 + (75% x $ 0.04) $ 6.34
- -----------------------------------------------------------------------------------
Lesser is: $ 6.03
- -----------------------------------------------------------------------------------
Conversion ratio is $ 100/$6.03 16.58
- -----------------------------------------------------------------------------------
22
[PRICEWATERHOUSECOOPERS LOGO]
Section 4: The Value of the RPS
As the Conversion Minimum for the Conversion Option is 16.35 (as per the RPS
Terms) and it is the greater of the two numbers adopted, the Conversion Ratio
adopted is 16.58.
TABLE 4.5
THE CALCULATION OF THE VALUE OF THE CONVERSION RIGHT IS THEREFORE:
- ----------------------------------------------------
Number of Shares 16.58
- ----------------------------------------------------
Multiplied by: Value of Shares(1) $ 6.51
- ----------------------------------------------------
Value of Conversion Option $ 107.94
- ----------------------------------------------------
Note (1) For the purposes of estimating the value of the Jupiters Ordinary
Shares on conversion we have adopted $6.51 which is the midpoint of our
estimate of the current value of the consideration offered for Jupiters
Ordinary Shares. The range is $6.16 to $6.85. This is higher than our
assessment of the offer price for the purpose of the calculation of the
Repurchase Amount and the conversion ratio because under the RPS Terms
the offer price is measured at the date of announcement and the TABCORP
share price has risen since the date of announcement. The midpoint of
the TABCORP share price adopted is $10.75 which at 0.24 TABCORP shares
for each Jupiters Ordinary Share is $2.58 per Jupiters Ordinary Share.
With reference to Table C2 in Appendix C of this report, if $2.58 is
substituted for $2.42 as the value of TABCORP shares received the total
consideration value is $6.51.
The value of the Conversion Option is before transaction costs that would be
incurred if the Jupiters Ordinary Shares acquired were to be sold. In addition,
it assumes the Jupiters Ordinary Shares realise a value of $6.51, which may not
be the case as RPS holders will be exposed to movements in the price of Jupiters
Ordinary Shares between electing to convert and the conversion being effected.
While the Conversion Option value (pre realisation costs) exceeds both the
Repurchase Amount option and the value to be received under the RPS Scheme, RPS
holders do not have the ability to exercise the Conversion Option without
providing Jupiters with the option of exercising its right to repurchase or
arrange for the resale of the RPS. The RPS prospectus noted that Jupiters had
these options upon the receipt of a Trigger Event conversion notice from the RPS
holder and also stated that "...the option that Jupiters elects may not coincide
with the holder's individual preference, which may be disadvantageous to them in
light of market conditions or individual circumstances." Hence, in our view, the
ability for Jupiters to elect to repurchase or arrange for the onsale of RPS
which are the subject of a Trigger Event Conversion Notice places a limitation
on the value of the Conversion Option.
4D VALUE UNDER SPECIAL CONVERSION RIGHT
RPS holders are able to deliver a Special Conversion Notice to Jupiters at any
time. Under the RPS terms, Jupiters may either convert the relevant RPS into
Jupiters Ordinary Shares or repurchase the RPS. In the MIA, Jupiters has
committed to repurchase any RPS which are the subject of a Special Conversion
Notice delivered before the Ordinary Share Scheme is implemented.
The formula for calculating the cash amount to be paid on repurchase under a
Special Conversion Right is:
VWAP (5 business days prior to Conversion Date) x Conversion Minimum
In the case of repurchases, the Conversion Date for the Special Conversion Right
is the next ordinary Dividend Payment Date. For Special Conversion Notices
received after the date of this Report, the Scheme Booklet indicates that the
earliest date which will be a Conversion Date for the Special Conversion Right
will be 9 April 2004.
23
[PRICEWATERHOUSECOOPERS LOGO]
Section 4: The value of the RPS
Payments made under the Special Conversion Right do not include accrued
dividends. As the formula for the payment of the Special Conversion Right is
likely to provide a similar result to the second leg of the calculation of the
Repurchase Amount under the Trigger Event Conversion Right, and exercising the
Special Conversion Right results in the loss of any accrued dividend, amounts
received under the Special Conversion Right are likely to be less than amounts
received under the Trigger Event Conversion Right. The only circumstance where
the amount received under the Special Conversion Right exceeds that received
under the Trigger Event Conversion Right is if the VWAP for Jupiters Ordinary
Shares for the 5 business days prior to the Special Conversion Date exceeds the
VWAP for the 20 business days prior to the Trigger Event Conversion Date by a
sufficient amount to outweigh the loss of accrued dividends in the case of the
Special Conversion Right. However at the time of making the elections, neither
of these VWAP will be known to the RPS holders.
If the Ordinary Share Scheme becomes effective, Jupiters Ordinary Shares are
likely to have ceased trading on ASX at the Trigger Event Conversion Date. Under
these circumstances, it is noted in the Scheme Booklet that the Jupiters Board
considers it would be an appropriate exercise of the Board's discretion under
the RPS Terms to adjust the VWAP for Jupiters Ordinary Shares and/or the
Conversion Minimum so that RPS holders received an appropriate cash amount upon
redemption as a result of lodging a Special Conversion Notice.
We have not attempted to separately estimate the value to an RPS holder of the
Special Conversion Right Conversion Option as Jupiters have indicated their
intention to repurchase RPS which are the subject of a Special Conversion
Notice. However we note that given the Special Conversion Right Conversion
Option does not reflect any value for accrued dividends and the Conversion
Minimum is not adjusted for a conversion discount, we expect the amount payable
under a Special Conversion Notice Conversion Option would be less than an amount
payable under a Trigger Event Conversion Option.
4E FAIRNESS CONCLUSION
The value of holding the RPS is estimated at $103.77, this is the midpoint of
the trading range in the 20 days prior to the announcement of the offer.
The value of the RPS under the Repurchase Amount is estimated at $101.12, and we
estimate the value of the RPS under the Special Conversion Right is likely to be
less than this.
In our opinion the consideration offered of $105.26, plus accrued dividends, by
TABCORP is fair because on our assessment it is not less than the value
available to an RPS holder through continuing to hold the RPS or exercising the
Conversion Right arising from the RPS Scheme or exercising the Special
Conversion Right. However, we recommend RPS holders continue to monitor the
trading range of Jupiters Ordinary Shares to consider the likelihood of a 20 day
VWAP prior to conversion exceeding $6.77.
24
[PRICEWATERHOUSECOOPERS LOGO]
Opportunities for a Higher Value
As well as satisfying the criteria of being fair and making RPS holders better
off, if the RPS Scheme is to be in the best interests of RPS holders it must
also be the best alternative available. By best alternative, we mean capable of
delivering most value to RPS holders. In our view, subject to no significant
fall in interest rates, the only ways RPS holders could receive greater value
for the RPS is if a higher offer for Jupiters shares were to emerge, as this
would produce higher conversion and repurchase values for the RPS, or if the
VWAP of Jupiters Ordinary Shares prior to Conversion date exceeds $6.77.
In assessing this criteria, we have reviewed public information on Jupiters,
including analyst and media reports, reviewed internal documents of Jupiters,
including management and Board papers; and held discussions with the Jupiters
directors, management and advisors. We have also held discussions with TABCORP
management to gain an appreciation of that company's perspective about the
benefits of the Proposed Merger to Jupiters Ordinary Shareholders.
We note that in assessing Jupiters' alternatives, this must be done in the light
of the industry dynamics, competitive positioning, growth opportunities and risk
factors which confront Jupiters at this time.
The strategic imperatives are driven out of the maturing gambling industry
domestically, and require strategies which access growth from expanding product
ranges, diversification across geographic markets, and access to new markets, in
particular, overseas.
In this regard, the following alternatives are relevant to Jupiters Ordinary
Shareholders, and in turn, the RPS holders:
- - the alternative proposal to merge with UNiTAB,
- - a merger/acquisition/takeover of Jupiters by a third party suitor.
5A MERGER WITH UNiTAB
On 16 December 2002, Jupiters and UNiTAB boards announced that they were in
discussions about a potential merger of the two entities. Subsequent
announcements and media reports set out the potential deal parameters, which can
be summarised as:
- - the merger would have most likely been effected through an acquisition
of all the shares in Jupiters by UNiTAB issuing new shares in exchange
to Jupiters shareholders, with no cash component,
- - the merger was to be "of equals", implying that an exchange ratio would
not confer a premium on Jupiters shareholders but would rather be based
on the relative market values of the two companies, and
- - the merger benefits for Jupiters shareholders would be realised over
time in the form of short-term synergies and other intangible benefits
mainly in the form of diversification benefits, coupled with greater
size and scale to compete.
The synergies were identified to be in the form of cost savings and revenue
enhancements. Cost savings revolved around:
- - savings in corporate and support services costs,
- - operational efficiencies across the gaming, sports betting and wagering
businesses, and
25
[PRICEWATERHOUSECOOPERS LOGO]
Section 5: Alternatives - is there a better one?
- - revenue opportunities in on-line and sports betting, as well as the
opportunity to expand the amount of higher value commission business
through the casinos whilst keeping the commission revenue (and risks)
at a similar percentage of total revenue.
Upon announcement by Jupiters and UNiTAB of these discussions, the share prices
of both organisations adjusted, as set out in the following graph:
FIGURE 5.1
JUPITERS & UNiTAB SHARE PRICE
[LINE GRAPH]
The information had a clear price impact in the market, with Jupiters' share
price rising 6% in the days following the UNiTAB announcement even though
details of the UNiTAB merger proposal were still unclear. However, this public
announcement essentially then put Jupiters into "play" by signalling to the
market that the directors would be prepared to consider offers in relation to
Jupiters shares providing the value benefit was clear for shareholders. Based on
market speculation at the time, it is possible that the Jupiters share price was
reflecting both this proposal and the possibility of another bid. However, on
the TABCORP announcement there was a large increase in Jupiters share price,
clearly reflecting the market's preference for that offer.
On an individual analysis, the UNiTAB proposal did offer benefits to
shareholders over a stand alone Jupiters strategy, in the form of greater scale
and extraction of value from synergies.
However, in comparing this to the TABCORP proposal, in our view, for the
following reasons, the UNiTAB proposal did not offer the level of benefit
contained in the TABCORP proposal:
- - there was no control premium to be offered, compared to a significant
control premium being offered by TABCORP,
26
[PRICEWATERHOUSECOOPERS LOGO]
Section 5: Alternatives - is there a better one?
- - there was to be no cash alternative, compared to a significant cash
component in the TABCORP proposal,
- - the cost and revenue synergies identified in the UNiTAB proposal were
in the main also attainable by TABCORP,
- - the cost and revenue synergies have been priced into the TABCORP
consideration whereas the UNiTAB proposal required Jupiters
shareholders to receive the benefit over time as the synergies are
extracted, and
- - the diversification, scale and size benefits were potentially greater
from TABCORP, given that it:
- offers greater geographical and jurisdictional spread compared
to UNiTAB which has only small wagering and gaming activities
based outside of Queensland,
- has a larger balance sheet, underlying earnings and cash flow
than UNiTAB, and
- has greater market capitalisation, and corresponding liquidity
in share price trading.
In our view, the TABCORP merger proposal offers benefits superior to UNiTAB, as
measured by the 15.5% premium in the TABCORP consideration over the post-UNiTAB
trading range. This premium is calculated by comparing the VWAP between the
announcement of initial TABCORP discussions and the TABCORP merger announcement,
and the VWAP between the UNiTAB announcement and the announcement of initial
TABCORP discussions.
5B OTHER POTENTIAL SUITORS
Following the UNiTAB proposal becoming public knowledge, TABCORP quickly emerged
as a competing suitor, culminating in an announcement on 10 January 2003 that
discussions had commenced between it and Jupiters. A period of negotiation and
review followed, in parallel with UNiTAB discussions, which concluded with the
Jupiters board recommending the TABCORP proposal on 5 March 2003.
The process of negotiation with TABCORP was conducted publicly and ample
opportunity existed (and still does), for other suitors to emerge, however, no
other bids/offers have been received to date.
In our view, a potential acquirer would have to be an established operator in
the gambling and entertainment sector in order to match the full price and
synergy benefits implicit in the TABCORP proposal.
Furthermore, potential acquirers would have to have a significant capital base
to afford a company of Jupiters' size, with the probity aspects most likely
deferring foreign buyers from entering an active bidding war. These criteria in
our view confine the potential acquirers to a relatively small list of
substantial and compatible companies.
In our view, because the TABCORP Merger Proposal offers a price including a
control premium for Jupiters Ordinary Shareholders, it is unlikely that another
suitor would emerge from this group who would be willing to pay a higher price
and with a similarly large cash component.
27
[PRICEWATERHOUSECOOPERS LOGO]
Section 5: Alternatives - is there a better one?
5C VWAP OF JUPITERS ORDINARY SHARES
In the absence of another merger or takeover offer by a third party suitor and
assuming the market expects the Ordinary Share Scheme to become effective, the
Jupiters Ordinary Share price will be influenced by the TABCORP share price and
the market expectation of the Net Centrebet Proceeds. We have placed an upper
value of $6.85 on the consideration to be provided to Jupiters Ordinary
Shareholders, hence it is possible for the VWAP of Jupiters Ordinary Shares
prior to the Conversion date to exceed $6.77. In these circumstances, conversion
would be a better alternative for RPS holders. However, given the trading
history of Jupiters Ordinary Shares, in our view it is unlikely that the VWAP
for 20 days prior to the Conversion date will be significantly higher than
$6.77. As the VWAP is calculated for a period after the point by which RPS
holders must elect whether or not to convert, they will not know the VWAP at the
time of making the conversion election. We recommend RPS holders monitor the
trading range of Jupiters Ordinary Shares.
28
[PRICEWATERHOUSECOOPERS LOGO]
Is it reasonable for RPS holders to approve the RPS Scheme?
As RPS holders will receive cash if they accept the TABCORP offer there are a
limited number of additional considerations relevant to deciding whether to
approve the RPS Scheme.
Relevant points for the RPS holders to consider include:
- - the consideration to be received under the RPS Scheme includes any
accrued dividends up to the merger implementation date
- - the Jupiters Board have amended the terms of the RPS, in accordance
with their right under the RPS terms. Our assessment has been prepared
under the amended terms and the amended terms will remain in place
regardless of whether the RPS Scheme becomes effective so this does not
impact on the reasonableness of the RPS Scheme
- - Jupiters has committed in the MIA to exercising its repurchase option
to arrange for the sale of RPS to TABCORP on receipt of conversion
notices received from RPS holders. Whilst this results in a lesser
amount for RPS holders than may have been realised under the conversion
option, the repurchase option is a right of Jupiters under the RPS
terms. The RPS prospectus made it clear Jupiters had this right and
that if Jupiters elected to exercise the right it may be
disadvantageous to RPS holders. In addition, the value of the
conversion option is before transaction costs that would ultimately be
incurred in the conversion of Jupiters Ordinary Shares to cash.
Therefore, in our view, the exercise of the repurchase option by
Jupiters is commercially reasonable
- - it is a condition of the RPS Scheme that the Ordinary Share Scheme be
approved. This is commercially reasonable given TABCORP would not wish
to purchase RPS if they were not in control of the Jupiters Ordinary
Shares.
In light of our assessment of the RPS Scheme in Sections 4 and 5 and our
consideration of the other commercial considerations surrounding the RPS, we are
of the view that it is reasonable for the RPS holders to approve the RPS Scheme.
29
[PRICEWATERHOUSECOOPERS LOGO] APPENDIX A
APPENDIX A - QUALIFICATIONS, DISCLAIMERS AND CONSENTS
QUALIFICATIONS
PricewaterhouseCoopers Securities Ltd is a member of PricewaterhouseCoopers, a
large international firm of Chartered Accountants which has had extensive
experience in providing corporate financial advice and in the preparation of
independent expert reports. PricewaterhouseCoopers Securities Ltd is a licensed
Dealer (No 11203) under the Corporations Act. Mr Ron Higham is a Fellow of The
Institute of Chartered Accountants in Australia and holds the degrees of
Bachelor of Business (Accounting) and Masters of Financial Management. He is an
Adjunct Professor of Finance at the University of Queensland. He has been a
partner of PricewaterhouseCoopers for 17 years, and is the Chairman of
PricewaterhouseCoopers Securities Ltd. Mr Andrew Wellington is a Chartered
Accountant and an associate of the Securities Institute of Australia. He holds a
Bachelor of Commerce and a Masters of Accounting. He has been with
PricewaterhouseCoopers for 13 years. He is also a partner of
PricewaterhouseCoopers, and is an authorised representative of
PricewaterhouseCoopers Securities Ltd.
DECLARATIONS
Neither PricewaterhouseCoopers Securities Ltd nor PricewaterhouseCoopers has any
interest in the outcome of the proposed transaction to be put to shareholders.
PricewaterhouseCoopers Securities Ltd is entitled to receive a fee of $715,000
for the preparation of this report and the Independent Expert's Report prepared
in relation to the Ordinary Share Scheme, based on time spent at our normal
hourly rates for this type of work and will be reimbursed for out of pocket
expenses incurred. The fee payable to PricewaterhouseCoopers Securities Ltd is
payable regardless of the outcome of the proposed transaction. In addition,
PricewaterhouseCoopers Securities Ltd has been indemnified by Jupiters Limited
in relation to any claim arising from or in connection with its reliance on
information provided by Jupiters Limited. None of PricewaterhouseCoopers
Securities Ltd, PricewaterhouseCoopers, Mr Higham or Mr Wellington hold shares
in Jupiters Limited or TABCORP Holdings Limited and have not held any such
beneficial interest in the previous two years. Drafts of this report dated 23
June 2003 and 22 August 2003 were presented to the directors of Jupiters
Limited, TABCORP Holdings Limited and their respective advisors for review of
factual information contained in the reports. No significant changes were made
to the report as a result of those reviews.
PURPOSE OF REPORT
This report has been prepared at the request of the directors of Jupiters
Limited for inclusion in the Scheme Booklet and should not be used for any other
purpose. In particular, it is not intended that this report should serve any
purpose other than an expression of our opinion on the Proposed Merger. This
report has been prepared solely for the benefit of the directors of Jupiters
Limited and for the benefit of those persons who are expressly entitled to vote
at the meeting. Neither the whole or any part of this report nor any reference
to it may be included in or attached to any document, circular, resolution,
letter or statement (other than the Scheme Booklet mentioned above) without the
prior
30
[PRICEWATERHOUSECOOPERS LOGO]
written consent of PricewaterhouseCoopers Securities Ltd to the form and context
in which it appears.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND FORECAST FINANCIAL
INFORMATION
- - Certain statements in this report may constitute forward-looking
statements. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause the actual
results, performance and achievements of Jupiters Limited, or industry
results, to be materially different from any future results,
performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things,
the following:
- the re-occurrence of the SARS virus in Asia, particularly
insofar as such developments impact on the patronage of
high-value overseas casino players or of local Asian players
- the continuation of relatively low levels of economic growth
in key Asian markets
- the impact of terrorism and other acts as a result of
continuing unrest in the Middle East
- - changes in laws, regulations or governmental policies (or the
interpretation of those laws, regulations or policies) which may
adversely impact upon the gaming industry in general or the Company in
particular
- - any adverse changes in general economic conditions, and a decline in
discretionary spending as a result thereof
- - other factors referenced in this report.
Shareholders' attention is drawn to the developments and to uncertainties
affecting Jupiters' business that are discussed throughout the Scheme Booklet
and this report.
DISCLAIMER AND CONSENTS
PricewaterhouseCoopers Securities Ltd's sole involvement in this Scheme Booklet
has been the preparation of this report and accordingly we take no
responsibility for the content of the Scheme Booklet as a whole.
PricewaterhouseCoopers Securities Ltd has consented to the inclusion of this
report in the form and context in which it is included as an annexure to the
Scheme Booklet to be sent to shareholders in Jupiters Limited.
In preparing this Report, Jupiters has indemnified PwCS, PricewaterhouseCoopers
and its employees, officers and agents against any claim, liability, loss or
expense, cost or damage, including legal costs on a solicitor client basis,
arising out of reliance on any information or documentation provided by Jupiters
which is false and misleading or omits any material particulars or arising from
a failure to supply relevant documentation or information.
In addition, Jupiters has agreed that if it makes any claim against
PricewaterhouseCoopers for loss as a result of a breach of our Contract, and
that loss is contributed to by its own actions, then liability for its loss will
be apportioned and is appropriate having regard to the
31
[PRICEWATERHOUSECOOPERS LOGO]
respective responsibility for the loss, and the amount Jupiters may recover from
us will be reduced by the extent of its contribution to that loss.
32
[PRICEWATERHOUSECOOPERS LOGO] APPENDIX B
APPENDIX B - SOURCES OF INFORMATION
In preparing our report we have had access to and relied upon the following
sources of information:
- - Annual reports (audited) for Jupiters Limited for the five years ended
30 June 2002
- - Audited financial report for Jupiters Limited for the year ended 30
June 2003
- - Audited financial report for TABCORP Holdings Limited for the year
ended 30 June 2003
- - Audited annual report for TABCORP Holdings Limited for the year ended
30 June 2002
- - Various brokers' reports concerning Jupiters Limited and comparable
companies
- - Share market data and related information (Bloomberg and Reuters)
- - Jupiters Reset Preference Shares Prospectus dated 28 February 2002
- - Corrs Chambers Westgarth Reset Preference Shares Paper
- - Centrebet Information Memorandum dated 16 April 2003
- - Jupiters ASX announced details on 12 June 2003 which included the
amended RPS terms
- - Counsel opinion on Jupiters RPS
We have also had the benefit of discussions with the independent directors and
management team of Jupiters Limited and TABCORP Holdings Limited in relation to
the historical and prospective operating and financial performance of each
company.
33
[PRICEWATERHOUSECOOPERS LOGO] APPENDIX C
APPENDIX C - THE MERGER CONSIDERATION FOR JUPITERS ORDINARY SHARES
INTRODUCTION AND APPROACH
Leaving aside the proceeds from the sale of the Centrebet business, the
component of consideration from the TABCORP Group, for each Jupiters Ordinary
Share held, is (on average):
- - 0.24 shares in TABCORP, and
- - $2.85 in cash.
The component of consideration from Jupiters, for each Jupiters Ordinary Share
held, is:
- - $0.75 in cash via payment of a fully franked special dividend, plus
- - Additional consideration is provided for in relation to the sale of the
Centrebet business,
- if the sale of Centrebet completes before 31 October 2003, the
consideration will be the Net Centrebet Proceeds from Jupiters
by way of a fully franked dividend, or
- if the sale of Centrebet completes after 31 October 2003, an
unsecured note from TABCORP Issuer under which TABCORP Issuer
will pay the value of the Net Centrebet Proceeds to Jupiters
Ordinary Shareholders when such proceeds are received.
Should an Agreement for the sale of Centrebet not be entered into by 30 June
2004 and completed by 30 September 2004, TABCORP will be under no further
obligation to dispose of Centrebet and so the interests of Jupiters shareholders
in the Centrebet business will be diluted significantly. In light of progress
made with the sale process to date we consider this to be a low probability and
have included the estimated net proceeds for Centrebet as part of the
consideration.
In placing a value on the consideration offered by TABCORP we have assumed each
shareholder receives the base offer of cash and shares, or option 1, as set out
in paragraph 2.17 of this report. This is the appropriate basis to make the
comparison on as Jupiters shareholders will be able to participate in the
alternative maximum cash or maximum share options, only if additional cash or
shares are available in the respective pools. This, in turn, will be dependent
on the preferences of other Jupiters Ordinary Shareholders. These preferences
are unknown at this time.
In our view, the value of the TABCORP shares being offered should be considered
as a portfolio value. This is because the post-merger value of the shares will
reflect only portfolio trades in the shares. Whilst there may be a future
opportunity to share in a control premium if TABCORP were to be taken over, this
is not a scenario that we consider likely in the short term.
34
[PRICEWATERHOUSECOOPERS LOGO]
We estimate at a share price of $10.07 a multiple of 8.4 times pro-forma 2003
EBITDA is implied. We consider such an implied multiple reasonable. We have
reviewed the trading in TABCORP shares, market announcements and broker reports
and we are satisfied that:
- - there are no restrictions on TABCORP shares which could prevent
sufficient trading to produce an unbiased share price, and
- - the announcements and public analysis of the Proposed Merger have
provided sufficient information for the market to properly assess the
costs and benefits of the Proposed Merger.
We are also satisfied the market is capable of assessing information quickly.
The announcement of the proposed merger was made at 11.18am on 5 March 2003 and
so the market had time to incorporate that information into trading by the close
of trading at 4.00pm.
For the purposes of calculating the Repurchase Amount under the RPS Terms, it is
the value of the consideration at the date of announcement which is relevant.
Hence the value of the TABCORP shares has been taken as the VWAP on 5 March
2003, which is the date of announcement. That price was $10.07.
The TABCORP shares are liquid and well traded. Its share turnover during the
twelve months prior to the announcement of the Proposed Merger averaged 8.97%
per month of total shares on issue. We calculate this places TABCORP in the top
quartile of the ASX 200 in terms of the value of shares traded as a percentage
of market capitalisation. The company is followed by most of the major broking
houses because of its relative size, with a 100% free float that allows full
participation in appropriate indices.
For the purposes of estimating the value of the consideration for the purposes
of the RPS terms, the value of a TABCORP share is taken as $10.07. As Jupiters
Ordinary Shareholders receive 0.24 TABCORP shares for each Jupiters Ordinary
Share, the value of the TABCORP Shares to be received under the Ordinary Share
Scheme is equal to $2.42 per Jupiters Ordinary Share. The remaining components
of the consideration are:
- - cash component
- - Net Centrebet Proceeds, and
- - special dividend.
CASH COMPONENT
We have valued the cash component at its face value of $2.85.
NET CENTREBET PROCEEDS
On 12 August 2003 Jupiters announced to the market it was in final sale
negotiations with shortlisted parties and the prices being negotiated were in
the $60 million to $70 million range. Based on disclosures made by Jupiters
management on 12 August 2003, we estimate the maximum gross sale proceeds
received will be $70 million. At the low end we have allowed no benefit for
Jupiters Ordinary Shareholders recognising the risk that no sale will be
achieved by 30 September 2004. Therefore in estimating the gross sale
35
[PRICEWATERHOUSECOOPERS LOGO]
proceeds for Centrebet we have adopted a range of between nil and $70 million.
In Appendix D we have discussed the Centrebet business and the EBITDA multiples
implied by the estimated gross sale proceeds.
36
[PRICEWATERHOUSECOOPERS LOGO]
In order to estimate the Net Centrebet Proceeds, we have also estimated the tax
payable on the Centrebet disposal and the sale costs. Based on a CGT cost base
of $23.4 million, sale costs of $4.0 million and estimated purchase price
adjustments of $2.1 million, our estimate of the Net Centrebet Proceeds is nil
to $0.27 per share as set out in Table 6.6.
TABLE C1
ESTIMATE OF NET CENTREBET PROCEEDS
LOW HIGH
$ MILLION $ MILLION
--------- ---------
Gross sale proceeds - 70.0
Add: Net purchase price adjustments - 2.1
Less:
Tax payable - (13.4)
Costs - (4.0)
-------- --------
Net proceeds - 54.7
-------- --------
Shares on issue 201.8 201.8
-------- --------
NET PROCEEDS PER SHARE - $0.27
--------- --------
The calculation of the offer price for the RPS is as at the date of
announcement, 5 March 2003. Whilst the estimated range of gross sale proceeds is
made with the knowledge of recent announcements made by Jupiters, in our view,
those announcements provide information as to what the value of Centrebet was at
5 March 2003, particularly given the regulatory issues Centrebet faces in the
Nordic regions existed at 5 March 2003.
As the calculation of the offer price for the RPS requires a single point
estimate we have adopted the mid point of $0.14 as our point estimate of the Net
Centrebet Proceeds.
SPECIAL DIVIDEND
Jupiters Ordinary Shareholders will receive a fully franked cash dividend of
$0.75 following approval of the Proposed Merger. We have valued the cash
component at its face value of $0.75. In considering the value of the franking
credits, we have compared the value of receiving a fully franked dividend to an
unfranked dividend for different classes of shareholder.
The franking credits which attach to the dividend potentially carry a different
value for different classes of shareholders. Franking credits reflect the
payment of company tax, at a rate of 30%, on profits, the benefit of which is
passed to shareholders via franking (or attaching the credit to) the dividend.
The maximum benefit available on the special dividend is $0.32 which is
available to resident shareholders who are on a zero tax rate, and who will
receive a cash refund of $0.32. In contrast, those resident shareholders who are
on the top marginal tax rate of 48.5% receive a benefit of approximately $0.16
compared to their after-tax position from receipt of an unfranked dividend of
$0.75.
37
[PRICEWATERHOUSECOOPERS LOGO]
Non-resident shareholders will obtain some benefit from the receipt of franking
credits in that franked dividends do not attract dividend withholding tax,
whereas unfranked dividends do. However, in most jurisdictions that have a tax
treaty in place with Australia, the non-resident taxpayer will receive credit in
their country of residence for Australian dividend withholding tax paid and so
the benefit will only be one of timing. Hence at a practical level we have
assumed the benefit of receiving a franking credit for non-resident shareholders
will be nil.
Whilst it is possible to determine that the franking credit carries value, it is
not possible to be precise as its quantum depends on the tax position and
residency of the recipient shareholder. In this case, based on a range of values
from nil to $0.32 for the franking credits attaching to the special dividend, we
have adopted the mid-point of $0.16 as our estimate of value attaching to the
credits for each Jupiters Ordinary Share. However, individually, Jupiters
Ordinary Shareholders should seek independent advice in relation to their
specific circumstances to determine the value of the franking credits to them.
The estimated Net Centrebet Proceeds are in the range of nil to $0.27 for each
Jupiters Ordinary Share. As long as the Centrebet sale is completed on or before
31 October 2003 the Net Centrebet Proceeds will be distributed by way of a fully
franked dividend. The franking credits attaching to the proceeds are estimated
to be nil to $0.12 for each Jupiters Ordinary Share. In each case, as noted
above, the value of the franking credits can range from nil to face value. We
estimate the mid point of the benefits to be received from the franking credits
as being in a range of nil to $0.06 for each Jupiters Ordinary Share. As the
calculation of the offer price for the RPS requires a single point estimate we
have adopted $0.03 as our estimate of the value of the Centrebet franking
credits.
SUMMARY OF TOTAL CONSIDERATION
Table C2 below summarises our calculation of the value of the consideration
offered which is $6.35. This assumes franking credits are distributed to
Jupiters shareholders on the $0.75 dividend and the Net Centrebet Proceeds.
TABLE C2
Value of TABCORP shares received 2.42
Cash 2.85
Net Centrebet Proceeds 0.14
Special dividend 0.75
----
Consideration value without franking credits 6.16
Value of franking credits - Centrebet 0.03
Value of franking credits - Special dividend 0.16
----
Consideration value 6.35
----
38
[PRICEWATERHOUSECOOPERS LOGO] APPENDIX D
APPENDIX D - VALUE OF CENTREBET PTY LIMITED (CENTREBET)
OVERVIEW OF THE BUSINESS
Centrebet is one of the world's leading internet sports bookmakers, offering
fixed odds betting services on a wide variety of sporting, entertainment and
political events around the globe. Centrebet Pty Limited is based in Alice
Springs, Northern Territory and operates through the website www.centrebet.com.
A wholly owned subsidiary, Jupiters UK Limited operates www.centrebet.co.uk from
the UK.
Centrebet began operations in 1992 and was a pioneer of telephone sports betting
in Australia. Centrebet introduced internet sports wagering in August 1996 and
by July 1998, the Centrebet site was replicated in all Nordic languages in
response to strong demand from that region.
Jupiters acquired Centrebet in 1998 from the business' founders. The Centrebet
business now comprises assets owned by Centrebet Pty Limited, Jupiters Limited
(Jupiters), Jupiters UK Limited (Jupiters UK) and Centrebet Limited (Centrebet
UK).
PRODUCTS
Centrebet offers betting options on many different sports, including more than
20 international football competitions, golf, tennis, motor racing, ice hockey,
rugby union and cricket. Australian sports such as Australian rules football and
rugby league and popular Nordic sports such as bandy, floorball and handball are
also offered. In addition, Centrebet runs books on special events including
political elections and annual events such as the Academy Awards and the
Eurovision song contest. Since May 2000, when the horseracing division of
Centrebet was sold, Centrebet has ceased to offer daily horseracing product but
does offer selected racing events.
In the year to 30 June 2003, Centrebet framed over 170,000 markets covering 50
sports. Of these sports, the major contributors to turnover are football
(soccer), tennis, ice hockey and basketball. Together these sports accounted for
over 70% of Centrebet's turnover in 2003.
Different types of fixed odds bets are offered by Centrebet, including single
bets and multiple bets (multi-bets). Higher margin multi-bets have grown at over
60% per annum on average since 2001 compared with approximately 43% for single
bets. Multi-bets now represent over 70% of all bets placed with Centrebet.
DISTRIBUTION AND MARKET
Centrebet Pty Limited is licensed by the Northern Territory Government to offer
sports and race bets by both telephone and the internet. However, internet
transactions have become an increasingly dominant driver of turnover. In the 12
months to 30 June 2003, internet transactions provided approximately 90% of the
value of bets received and approximately 99% of the number of bets received.
39
[PRICEWATERHOUSECOOPERS LOGO]
40
[PRICEWATERHOUSECOOPERS LOGO]
As mentioned above, Centrebet accepts bets internationally and maintains its
website in English, the Nordic languages (Danish, Finnish, Swedish and
Norwegian), German, French, Italian, Spanish, Portuguese and Dutch. Northern
Europe and Australasia contribute over 80% of turnover, reflecting the strength
of Centrebet's traditional Australian base and the early-mover advantage from
its Nordic client base.
CUSTOMER NUMBERS AND BETS
Centrebet's customer base has grown at a compound annual growth rate of 56%
since 1999. At present, Centrebet has over 145,000 customer accounts with
approximately 60,000 considered active (those who have registered bets in the
last six months). The diversity of the customer base is significant with
customers in almost 100 countries.
A survey conducted in October 2002, showed that of over 10,000 customers who
responded, 56% used Centrebet exclusively for their internet sports betting
activities. The survey also indicated that approximately 63% of these customers
had been a customer for more than a year.
IT INFRASTRUCTURE
The IT facilities at Centrebet are highly sophisticated. They are required to
maintain a 24 hours a day/7 days a week global operation experiencing
irregular peak processing periods with negligible unplanned downtime.
The primary servers are located in Alice Springs. Live bets are received from
one of three web host locations (Alice Springs, London and Brisbane), each
location having dual redundant systems with firewall protection and load
balancing.
Centrebet predominantly uses Compaq hardware for reliability and for the
presence of maintenance and support facilities in Alice Springs and the other
locations. Hardware applications typically run in redundant pairs, allowing
almost immediate fail over if required. Network infrastructure is based on Cisco
and Netgear appliances.
The main sports betting software package upon which Centrebet operates is called
'Centaur'. Centaur draws upon the functions of a Jupiters-wide hosting platform
called 'Cougar'. The Centaur system is Centrebet's second generation sports
betting package and incorporates a risk-management module to assist bookmakers
manage risk in open books.
REGULATION
Centrebet Pty Limited holds a sports bookmaker's licence valid until 2015,
issued by the Northern Territory Racing Commission (NTRC) under the Racing and
Betting Act, which authorises the sports bookmaker to conduct betting activities
by phone, by fax or via the internet. The Northern Territory licence allows
Centrebet to accept bets on national and international sports events listed on
the `Declaration of Sporting Events' issued by the NTRC.
41
[PRICEWATERHOUSECOOPERS LOGO]
Jupiters UK also holds a bookmaker's permit valid until 31 May 2006, issued
pursuant to the Betting, Gaming and Lotteries Act 1963 of the United Kingdom.
Under this permit, Jupiters acts as an internet bookmaker in and from the UK.
Under UK law, bookmakers are able to offer a variety of fixed odds betting
options, including such betting options as a Numbers game.
TAXATION
Centrebet Pty Limited is subject to the regulations and taxes as defined by the
Government of the Northern Territory. Currently, Centrebet is subject to the
following tax regime:
- - International bets:
- 0.25% of sporting and entertainment turnover
- 0.33% of racing turnover.
- - Domestic bets:
- 0.00% of sporting and entertainment turnover
- 0.33% of racing turnover
- Goods and Services Tax is applicable on domestic bets based on
a rate of one-eleventh of revenue.
- - Gaming revenues:
- the proposed rate is 4.0% of gross profits (revenue), but this
is subject to confirmation
- Jupiters UK Limited is subject to taxation levied at 15.0% of
gross profits.
42
[PRICEWATERHOUSECOOPERS LOGO]
FINANCIAL SUMMARY
FINANCIAL POSITION
The financial position of Centrebet as at 30 June 2003 is set out in table D1.
TABLE D1
30 JUNE 2003
S'000
------------
CURRENT ASSETS
Cash assets 14,578
Receivables 1,199
Other current assets 14,750
Prepayments 645
------
Total current assets 31,172
NON-CURRENT ASSETS(1)
Plant and equipment 0
Deferred tax assets 0
Intangibles 0
------
Total non-current assets 0
TOTAL ASSETS 31,172
------
CURRENT LIABILITIES
Payables 12,144
Current tax liabilities 0
Provisions 2,618
Intercompany loans 16,323
------
Total current liabilities 31,085
NON CURRENT LIABILITIES
Intercompany loan 0
Provisions 0
------
Total non-current liabilities 0
TOTAL LIABILITIES 31,085
------
NET ASSETS 87
------
Note: (1) Jupiters transferred non-current assets to current at 30 June 2003 as
Centrebet is for sale.
COMMENTARY
Based on discussions with management, and our review of the financial position
of Centrebet, we make the following observations on the major balances:
- - Cash - represents cash deposits from customers and cash required for
working capital
- - Other current assets - consists primarily of equipment relating to the
operation of the website, including servers, betting software etc, with
a written down value of $5.4 million, software development costs of
$4.1 million and intangibles of $4.9 million. These assets have been
transferred from non-current assets pending sale.
43
[PRICEWATERHOUSECOOPERS LOGO]
- - Intangibles - consists primarily of goodwill arising from the
acquisition of Centrebet from its former owner. Goodwill is being
amortised over seven years on a straight line basis.
- - Payables - consists primarily of amounts held on behalf of clients,
together with trade debtors.
- - Intercompany loan - an amount of $16.3 million is owed to Jupiters and
its controlled entities, we are advised this loan will be converted to
equity on the sale of Centrebet, up to a cap of $13.0 million.
SURPLUS ASSETS AND LIABILITIES
We have not identified any surplus assets or liabilities on the balance sheet of
Centrebet as at 30 June 2003.
FINANCIAL PERFORMANCE
The following table outlines the audited financial performance for Centrebet for
the three years ended 30 June 2003.
TABLE D2
HISTORICAL YEAR ENDING 30 JUNE
2001 2002 2003
$'000 $'000 $'000
-------------------------------------------------
TURNOVER
Sports betting
Europe 137,968 244,214 268,404
Australasia 71,310 103,268 99,901
Other 42,458 53,524 83,782
-------------------------------------------------
Total Sports betting 251,736 401,006 452,087
Horseracing - - -
-------------------------------------------------
TOTAL TURNOVER 251,736 401,006 452,087
REVENUE
Total Sports betting revenue (Gross win) 18,394 28,678 30,025
WIN RATE 7.3% 7.2% 6.6%
Other revenue (excl. interest income) 1,214 1,938 899
-------------------------------------------------
TOTAL OPERATING REVENUE 19,608 30,616 30,924
EXPENSES
Employee & payroll related expenses (3,907) (6,035) (6,676)
Marketing expenses (419) (1,925) (1,799)
Government Gaming taxes (707) (1,285) (1,497)
Information Technology expenses (575) (1,023) (2,381)
Other operating expenses (3,530) (5,489) (8,640)
------------------------------------------------
TOTAL OPERATING EXPENSES (9,138) (15,757) (20,993)
EBITDA 10,670 14,859 9,931(1)
Depreciation (611) (1,035) (2,120)
Amortisation (2,074) (2,074) (2,074)
EBIT 7,985 11,750 5,737
Net interest income/(Expense) 866 590 425
-------------------------------------------------
PROFIT BEFORE TAX 8,851 12,340 6,162
=================================================
44
[PRICEWATERHOUSECOOPERS LOGO]
Notes: (1) The EBITDA of $9.9 million is based on the 2003 Centrebet accounts.
The variation from the previously announced numbers is due to corporate charges.
Source: Centrebet Pty Limited Statutory Accounts, 30 June 2001, 30 June 2002 and
30 June 2003 audited by Horwarths NT Partnership.
COMMENTARY
Based on discussions with Management and review of the financial performance of
Centrebet, we note the following:
- - Betting turnover has continued to increase since 2001. The growth has
slowed in 2003 reflecting the increased competition from betting
exchanges and other internet operators. Centrebet has implemented
marketing initiatives in order to maintain new client registrations.
- - Turnover is seasonal and dependent upon significant sporting events
occurring around the globe. Historically, the second half of the
financial year is stronger than the first half due to a higher number
of key sports or events occurring in this period, however in 2003,
relative to the 2002 year, Centrebet did not reproduce the benefits
from the football World Cup which was held in May/June 2002
- - Win rates in 2003 were approximately 6.6% reflecting a decrease over
prior years
- - Expenses in 2003 were higher than prior years due primarily to
increased IT costs associated with the London & Brisbane server farms,
and additional costs of processing credit card transactions
- - EBITDA fell in the 2003 year as compared to the 2002 year, primarily as
a result of the increase in expenses incurred, despite higher betting
revenue
- - In particular, profitability has diminished since the decision in March
2003 to sell the business due to increased competition, regulatory
uncertainty and lower win rates.
The overall financial performance of the Centrebet business reflects the growth
in sports betting, particularly internet based sports betting both in Australia
and European markets. However, the Centrebet business was adversely impacted by
the combination of the sale and the increased competition in 2003. Future growth
will be dependent upon regulation of the industry in the various jurisdictions
around the world. For example, recent court rulings in Holland may limit the
ability of offshore entities to accept bets from Dutch citizens and new
legislation in Denmark is aimed at limiting the activities of offshore entities.
Centrebet has implemented strategies to minimise the risks of regulatory action,
but the risks remain and are likely to be felt in the ultimate sale price.
ESTIMATE OF GROSS CENTREBET PROCEEDS
On 12 August 2003 Jupiters announced it was in final negotiations with
shortlisted parties for the sale of Centrebet. It was also disclosed that the
sale price was being negotiated in the range of $60 million to $70 million.
Jupiters also noted that the consideration being discussed could be entirely
cash or a mixture of cash and securities.
As the Centrebet disposal process has been well marketed and it appears there is
a reasonable level of interest in the business, we are of the view that the
appropriate estimate
45
[PRICEWATERHOUSECOOPERS LOGO]
of Centrebet's value is the amount which a buyer is prepared to pay for it. This
approach is consistent with the decision taken by Jupiters to dispose of the
business.
We have, however, considered the EBITDA multiples implied by the estimated gross
sale proceeds for the Centrebet business. In considering the implied EBITDA
multiples we have used 2003 EBITDA as the latest estimate of earnings potential.
We have adopted this approach as, given the changing regulatory and competitive
conditions under which Centrebet operates, we are of the view that prospective
buyers will place more reliance on 2003 results than 2002 results.
TABLE D3
LOW HIGH
$ MILLION $ MILLION
--------- ---------
Gross sale proceeds 60.0 70.0
2003 EBITDA 9.9 9.9
------- ------
Implied EBITDA multiples 6.1 7.1
In our view the implied EBITDA multiple range of 6.1 to 7.1 is reasonable in
light of:
- - EBITDA multiples of comparable listed companies both in Australia and
overseas
- - The relative size of Centrebet
- - Regulatory uncertainty around Centrebet's operation in Nordic markets
- - Increased competition from UK based competitors in the Nordic markets
- - The competition from betting exchange, particularly at the top end or
wholesale segment of the Centrebet business.
CALCULATION OF NET CENTREBET PROCEEDS
The Net Centrebet Proceeds is the amount available to shareholders after
accounting for costs of the disposal and applicable capital gains tax. Jupiters
has announced that it is negotiating in a range of $60 million to $70 million,
however there is some risk such a price may not be achieved. At the low end of
our estimate of the gross Centrebet proceeds we have assumed Jupiters would not
sell Centrebet for less than the cost base of their investment in Centrebet
which is $23.4 million. At the upper end of our estimate, we assume Jupiters
achieves a gross price of $70 million.
On this basis we have estimated the value to Jupiters of Centrebet as being in
the range $21.5 million to $54.7 million as set out in Table D4. As for the
consideration, we recognise that given the timetable set out for the Centrebet
sale under the Proposed Merger there is some possibility, albeit low, that
Jupiters Ordinary Shareholders may receive no proceeds. For this reason, in
estimating the value of the consideration offered to Jupiters Ordinary
Shareholders under the Proposed Merger we have assumed a nil value at the low
end of the range.
TABLE D4
JUPITERS VALUATION CONSIDERATION
LOW HIGH LOW HIGH
$ MILLION $ MILLION $ MILLION $ MILLION
-------------------------------------------------------------
Value of all equity 23.4 70.0 - 70.0
Add: purchase price adjustments (1) 2.1 2.1 - 2.1
Less: transaction costs(2) (4.0) (4.0) - (4.0)
Less: capital gains tax(3) (-) (13.4) - (13.4)
-----------------------------------------------------------
Net proceeds available for distribution 21.5 54.7 - 54.7
-----------------------------------------------------------
46
[PRICEWATERHOUSECOOPERS LOGO]
Notes:
(1) Net purchase price adjustments are based on estimates provided by Jupiters
and reflect estimated adjustments relating to client deposits as well as
profits of the Centrebet business to the sale date.
(2) Transaction costs are based on estimates provided by Jupiters and reflect
adviser's fees and other transaction expenses.
(3) Capital gains tax has been calculated using a cost base for the shares in
Centrebet of $23.4 million.
47
[PRICEWATERHOUSECOOPERS LOGO]
THE DIRECTORS, JUPITERS LIMITED
APPENDIX E - GLOSSARY
ASIC Australian Securities and Investments Commission
ASX Australian Stock Exchange Limited
ATO Australian Taxation Office
Australian gambling industry Includes all legalised regulated gambling in
Australia, gambling includes lotteries, gaming
and wagering.
Centrebet Centrebet Pty Limited
Centrebet Note An unsecured note to be issued by TABCORP
Issuer, if the sale of Centrebet is not
completed by 31 October 2003
Club Keno Joint Keno activity conducted by Tattersall's
and TABCORP
Cum-dividend The period in which a share trades with a right
to a dividend attached.
DCF Discounted Cash Flow
DPS Dividends per Share
EBIT Earnings before interest and taxation
EBITDA Earnings before interest, taxation, depreciation
and amortisation
EPS Earnings per Share
ES Explanatory Statement
Gambling Gambling is the (lawful) placement of a wager or
bet on the outcome of a future uncertain event
Gaming Gaming is gambling generally through casinos,
keno and gaming machines
IER Independent Expert's Report
Jupiters Jupiters Limited
Keno Keno is a game where a player wagers that their
chosen numbers match any of the 20 numbers
randomly selected from a group of 80 numbers via
a computer system or a ball draw device. In most
states, Keno is linked to many venues within a
particular jurisdiction, enabling the operator
to offer large jackpot prizes. Keno has a fixed
pay scale such that the pay out for each wager
is established by rules and is independent of
the total wagers made on the game
Merged TABCORP TABCORP Holdings Limited and subsidiaries after
the proposed merger with Jupiters
MIA Merger Implementation Agreement between Jupiters
and TABCORP
Net Centrebet Proceeds The balance of proceeds from the sale of
Centrebet less transaction costs and capital
gains tax to be distributed to shareholders.
Further detail is provided in the MIA
48
[PRICEWATERHOUSECOOPERS LOGO]
THE DIRECTORS, JUPITERS LIMITED
NTA Net Tangible Assets
Offer Price Has the meaning given in the RPS Terms
Portfolio value The value of a share in a company without any
control premium
49
[PRICEWATERHOUSECOOPERS LOGO]
THE DIRECTORS, JUPITERS LIMITED
Premium over VWAP The amount by which the Offer Price exceeds the
VWAP over the 20 business days immediately
preceding the announcement of the Scheme of
Arrangement.
Proposed Merger The proposal pursuant to the Scheme of
Arrangement, whereby TABCORP would acquire all
the ordinary shares in Jupiters
PwCS PricewaterhouseCoopers Securities Ltd
RPS Reset Preference Shares issued by Jupiters
RPS Terms As defined in the Scheme Booklet
Special Conversion Notice As defined in the Scheme Booklet
Star City Star City Holdings Ltd
TABCORP TABCORP Holdings Limited
TABCORP Investments TABCORP Investments No 2 Pty Ltd
TABCORP Issuer TABCORP Issuer Pty Ltd
Trigger Event As defined in the Scheme Booklet
Trigger Event Conversion As defined in the Scheme Booklet
Notice
UNiTAB UNiTAB Limited is listed on the ASX and provides
wagering and betting services in Australia. The
Company holds a licence to operate both
on-course and off-course totalisators for race
wagering in Queensland and also to conduct
sports betting. The Company also offers
interactive trade betting through the Internet
and telephone and other services including Keno,
FootyTAB and fixed odds sports betting products
WACC Weighted Average Cost of Capital
Wagering Wagering is gambling generally through racing
and sports betting.
50
APPENDIX G
ERNST & YOUNG TAXATION OPINION FOR THE RPS SCHEME
[ERNST & YOUNG LETTERHEAD]
5 September 2003
The Directors
Jupiters Limited
PO Box 1400
BROADBEACH QLD 4218
Dear Sirs and Madam
JUPITERS RPS SCHEME
AUSTRALIAN TAX CONSEQUENCES FOR RPS HOLDERS
This letter has been prepared at the request of the Directors for inclusion in
the Scheme Booklet dated 5 September 2003 relating to the RPS Scheme between
Jupiters and RPS Holders in respect to a recommended merger with the TABCORP
Group.
1. TAX IMPLICATIONS ADDRESSED IN THIS LETTER
This letter contains a general description of the Australian income and capital
gains tax consequences that will arise for RPS Holders as a consequence of the
RPS Scheme. Unless otherwise defined in this letter, capitalised terms used in
this letter take the same meaning ascribed to them in the Scheme Booklet.
The summary that follows is relevant only to those RPS Holders who hold their
shares on capital account. RPS Holders who may hold their shares on revenue
account, with a profit making intention or as trading stock, such as banks,
insurance companies and professional investors should seek advice in relation to
their specific circumstances.
The summary that follows is limited to the Australian income tax implications of
the RPS Scheme. RPS Holders who are not resident in Australia for tax purposes
should seek separate advice in relation to the taxation implications under the
laws of their country of residence in relation to the RPS Scheme.
Scheme Booklet - Part 9
2
[ERNST & YOUNG LOGO]
2. TAXATION IMPLICATIONS
2.1 CONSEQUENCES OF THE RPS SCHEME
TABCORP proposes to acquire all the RPS by way of a separate scheme of
arrangement, the RPS Scheme. If the RPS Scheme is approved, each RPS
Holder will transfer all their RPS to TABCORP Investments and in return
will receive cash consideration of $105.26 plus a payment equal to the
amount of Accrued Dividend Equivalent (if any) for each RPS. The
consideration that the RPS Holders will receive is specified in detail
in section 13.2 of the Scheme Booklet.
The release of the Scheme Booklet to ASX constitutes a Trigger Event
under the RPS Terms. Accordingly, some RPS Holders may choose to serve
a Trigger Event Conversion Notice on Jupiters rather than participating
in the RPS Scheme.
Under the terms of the Merger Implementation Agreement, Jupiters has
agreed with TABCORP to arrange for any RPS subject to a Trigger Event
Conversion Notice to be sold to TABCORP Investments. TABCORP
Investments will provide consideration for this sale equal to the
Repurchase Amount. The Independent Expert's Report states that the
Independent Expert's estimate of the amount that will be payable as the
Repurchase Amount will be $101.12. In addition, RPS Holders who serve a
Trigger Event Conversion Notice on Jupiters will receive a payment from
Jupiters equal to the amount of the dividend then accrued on those RPS.
In addition to participating in the RPS Scheme or serving a Trigger
Event Conversion Notice on Jupiters, RPS Holders may:
- - convert their RPS into Jupiters Ordinary Shares at any time by
delivering to Jupiters a Special Conversion Notice; or
- - continue to hold their RPS.
These two alternatives are not altered by the RPS Scheme. As such, this
letter does not deal with the tax implications of these. RPS Holders
should refer to the taxation description contained in documentation
issued by Jupiters at the time of the initial public offer of the RPS
in relation to these matters.
2.2 DISPOSAL OF RPS UNDER THE RPS SCHEME
The transfer of the RPS by RPS Holders to TABCORP Investments under the
RPS Scheme will result in a Capital Gains Tax (CGT) event.
Scheme Booklet - Part 9
3
[ERNST & YOUNG LOGO]
2.2.1 AUSTRALIAN RESIDENT RPS HOLDERS
RPS Holders who are Australian residents may make a capital gain or
capital loss in respect of the CGT event. A capital gain will arise if
the capital proceeds exceed the cost base of the RPS. A capital loss
will arise where the capital proceeds are less than the reduced cost
base of the RPS. No CGT roll-over relief will be available in respect
of this transaction.
The amount of capital proceeds from a CGT event is generally the sum of
the money received or receivable and the market value of any other
property received or receivable `in respect of' the CGT event. As the
additional cash amount in respect of Accrued Dividend Equivalents is
paid by TABCORP Investments and not Jupiters the additional cash amount
relates to the CGT event and as such will form part of the capital
proceeds for the CGT event. That is, even though it is calculated with
reference to dividends accrued on the RPS, the amount is not paid by
Jupiters to RPS Holders and as such, will not constitute a dividend.
Accordingly, the capital proceeds in respect of the CGT event for each
RPS are equal to the $105.26 cash payment plus the additional cash
amount received in respect of the Accrued Dividend Equivalent.
RPS Holders who are individuals, complying superannuation entities or
trustees of a trust estate who have held RPS for at least 12 months
should be entitled to discount the amount of any capital gain (after
application of any capital losses). The amount of this discount is 50%
in the case of individuals and trustees and 33 1/3% for complying
superannuation entities. Trustees should seek specific advice regarding
the tax consequences of distributions to beneficiaries attributable to
discounted capital gains.
Capital gains and capital losses of a taxpayer in a year of income are
aggregated to determine whether there is a net capital gain. Any net
capital gain is included in assessable income and is subject to income
tax at each RPS Holder's ordinary tax rate(s). Net capital losses may
not be deducted against other income for income tax purposes, but may
be carried forward to offset against capital gains derived in future
income years. Specific loss carry forward rules will apply to company
and trustee RPS Holders in these circumstances.
2.2.2 NON-RESIDENT RPS HOLDERS
RPS Holders who are not resident in Australia for tax purposes are
generally only subject to Australian CGT on the disposal of assets that
have the necessary connection with Australia. RPS will have the
necessary connection with Australia if:
(i) the RPS Holder and their associates have held 10% or more by
value of the Jupiters Ordinary Shares at any time in the five
years preceding the disposal of their RPS; or
Scheme Booklet - Part 9
4
[ERNST & YOUNG LOGO]
(ii) the RPS are held in connection with the conduct of business by
the RPS Holder through a permanent establishment in Australia.
Where a non-resident RPS Holder holds RPS that have the necessary
connection with Australia, the Australian taxation implications of the
transfer of such RPS to TABCORP Investments are as discussed above in
relation to Australian resident RPS Holders. However, relief from
taxation in Australia may be available for some non-resident RPS
Holders pursuant to a Double Tax Agreement (DTA). The availability of
such relief will be dependent on the RPS Holder's individual
circumstances and the terms of the relevant DTA. RPS Holders should
seek their own professional advice in relation to this matter.
Where a non-resident RPS Holder holds RPS that do not have the
necessary connection with Australia, the RPS Holder should not
generally be taxed in Australia in respect of the disposal.
Under Australian tax laws certain payments of interest and dividends by
residents of Australia to non-residents of Australia are subject to a
final withholding tax. Whilst an additional cash amount will be paid by
TABCORP Investments in respect of the Accrued Dividend Equivalent on
the RPS, this is neither a payment of a dividend nor a payment of
interest for Australian tax purposes. The withholding tax rules also
contain certain provisions that can deem payments to be interest.
Whilst not completely free from doubt, the better view is that these
deeming provisions do not apply. Accordingly, no Australian withholding
tax should be payable in respect of the additional cash amount.
2.3 DISPOSAL OF RPS AS A RESULT OF A TRIGGER EVENT CONVERSION NOTICE
The transfer of the RPS by RPS Holders to TABCORP Investments, as a
result of serving a Trigger Event Conversion Notice on Jupiters, will
result in a CGT event.
2.3.1 AUSTRALIAN RESIDENT RPS HOLDERS
The tax implications of the transfer of RPS to TABCORP
Investments in these circumstances are the same as those
described above at 2.2.1, with the exception that the capital
proceeds in respect of the CGT event will equal the Repurchase
Amount paid by TABCORP Investments. The amount of the dividend
accrued on the RPS paid by Jupiters will not form part of
capital proceeds in respect of the CGT event.
The payment of the accrued dividend by Jupiters will
constitute a dividend for the purposes of the Corporations
Act. As RPS constitute a debt interest for Australian income
tax purposes, any dividend paid to RPS Holders in respect of
their RPS cannot be franked. The dividend will be included in
the assessable income of the RPS Holder in the income year in
which the dividend is paid. Tax will be payable in respect of
this dividend at each RPS Holder's ordinary tax rate(s).
Scheme Booklet - Part 9
5
[ERNST & YOUNG LOGO]
As the dividend is unable to be franked, RPS Holders will only
be required to bring into assessable income the actual amount
of the dividend paid by Jupiters. That is, no franking credit
is required to be included in assessable income, and no tax
offset (or rebate) will be available to any RPS Holder in
respect of the dividend.
2.3.2 NON-RESIDENT RPS HOLDERS
The taxation implications of the disposal of RPS by
non-residents of Australia in these circumstances are the same
as those described above at 2.2.2, with the exception that the
capital proceeds in respect of the CGT event are limited to
the Repurchase Amount paid by TABCORP Investments.
Under Australian tax laws certain payments of interest and
dividends are subject to a final withholding tax. The dividend
accrued on the RPS which will be paid by Jupiters will be
considered a payment of interest for Australian withholding
tax purposes as it is paid in respect of a debt interest.
A final Australian interest withholding tax of 10% will be
payable in respect of the dividend received by non-resident
RPS Holders unless the RPS are held in connection with the
conduct of a business by the RPS Holder through a permanent
establishment in Australia. Where a RPS Holder is a resident
of a country with whom Australia has concluded a DTA, this
rate of withholding tax may be reduced. Non-resident RPS
Holders should seek their own advice concerning the existence
of a Double Tax Agreement (DTA) between Australia and their
country of residence and the applicable withholding tax rate.
Where the RPS are held in connection with a permanent
establishment in Australia, the amount of the dividend paid by
Jupiters will be included in the assessable income of the RPS
Holder. Tax will be payable by each such RPS Holder in respect
of the dividend at their ordinary tax rate(s).
3. OTHER MATTERS
Our letter is based upon the law in effect at the date of the Scheme Booklet. It
is not intended to be an authoritative or complete statement of the law
applicable to the particular circumstances of every RPS Holder. The above
statements are not binding on the ATO and there can be no assurance that the ATO
will not take a position contrary to the statements expressed herein.
Tax laws are complicated and there could be implications for RPS Holders in
addition to those described above. RPS Holders should seek independent
professional advice in relation to their particular circumstances.
Scheme Booklet - Part 9
6
[ERNST & YOUNG LOGO]
Ernst & Young's involvement is limited to the preparation of this letter. This
letter does not constitute an endorsement of the RPS Scheme. Ernst & Young
expresses no opinion and gives no assurance or guarantee in respect of the
commercial benefits of the planned Merger.
We have provided consent for the inclusion of this letter in the Scheme Booklet.
This consent has not been withdrawn at the date of this letter.
Yours faithfully
(ERNST & YOUNG)
Ernst & Young
Scheme Booklet - Part 9
7
APPENDIX H
RPS SCHEME
SCHEME OF ARRANGEMENT
PURSUANT TO SECTION 411 OF THE CORPORATIONS ACT 2001 (CTH)
BETWEEN
JUPITERS LIMITED (ABN 78 010 741 045) of 17 Victoria Avenue,
Broadbeach, Queensland, Australia
AND
THE HOLDERS OF FULLY PAID RESET PREFERENCE SHARES IN JUPITERS
LIMITED (other than any person holding fully paid reset
preference shares in Jupiters Limited on behalf of, or for the
benefit of, TABCORP or any of its Related Entities)
1. DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS
In this document, the following definitions apply unless the context
requires otherwise.
ASIC means the Australian Securities and Investments Commission.
ASX means Australian Stock Exchange Limited (ABN 98 008 624 691).
ASX LISTING RULES means the official listing rules of ASX.
BUSINESS DAY has the meaning given in the ASX Listing Rules.
CHESS means the Clearing House Electronic Subregister System for the
electronic transfer of securities, operated by ASX Settlement and
Transfer Corporation Pty Limited (ABN 49 008 504 532).
CONDITIONS PRECEDENT means the conditions precedent set out in clause
3.1.
CORPORATIONS ACT means the Corporations Act 2001 (Cth).
COURT means the Supreme Court of Queensland.
DEED POLL means the Deed Poll dated 3 September 2003 executed by,
amongst others, TABCORP and TABCORP Investments, pursuant to which each
of TABCORP and TABCORP Investments has, amongst other things,
covenanted in favour of Scheme RPS Holders to perform the obligations
contemplated of it under the RPS Scheme.
Page 1
SCHEME OF ARRANGEMENT
EFFECTIVE DATE means the date on which the Scheme Order comes into
effect pursuant to section 411(10) of the Corporations Act.
EXCLUDED RPS means an RPS held by any person on behalf of, or for the
benefit of, TABCORP or any of its Related Entities, and any RPS in
respect of which a Conversion Notice has been given to Jupiters, and
has not been withdrawn, under clause 4 of the RPS Terms and in respect
of which the Conversion Date under the RPS Terms is on or before the
Implementation Date.
IMPLEMENTATION DATE means the third Business Day after the Record Date.
JUPITERS means Jupiters Limited (ABN 78 010 741 045).
JUPITERS BOARD means the board of directors of Jupiters.
JUPITERS SHARE REGISTER means the register of members of Jupiters
maintained pursuant to the Corporations Act.
JUPITERS SHARE REGISTRY means Computershare Investor Services Pty
Limited (ABN 48 078 279 277) of Level 27, Central Plaza One, 345 Queen
Street, Brisbane, Queensland.
MERGER IMPLEMENTATION AGREEMENT means the Merger Implementation
Agreement dated 12 June 2003 between TABCORP and Jupiters.
ORDINARY SHARE SCHEME means the scheme of arrangement under Part 5.1 of
the Corporations Act between Jupiters and the holders of fully paid
ordinary shares in the capital of Jupiters (other than any person
holding fully paid ordinary shares in Jupiters on behalf of, or for the
benefit of, TABCORP or any of its Related Entities).
RECORD DATE means 5.00pm on the fifth Business Day after the Effective
Date.
REGISTERED ADDRESS means, in relation to an RPS Holder, the address
shown in the Jupiters Share Register.
RELATED ENTITY means, in relation to a person, any entity which is
related to that person within the meaning of section 50 of the
Corporations Act or which is an economic entity (as defined in any
approved Australian accounting standard) that is controlled by that
person.
RPS means a fully paid reset preference share in the capital of
Jupiters issued on the RPS Terms.
RPS HOLDER means each person registered in the Jupiters Share Register
as the holder of RPS.
RPS SCHEME means this scheme of arrangement, subject to any alterations
or conditions made or required by the Court under section 411(6) of the
Corporations Act.
RPS SCHEME CONSIDERATION means the consideration to be provided to
Scheme RPS Holders for the transfer to TABCORP Investments of their
Scheme RPS, ascertained in accordance with clause 5.
RPS TERMS means the Terms and Conditions of the RPS, as set out in
appendix A to the prospectus dated 28 February 2002 issued by Jupiters,
as those Terms and Conditions were amended by the Jupiters Board and
announced to ASX on 12 June 2003.
Page 2
SCHEME OF ARRANGEMENT
SCHEME MEETING means the meeting ordered by the Court to be convened
pursuant to section 411(1) of the Corporations Act in relation to the
RPS Scheme.
SCHEME ORDER means the order of the Court made for the purposes of
section 411(4)(b) of the Corporations Act in relation to the RPS
Scheme.
SCHEME RPS means the RPS on issue at the Record Date (including any RPS
in respect of which a Conversion Notice has been given to Jupiters, and
has not been withdrawn, under clause 4 of the RPS Terms and in respect
of which the Conversion Date under the RPS Terms has not occurred)
other than the Excluded RPS.
SCHEME RPS HOLDER means each person registered in the Jupiters Share
Register as the holder of Scheme RPS as at the Record Date.
SECOND COURT DATE means the first day on which an application made to
the Court for the Scheme Order is heard or, if the application is
adjourned for any reason, the first day on which the adjourned
application is heard.
TABCORP means TABCORP Holdings Limited (ABN 66 063 780 709).
TABCORP INVESTMENTS means TABCORP Investments No.2 Pty Ltd (ABN 74 105
341 375), a wholly-owned Related Entity of TABCORP.
1.2 INTERPRETATION
Headings are for convenience only and do not affect interpretation. The
following rules apply unless the context requires otherwise.
(a) The singular includes the plural and conversely.
(b) A gender includes all genders.
(c) If a word or phrase is defined, its other grammatical forms
have a corresponding meaning.
(d) A reference to a person, corporation, trust, partnership,
unincorporated body, government agency or other entity
includes any of them.
(e) A reference to a clause is a reference to a clause of this
document.
(f) A reference to a person includes a reference to the person's
executors, administrators, successors, substitutes (including,
without limitation, persons taking by novation) and assigns.
(g) A reference to an agreement or document (including, without
limitation, a reference to this document) is to the agreement
or document as amended, varied, supplemented, novated or
replaced, except to the extent prohibited by this document or
that other agreement or document.
(h) A reference to any legislation or to a provision of any
legislation includes a modification or re-enactment of it, any
legislative provision substituted for it and all regulations
and statutory instruments issued under it.
(i) Words and phrases not specifically defined in this document
have the same meanings (if any) given to them in the
Corporations Act.
Page 3
SCHEME OF ARRANGEMENT
(j) A reference to time is a reference to time in Brisbane,
Australia.
(k) A reference to $ is to the lawful currency of Australia.
2. PRELIMINARY
2.1 JUPITERS
(a) Jupiters is a public company incorporated in Australia and
registered in Queensland and is a company limited by shares.
Its registered office is at Level 9, Niecon Tower, 17 Victoria
Avenue, Broadbeach, Queensland.
(b) Jupiters has been admitted to the official list of ASX and RPS
have been granted official quotation on the stock market
conducted by ASX.
(c) As at 31 August 2003, 1,901,735 RPS were on issue.
2.2 TABCORP
TABCORP is a public company incorporated in Australia and registered in
Victoria and is a company limited by shares. Its registered office is
at 5 Bowen Crescent, Melbourne, Victoria.
2.3 TABCORP INVESTMENTS
TABCORP Investments is a proprietary company incorporated in Australia
and registered in Victoria and is a company limited by shares. Its
registered office is at 5 Bowen Crescent, Melbourne, Victoria.
2.4 SUMMARY OF THE RPS SCHEME
(a) If the RPS Scheme becomes effective (by virtue of the Scheme
Order coming into effect in accordance with section 411(10) of
the Corporations Act) then:
(i) all the Scheme RPS will be transferred to TABCORP
Investments, and TABCORP Investments will provide the
RPS Scheme Consideration to Scheme RPS Holders in
accordance with the provisions of the RPS Scheme; and
(ii) Jupiters will enter the name and address of TABCORP
Investments in the Jupiters Share Register as the
holder of the Scheme RPS.
(b) TABCORP has executed the Deed Poll in favour of the Scheme RPS
Holders, pursuant to which it has covenanted to perform the
obligations contemplated of it under the RPS Scheme, and to
procure that TABCORP Investments performs the obligations
contemplated of TABCORP Investments under the RPS Scheme.
(c) TABCORP Investments has executed the Deed Poll in favour of
the Scheme RPS Holders, pursuant to which it has covenanted to
perform the obligations contemplated of it under the RPS
Scheme.
Page 4
SCHEME OF ARRANGEMENT
3. CONDITIONS PRECEDENT
3.1 CONDITIONS
The RPS Scheme is conditional on each of the following conditions
precedent:
(a) as at 8.00 am on the Second Court Date, all of the conditions
set out in clause 3.1 of the Merger Implementation Agreement
have been satisfied or waived in accordance with the terms of
the Merger Implementation Agreement;
(b) as at 8.00am on the Second Court Date, the Merger
Implementation Agreement has not been terminated;
(c) the RPS Scheme has been approved by the requisite majorities
of RPS Holders in accordance with section 411(4)(a) of the
Corporations Act at the Scheme Meeting;
(d) the Court has approved the Ordinary Share Scheme, with or
without modification, pursuant to section 411(4)(b) of the
Corporations Act;
(e) the Court has approved the RPS Scheme, with or without
modification, pursuant to section 411(4)(b) of the
Corporations Act;
(f) such other conditions made or required by the Court under
section 411(6) of the Corporations Act in relation to the RPS
Scheme as are acceptable to TABCORP and Jupiters have been
satisfied,
and the RPS Scheme will be of no force or effect unless and until the
Conditions Precedent are satisfied.
3.2 CERTIFICATE
At the hearing by the Court of the application for the Scheme Order,
TABCORP and Jupiters will each provide to the Court a certificate
confirming whether or not all of the conditions set out in clause 3.1
of the Merger Implementation Agreement have been satisfied or waived in
accordance with the terms of the Merger Implementation Agreement.
3.3 TERMINATION OF MERGER IMPLEMENTATION AGREEMENT
In the event that the Merger Implementation Agreement is terminated,
each of Jupiters, TABCORP and TABCORP Investments is released from:
(a) any further obligation to take steps to implement the RPS
Scheme; and
(b) any liability with respect to the RPS Scheme.
4. IMPLEMENTATION OF THE RPS SCHEME
4.1 LODGEMENT
Jupiters must lodge with ASIC an office copy of the Scheme Order
promptly after, and in any event by 5.00pm on the first Business Day
after the date on which, the Court makes that order.
Page 5
SCHEME OF ARRANGEMENT
4.2 TRANSFER OF SCHEME RPS
On the Implementation Date, all of the Scheme RPS (together with all
rights and entitlements attaching to the Scheme RPS) will be
transferred to TABCORP Investments, without the need for any further
act by any Scheme RPS Holder, by Jupiters effecting a valid transfer or
transfers of the Scheme RPS to TABCORP Investments under section 1074D
of the Corporations Act or, if that procedure is not available for any
reason, by:
(a) Jupiters delivering to TABCORP duly completed and executed
share transfer forms (which may be a master transfer of all or
part of the Scheme RPS) to transfer all of the Scheme RPS to
TABCORP Investments;
(b) TABCORP Investments executing and delivering the share
transfer forms to Jupiters; and
(c) Jupiters entering the name and address of TABCORP Investments
in the Jupiters Share Register as the holder of all of the
Scheme RPS.
4.3 PAYMENT OF RPS SCHEME CONSIDERATION
In consideration for the transfer to TABCORP Investments of each Scheme
RPS on the Implementation Date, TABCORP Investments will pay to each
Scheme RPS Holder the RPS Scheme Consideration.
5. RPS SCHEME CONSIDERATION
5.1 CALCULATION OF RPS SCHEME CONSIDERATION
The RPS Scheme Consideration in respect of each Scheme RPS comprises:
(a) a cash amount of $105.26; plus
(b) an additional cash amount equal to the dividend accrued on
that Scheme RPS under clause 2.1 of the RPS Terms, calculated
on the basis of the number of days from (and including) the
immediately preceding Dividend Payment Date under the RPS
Terms to (but excluding) the Implementation Date.
5.2 PAYMENT OF RPS SCHEME CONSIDERATION
(a) The obligation of TABCORP Investments to pay the RPS Scheme
Consideration will be satisfied by TABCORP Investments within
five Business Days after the Implementation Date either, in
relation to each Scheme RPS Holder:
(i) dispatching, or procuring the dispatch of, a cheque
to the Scheme RPS Holder by pre-paid post to their
Registered Address (as at the Record Date), such
cheque being drawn in the name of the Scheme RPS
Holder; or
(ii) making a deposit in an account with any ADI (as
defined in the Banking Act 1959 (Cth)) in Australia
notified by the Scheme RPS Holder to Jupiters and
recorded in or for the purposes of the Jupiters Share
Register at the Record Date,
Page 6
SCHEME OF ARRANGEMENT
for the relevant amount, with that amount being denominated in
Australian dollars.
(b) In the case of Scheme RPS held in joint names any cheque
required to be paid to Scheme RPS Holders will be payable to
the joint holders and be forwarded to the holder whose name
appears first in the Jupiters Share Register at the Record
Date.
6. DEALINGS IN RPS
6.1 DEALINGS PRIOR TO RECORD DATE
(a) For the purpose of establishing the persons who are Scheme RPS
Holders, dealings in RPS will only be recognised if:
(i) in the case of dealings of the type to be effected
using CHESS, the transferee is registered in the
Jupiters Share Register as the holder of the relevant
RPS by the Record Date; and
(ii) in all other cases, registrable transfers or
transmission applications in respect of those
dealings are received at the Jupiters Share Registry
by the Record Date.
(b) Jupiters will register registrable transfers or transmission
applications of the kind referred to in clause 6.1(a)(ii) by
the Record Date. Jupiters will not accept for registration,
nor recognise for any purpose, any transfer or transmission
application in respect of RPS received after the Record Date
(other than the transfers contemplated by clause 4.2).
6.2 DEALINGS AFTER RECORD DATE
(a) For the purpose of determining entitlements to the RPS Scheme
Consideration, Jupiters will, until the RPS Scheme
Consideration has been provided in accordance with the RPS
Scheme, maintain or procure the maintenance of the Jupiters
Share Register in accordance with this clause 6, and the
Jupiters Share Register in this form will solely determine
entitlements to the RPS Scheme Consideration. Each entry on
the Jupiters Share Register at the Record Date relating to
Scheme RPS will cease to have any effect other than as
evidence of the entitlement to the RPS Scheme Consideration in
respect of those Scheme RPS.
(b) From the Record Date, all certificates and holding statements
for Scheme RPS existing as at the Record Date will cease to
have effect as documents of title in respect of those Scheme
RPS, other than for the purpose of registering dealings in RPS
in accordance with clause 6.1.
6.3 PROVISION OF INFORMATION
On or before 9.00am on the Implementation Date, Jupiters must give to
TABCORP details of the names, Registered Addresses and holdings of
Scheme RPS of every
Page 7
SCHEME OF ARRANGEMENT
Scheme RPS Holder as shown in the Jupiters Share Register at the Record
Date, such details to be provided in such form as TABCORP may
reasonably require.
7. GENERAL SCHEME PROVISIONS
7.1 RPS SCHEME ALTERATIONS AND CONDITIONS
If the Court proposes to approve the RPS Scheme subject to any
alterations or conditions, Jupiters may, by its counsel or solicitors
but subject to the prior approval of TABCORP, consent on behalf of all
persons concerned to those alterations or conditions.
7.2 COVENANTS BY SCHEME RPS HOLDERS
Each Scheme RPS Holder:
(a) agrees to the transfer of their Scheme RPS to TABCORP
Investments, in accordance with the RPS Scheme;
(b) without the need for any further act, irrevocably appoints
Jupiters and each of the directors and officers of Jupiters,
jointly and severally, as the Scheme RPS Holder's attorney and
agent for the purpose of executing any document or doing any
other act necessary to give full effect to the RPS Scheme and
the transactions contemplated by it (including, without
limitation, the provision of a proper instrument of transfer
of the Scheme RPS Holder's Scheme RPS for the purposes of
section 1071B of the Corporations Act (which may be a master
transfer of all or part of the Scheme RPS)); and
(c) consents to Jupiters doing all things and executing all deeds,
instruments, transfers and other documents as may be necessary
or desirable to give full effect to the RPS Scheme and the
transactions contemplated by it.
7.3 STATUS OF SCHEME RPS
(a) Each Scheme RPS Holder is deemed to have warranted to TABCORP
and to TABCORP Investments that all their Scheme RPS
(including any rights and entitlements attaching to those
shares) transferred to TABCORP Investments under the RPS
Scheme will, as at the date of the transfer, be fully paid and
free from all mortgages, charges, liens, encumbrances,
pledges, security interests and other interests of third
parties of any kind, whether legal or otherwise, and that they
have full power and capacity to sell and to transfer their
Scheme RPS (including any rights and entitlements attaching to
those shares) to TABCORP Investments under the RPS Scheme.
(b) The Scheme RPS transferred to TABCORP Investments under the
RPS Scheme will be transferred free from all mortgages,
charges, liens, encumbrances, pledges, security interests and
other interests of third parties of any kind, whether legal or
otherwise, that will bind TABCORP Investments.
Page 8
SCHEME OF ARRANGEMENT
(c) Pending registration by Jupiters of the name and address of
TABCORP Investments in the Jupiters Share Register as the
holder of the Scheme RPS:
(i) TABCORP Investments will be beneficially entitled to
the Scheme RPS transferred to it under the RPS
Scheme; and
(ii) each Scheme RPS Holder irrevocably appoints TABCORP
Investments as its sole proxy and, where appropriate,
its corporate representative to attend shareholders'
meetings of Jupiters, exercise the votes attached to
the Scheme RPS registered in the name of the Scheme
RPS Holder and sign any shareholders' resolution of
Jupiters, and the Scheme RPS Holder may not itself
attend or vote at any such meetings or sign any such
resolutions, whether in person, by proxy or by
corporate representative.
7.4 EFFECT OF RPS SCHEME
The RPS Scheme binds Jupiters and all RPS Holders from time to time
and, to the extent of any inconsistency, overrides the constitution of
Jupiters and the RPS Terms.
7.5 NOTICES
Where a notice, transfer, transmission application, direction or other
communication referred to in the RPS Scheme is sent by post to
Jupiters, it will not be deemed to be received in the ordinary course
of post or on a date other than the date (if any) on which it is
actually received at Jupiters' registered office or at the Jupiters
Share Registry.
7.6 FURTHER ASSURANCES
Jupiters will do all things and execute all deeds, instruments,
transfers and other documents as may be necessary or desirable to give
full effect to the RPS Scheme and the transactions contemplated by it.
7.7 COSTS AND STAMP DUTY
Jupiters will pay the costs of the RPS Scheme, except that TABCORP
Investments will pay any stamp duty payable on the transfer by Scheme
RPS Holders of the Scheme RPS to TABCORP Investments.
7.8 PROPER LAW
The proper law of the RPS Scheme is the law of Queensland.
Page 9
APPENDIX I
DEED POLL
DEED POLL
TABCORP Holdings Limited
TABCORP Investments No.2 Pty Ltd
TABCORP Issuer Pty Ltd
Stock Exchange Centre
530 Collins Street
Melbourne VIC 3000
Tel 61 3 9614 1011
Fax 61 3 9614 4661
www.aar.com.au
(C) Copyright Allens Arthur Robinson 2003
Deed Poll [Allens Arthur Robinson LOGO]
TABLE OF CONTENTS
1. DEFINITIONS AND INTERPRETATION 2
1.1 Definitions 2
1.2 Interpretation 2
2. NATURE OF DEED POLL 2
3. CONDITIONS PRECEDENT AND TERMINATION 2
3.1 Conditions precedent 2
3.2 Termination 2
3.3 Consequences of termination 2
4. COMPLIANCE WITH ORDINARY SHARE SCHEME OBLIGATIONS 3
4.1 Payment of Ordinary Share Scheme Consideration 3
4.2 Provision of Scrip Consideration 3
4.3 Payment of cash amounts 4
4.4 Provision of Centrebet Notes 4
4.5 Joint holders 4
4.6 Deferred settlement trading of TABCORP Shares 5
4.7 Miscellaneous obligations 5
5. COMPLIANCE WITH RPS SCHEME OBLIGATIONS 5
5.1 Payment of RPS Scheme Consideration 5
5.2 Payment of cash amounts 5
5.3 Miscellaneous obligations 6
6. REPRESENTATIONS AND WARRANTIES 6
7. CONTINUING OBLIGATIONS 6
8. FURTHER ASSURANCES 6
9. NOTICES 6
10. NO WAIVER 7
11. REMEDIES CUMULATIVE 7
12. AMENDMENT 8
13. STAMP DUTY 8
14. ASSIGNMENT 8
15. GOVERNING LAW AND JURISDICTION 8
ANNEXURE A
Ordinary Share Scheme
ANNEXURE B
RPS Scheme
Page(i)
Deed Poll [Allens Arthur Robinson LOGO]
DATE
BY
1. TABCORP HOLDINGS LIMITED (ABN 66 063 780 709) of 5 Bowen
Crescent, Melbourne, Victoria (TABCORP);
2. TABCORP INVESTMENTS NO.2 PTY LTD (ABN 74 105 341 375) of 5
Bowen Crescent, Melbourne, Victoria (TABCORP INVESTMENTS); and
3. TABCORP ISSUER PTY LTD (ABN 72 105 341 366) of 5 Bowen
Crescent, Melbourne, Victoria (TABCORP ISSUER).
IN
FAVOUR OF
1. Each Scheme Shareholder; and
2. Each Scheme RPS Holder.
RECITALS
A TABCORP and Jupiters Limited (ABN 78 010 741 045) are parties
to a Merger Implementation Agreement dated 12 June 2003 (the
MERGER IMPLEMENTATION AGREEMENT).
B TABCORP is the ultimate holding company of each of TABCORP
Investments and TABCORP Issuer.
C Under the Merger Implementation Agreement, TABCORP agreed,
subject to the satisfaction or waiver of certain conditions,
to execute all documents and do all acts and things within its
power as may be necessary or desirable for the implementation
and performance of the Schemes.
D Each of TABCORP, TABCORP Investments and TABCORP Issuer is
entering into this Deed Poll for the purpose of covenanting in
favour of Scheme Participants to perform its obligations under
the Schemes.
Page 1
Deed Poll [Allens Arthur Robinson LOGO]
IT IS DECLARED as follows.
1. DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS
Terms defined in the Ordinary Share Scheme and in the RPS Scheme, a
copy of each of which is set out in annexures A and B to this Deed
Poll, respectively, have the same meanings in this Deed Poll unless the
context requires otherwise. In addition:
SCHEME PARTICIPANTS means Scheme Shareholders and Scheme RPS Holders.
SCHEMES means the Ordinary Share Scheme and the RPS Scheme.
1.2 INTERPRETATION
The provisions of clause 1.2 of the Ordinary Share Scheme form part of
this Deed Poll as if set out in full in this Deed Poll, and on the
basis that references to `this document' in that clause are references
to `this Deed Poll'.
2. NATURE OF DEED POLL
Each of TABCORP, TABCORP Investments and TABCORP Issuer acknowledges
that this Deed Poll may be relied on and enforced by any Scheme
Participant in accordance with its terms, notwithstanding that that
person is not a party to this Deed Poll.
3. CONDITIONS PRECEDENT AND TERMINATION
3.1 CONDITIONS PRECEDENT
Each of TABCORP's, TABCORP Investments' and TABCORP Issuer's
obligations (as relevant) under:
(a) clause 4 are subject to the Ordinary Share Scheme coming into
effect in accordance with section 411(10) of the Corporations
Act; and
(b) clause 5 are subject to the RPS Scheme coming into effect in
accordance with section 411(10) of the Corporations Act.
3.2 TERMINATION
The obligations of each of TABCORP, TABCORP Investments and TABCORP
Issuer under this Deed Poll to Scheme Participants will automatically
terminate and the terms of this Deed Poll will be of no further force
or effect if the Merger Implementation Agreement is terminated in
accordance with its terms prior to the Effective Date for the Ordinary
Share Scheme.
3.3 CONSEQUENCES OF TERMINATION
If this Deed Poll is terminated under clause 3.2, then, in addition and
without prejudice to any other rights, powers or remedies available to
Scheme Participants:
Page 2
Deed Poll [Allens Arthur Robinson LOGO]
(a) each of TABCORP, TABCORP Investments and TABCORP Issuer is
released from its obligations to further perform this Deed
Poll except those obligations contained in clause 13; and
(b) Scheme Participants retain the rights they have against each
of TABCORP, TABCORP Investments and TABCORP Issuer in respect
of any breach of this Deed Poll by it which occurred before
termination of this Deed Poll.
4. COMPLIANCE WITH ORDINARY SHARE SCHEME OBLIGATIONS
4.1 PAYMENT OF ORDINARY SHARE SCHEME CONSIDERATION
Subject to clause 3, in consideration for the transfer to TABCORP
Investments of each Scheme Share on the Implementation Date for the
Ordinary Share Scheme:
(a) TABCORP Investments will pay to each Scheme Shareholder such
amount of cash as is due to that Scheme Shareholder under the
Ordinary Share Scheme as Cash Consideration;
(b) TABCORP will issue to each Eligible Scheme Shareholder such
number of TABCORP Shares as are due to that Eligible Scheme
Shareholder under the Ordinary Share Scheme as Scrip
Consideration;
(c) TABCORP will issue to the Sale Agent in accordance with the
Ordinary Share Scheme such number of TABCORP Shares as are
attributable to Ineligible Overseas Shareholders under the
Ordinary Share Scheme as Scrip Consideration;
(d) TABCORP Issuer will issue to each Eligible Scheme Shareholder
such number of Centrebet Notes (if any) as are due to that
Eligible Scheme Shareholder under clause 5.1(c) of the
Ordinary Share Scheme; and
(e) TABCORP Issuer will issue to the Ineligible Note Trustee in
accordance with the Ordinary Share Scheme such number of
Centrebet Notes (if any) as are attributable to Ineligible
Overseas Shareholders under clause 5.1(c) of the Ordinary
Share Scheme.
4.2 PROVISION OF SCRIP CONSIDERATION
In satisfaction of its obligation to issue TABCORP Shares to an
Eligible Scheme Shareholder entitled to be issued TABCORP Shares under
the Ordinary Share Scheme, TABCORP will:
(a) on the Implementation Date for the Ordinary Share Scheme,
cause the name and Registered Address (as at the Record Date
for the Ordinary Share Scheme) of that Eligible Scheme
Shareholder to be entered in the TABCORP Share Register as the
holder of the TABCORP Shares issued to that Eligible Scheme
Shareholder; and
(b) within five Business Days after the Implementation Date for
the Ordinary Share Scheme, procure the dispatch to that
Eligible Scheme Shareholder (if their
Page 3
Deed Poll [Allens Arthur Robinson LOGO]
TABCORP Shares are held on the issuer sponsored subregister of
TABCORP), by pre-paid post to their Registered Address (as at
the Record Date for the Ordinary Share Scheme), of an
uncertificated holding statement in the name of that Eligible
Scheme Shareholder relating to the number of TABCORP Shares
issued to that Eligible Scheme Shareholder.
4.3 PAYMENT OF CASH AMOUNTS
In satisfaction of its obligations:
(a) to pay the Cash Consideration; and
(b) to make any payment pursuant to clause 5.6(a) of the Ordinary
Share Scheme,
TABCORP Investments will, in the case of Eligible Scheme Shareholders,
within five Business Days after the Implementation Date for the
Ordinary Share Scheme, and, in the case of Ineligible Overseas
Shareholders, within such later time allowed by the Ordinary Share
Scheme, either, in relation to each Scheme Shareholder:
(c) dispatch, or procure the dispatch of, a cheque to the Scheme
Shareholder by pre-paid post to their Registered Address (as
at the Record Date for the Ordinary Share Scheme), such cheque
being drawn in the name of the Scheme Shareholder; or
(d) make a deposit in an account with any ADI (as defined in the
Banking Act 1959 (Cth)) in Australia notified by the Scheme
Shareholder to Jupiters and recorded in or for the purposes of
the Jupiters Share Register at the Record Date for the
Ordinary Share Scheme,
for the relevant amount, with that amount being denominated in
Australian dollars.
4.4 PROVISION OF CENTREBET NOTES
In satisfaction of its obligation to issue Centrebet Notes (if
applicable) to an Eligible Scheme Shareholder under the Ordinary Share
Scheme, TABCORP Issuer will, on the Implementation Date for the
Ordinary Share Scheme, cause the name and Registered Address (as at the
Record Date for the Ordinary Share Scheme) of that Eligible Scheme
Shareholder to be entered in the register for the Centrebet Notes as
the holder of the Centrebet Notes issued to that Eligible Scheme
Shareholder.
4.5 JOINT HOLDERS
In the case of Scheme Shares held in joint names:
(a) any uncertificated holding statements for TABCORP Shares to be
issued to Scheme Shareholders will be issued in the names of
the joint holders; and
(b) any cheque required to be paid to Scheme Shareholders will be
payable to the joint holders,
and be forwarded to the holder whose name appears first in the Jupiters
Share Register at the Record Date for the Ordinary Share Scheme.
Page 4
Deed Poll [Allens Arthur Robinson LOGO]
4.6 DEFERRED SETTLEMENT TRADING OF TABCORP SHARES
TABCORP will use its best endeavours to procure that the TABCORP Shares
to be issued pursuant to the Ordinary Share Scheme will be quoted on
the stock market conducted by ASX as soon as practicable after the
Effective Date for the Ordinary Share Scheme, taking into account the
requirements of ASX in connection with the making of Elections,
initially on a deferred settlement basis and thereafter on an ordinary
settlement basis.
4.7 MISCELLANEOUS OBLIGATIONS
Subject to clause 3:
(a) TABCORP will comply with the obligations contemplated of it
under clauses 3.2, 5.6(a) and 5.8 of the Ordinary Share
Scheme, and will procure that each of TABCORP Investments and
TABCORP Issuer complies with the obligations contemplated of
TABCORP Investments or TABCORP Issuer (as the case may be)
under the Ordinary Share Scheme;
(b) TABCORP Investments will comply with the obligations
contemplated of it under clauses 4.2(b), 4.3(a), 5.6(a) and
9.7 of the Ordinary Share Scheme; and
(c) TABCORP Issuer will comply with the obligations contemplated
of it under clauses 4.3(d) and (e) and 5.6(b) of the Ordinary
Share Scheme.
5. COMPLIANCE WITH RPS SCHEME OBLIGATIONS
5.1 PAYMENT OF RPS SCHEME CONSIDERATION
Subject to clause 3, in consideration for the transfer to TABCORP
Investments of each Scheme RPS on the Implementation Date for the RPS
Scheme, TABCORP Investments will pay to each Scheme RPS Holder the RPS
Scheme Consideration.
5.2 PAYMENT OF CASH AMOUNTS
In satisfaction of its obligation to pay the RPS Scheme Consideration,
TABCORP Investments will, within five Business Days after the
Implementation Date for the RPS Scheme either, in relation to each
Scheme RPS Holder:
(a) dispatch, or procure the dispatch of, a cheque to the Scheme
RPS Holder by pre-paid post to their Registered Address (as at
the Record Date for the RPS Scheme), such cheque being drawn
in the name of the Scheme RPS Holder; or
(b) make a deposit in an account with any ADI (as defined in the
Banking Act 1959 (Cth)) in Australia notified by the Scheme
RPS Holder to Jupiters and recorded in or for the purposes of
the Jupiters Share Register at the Record Date for the RPS
Scheme,
for the relevant amount, with that amount being denominated in
Australian dollars. In the case of Scheme RPS held in joint names any
cheque required to be paid to Scheme RPS Holders will be payable to the
joint holders and be forwarded to the holder whose name appears first
in the Jupiters Share Register at the Record Date for the RPS Scheme.
Page 5
Deed Poll [Allens Arthur Robinson LOGO]
5.3 MISCELLANEOUS OBLIGATIONS
Subject to clause 3:
(a) TABCORP will comply with the obligations contemplated of it
under clause 3.2 of the RPS Scheme, and will procure that
TABCORP Investments complies with the obligations contemplated
of TABCORP Investments under the RPS Scheme; and
(b) TABCORP Investments will comply with the obligations
contemplated of it under clauses 4.2(b) and 7.7 of the RPS
Scheme.
6. REPRESENTATIONS AND WARRANTIES
Each of TABCORP, TABCORP Investments and TABCORP Issuer represents and
warrants that:
(a) it is a company validly existing under the laws of Australia;
(b) it has the corporate power to enter into and perform its
obligations under this Deed Poll and to carry out the
transactions contemplated by this Deed Poll;
(c) it has taken all necessary corporate action to authorise the
entry into this Deed Poll and has taken or will take all
necessary corporate action to authorise the performance of
this Deed Poll and to carry out the transactions contemplated
by this Deed Poll; and
(d) this Deed Poll is its valid and binding obligation enforceable
in accordance with its terms, subject to any necessary
stamping.
7. CONTINUING OBLIGATIONS
This Deed Poll is irrevocable and remains in full force and effect
until the earlier of:
(a) each of TABCORP, TABCORP Investments and TABCORP Issuer having
completely performed its obligations under this Deed Poll; and
(b) termination of this Deed Poll under clause 3.
8. FURTHER ASSURANCES
Each of TABCORP, TABCORP Investments and TABCORP Issuer will do all
things and execute all deeds, instruments, transfers or other documents
as may be necessary or desirable to give full effect to the provisions
of this Deed Poll and the transactions contemplated by it.
9. NOTICES
Any notice, demand, consent or other communication (a NOTICE) given or
made to TABCORP, TABCORP Investments or TABCORP Issuer under this Deed
Poll:
Page 6
Deed Poll [Allens Arthur Robinson LOGO]
(a) must be in writing and signed by the sender or a person duly
authorised by the sender;
(b) must be delivered to TABCORP, TABCORP Investments or TABCORP
Issuer (as the case may be) by prepaid post (if posted to an
address in another country, by registered airmail) or by hand
or fax to the address or fax number below or the address or
fax number last requested by TABCORP in writing:
5 Bowen Crescent
Melbourne Victoria 3000
Attention: The Company Secretary
Fax No: +61 3 9868 2726;
(c) will be taken to be duly given or made:
(i) in the case of delivery in person, when delivered;
(ii) in the case of delivery by post, three business days
after the date of posting (if posted to an address in
the same country) or seven business days after the
date of posting (if posted to an address in another
country); and
(iii) in the case of fax, on receipt by the sender of a
transmission control report from the despatching
machine showing the relevant number of pages and the
correct destination fax number or name of recipient
and indicating that the transmission has been made
without error,
but if the result is that a Notice would be taken to be given
or made on a day that is not a business day in the place to
which the Notice is sent or is later than 4.00pm (local time)
it will be taken to have been duly given or made at the start
of business on the next business day in that place.
10. NO WAIVER
No failure to exercise nor any delay in exercising any right, power or
remedy by any of TABCORP, TABCORP Investments or TABCORP Issuer or by a
Scheme Participant operates as a waiver. A single or partial exercise
of any right, power or remedy does not preclude any other or further
exercise of that or any other right, power or remedy. A waiver is not
valid or binding on the person granting that waiver unless made in
writing.
11. REMEDIES CUMULATIVE
The rights, powers and remedies of each of TABCORP, TABCORP Investments
and TABCORP Issuer and of each Scheme Participant under this Deed Poll
are in addition to, and do not exclude or limit, any right, power or
remedy provided by law or equity or by any agreement.
Page 7
Deed Poll [Allens Arthur Robinson LOGO]
12. AMENDMENT
No amendment or variation of this Deed Poll by any of TABCORP, TABCORP
Investments or TABCORP Issuer is valid or binding unless the amendment
or variation is agreed to by Jupiters, which agreement Jupiters may
give or withhold in its absolute discretion and without reference to or
approval by any Scheme Participant. If such an amendment or variation
is agreed, each of TABCORP, TABCORP Investments and TABCORP Issuer will
enter into a further deed poll in favour of the Scheme Participants
giving effect to such amendment or variation.
13. STAMP DUTY
All stamp duty (including fines, penalties and interest) that may be
payable on or in connection with this Deed Poll and any instrument
executed under this Deed Poll must be borne by TABCORP Investments.
TABCORP Investments must indemnify each Scheme Participant on demand
against any liability for that stamp duty.
14. ASSIGNMENT
The rights and obligations of each of TABCORP, TABCORP Investments and
TABCORP Issuer and of each Scheme Participant under this Deed Poll are
personal. They cannot be assigned, encumbered or otherwise dealt with
and no person may attempt, or purport, to do so without the prior
written consent of TABCORP and Jupiters.
15. GOVERNING LAW AND JURISDICTION
This Deed Poll is governed by the laws of Victoria. Each of TABCORP,
TABCORP Investments and TABCORP Issuer submits to the non-exclusive
jurisdiction of courts exercising jurisdiction there in connection with
matters concerning this Deed Poll.
Page 8
Deed Poll [Allens Arthur Robinson LOGO]
EXECUTED as a DEED POLL in Melbourne, Victoria.
EXECUTED by TABCORP HOLDINGS LIMITED
in accordance with the Corporations Act:
___________________________________________ ____________________________
Director Signature Director/Secretary Signature
___________________________________________ ____________________________
Print Name Print Name
EXECUTED by TABCORP INVESTMENTS NO.2
PTY LTD in accordance with the Corporations
Act:
___________________________________________ ____________________________
Director Signature Director/Secretary Signature
___________________________________________ ____________________________
Print Name Print Name
EXECUTED by TABCORP ISSUER PTY LTD in
accordance with the Corporations Act:
___________________________________________ ____________________________
Director Signature Director/Secretary Signature
___________________________________________ ____________________________
Print Name Print Name
Page 9
Deed Poll [Allens Arthur Robinson LOGO]
ANNEXURE A
ORDINARY SHARE SCHEME
Deed Poll [Allens Arthur Robinson LOGO]
ANNEXURE B
RPS SCHEME
APPENDIX J
NOTICES OF SCHEME MEETINGS
JUPITERS LIMITED ABN 78 010741 045
NOTICE OF COURT ORDERED MEETING OF HOLDERS OF FULLY PAID ORDINARY
SHARES IN JUPITERS LIMITED OTHER THAN PERSONS WHO HOLD FULLY PAID
ORDINARY SHARES IN JUPITERS LIMITED ON BEHALF OF OR FOR THE BENEFIT OF
TABCORP HOLDINGS LIMITED OR ANY OF ITS RELATED ENTITIES
Notice is hereby given that, by an Order of the Supreme Court of
Queensland ("COURT"), made on 5 September 2003 pursuant to section
411(1) of the Corporations Act, the Court has directed that a meeting
of holders of fully paid ordinary shares in Jupiters Limited
("COMPANY"), other than persons who hold Jupiters Ordinary Shares on
behalf of or for the benefit of TABCORP or any of its Related Entities,
be held at the Hotel Conrad and Jupiters Casino, Broadbeach, Gold
Coast, Queensland on 24 October 2003 at 10.00am (Brisbane time).
PURPOSE OF MEETING
The purpose of the meeting is to consider and, if thought fit, to agree
to a scheme of arrangement (with or without modification) to be made
between the Company and Jupiters Ordinary Shareholders, other than
persons who hold Jupiters Ordinary Shares on behalf of or for the
benefit of TABCORP or any of its Related Entities ("ORDINARY SHARE
SCHEME").
RESOLUTION
The Ordinary Share Scheme Meeting will be asked to consider and, if
thought fit, to pass the following resolution:
`THAT pursuant to, and in accordance with, section 411 of the
Corporations Act 2001 (Cth), the scheme of arrangement proposed to be
entered into between the Company and the holders of fully paid ordinary
shares in the Company, other than persons who hold fully paid ordinary
shares on behalf of or for the benefit of TABCORP Holdings Limited or
any of its related entities, as more particularly set out in the Scheme
Booklet of which the notice convening this meeting forms part, is
agreed to (with or without modification as approved by the Court).'
EXPLANATORY MATERIAL
In the Scheme Booklet is a copy of the proposed Ordinary Share Scheme
and a copy of the explanatory statement in relation to it which is
required by section 412 of the Corporations Act.
Capitalised terms used in this notice of meeting (and not otherwise
defined in it) have the meanings set out in the Glossary of Terms
contained in the Scheme Booklet of which this notice forms part.
The Court has appointed Mr Lawrence Willett AO or, failing him, Mr John
Story to act as chairperson of the Ordinary Share Scheme Meeting.
BY ORDER OF THE BOARD OF
JUPITERS LIMITED
L.M. CARSLEY
Secretary
5 September 2003
2
NOTES:
1. REQUIRED MAJORITY The resolution to approve the Ordinary Share Scheme
must be approved by:
(a) a majority in number of Jupiters Ordinary Shareholders present
and voting (whether in person or by proxy, attorney or
corporate representative) at the Ordinary Share Scheme
Meeting; and
(b) at least 75 per cent of the total number of votes cast at the
Ordinary Share Scheme Meeting.
2. COURT APPROVAL In accordance with section 411(4)(b) of the Corporations
Act, the Ordinary Share Scheme must be approved by order of the Court.
If the resolution set out in this notice of meeting is passed (with or
without modification) in accordance with the requisite majorities set
out above and the conditions precedent to the Ordinary Share Scheme
referred to in Section 20.3 of the Scheme Booklet are satisfied or
(where applicable) waived, the Company intends to apply to the Court
for the necessary orders to give effect to the Ordinary Share Scheme.
3. VOTING BY POLL Voting at the meeting on the resolution set out in this
notice of meeting will occur by poll only.
4. VOTING ENTITLEMENT Only Jupiters Ordinary Shareholders are entitled to
vote at the Ordinary Share Scheme Meeting. Persons recorded in the
Jupiters' Share Register as Jupiters Ordinary Shareholders as at 7.00pm
on 22 October 2003 will be treated as Jupiters Ordinary Shareholders
for the purpose of the Ordinary Share Scheme Meeting.
5. HOW TO VOTE Jupiters Ordinary Shareholders can vote at the Ordinary
Share Scheme Meeting in one of the following ways:
(a) by attending the Ordinary Share Scheme Meeting and voting in
person;
(b) by appointing an attorney to attend and vote on their behalf;
(c) in the case of corporations, by appointing an authorised
corporate representative to attend and vote on their behalf;
and
(d) by appointing a proxy to attend and vote on their behalf,
using the yellow proxy form accompanying the Scheme Booklet or
a corresponding additional or replacement form obtained from
Jupiters' Share Registry.
6. VOTING IN PERSON OR BY AUTHORISED CORPORATE REPRESENTATIVE Jupiters
Ordinary Shareholders or their authorised corporate representatives who
plan to attend the Ordinary Share Scheme Meeting are asked to bring
with them their personalised registration letter enclosed with the
Scheme Booklet and to arrive at the venue one hour prior to the time
designated for the Ordinary Share Scheme Meeting, if possible, so that
shareholdings may be checked against the Jupiters' Share Register and
attendances noted.
In order to vote in person at the Ordinary Share Scheme Meeting, a
corporation that is a Jupiters Ordinary Shareholder may appoint an
individual to act as its representative. The appointment must comply
with the requirements of section 250D of the Corporations Act. The
representative should bring to the Ordinary Share Scheme Meeting
evidence of their appointment, including any authority under which it
is signed.
7. VOTING BY ATTORNEY Attorneys must provide to the Company the original
or a certified copy of the power of attorney under which they have been
authorised to attend and vote at the Ordinary Share Scheme Meeting. The
power of attorney appointing the attorney must be duly executed and
must specify the name of each of the Jupiters Ordinary Shareholder, the
Company and the attorney, and also specify the meetings at which the
appointment may be used. The appointment may be a standing one. The
original or a certified copy of the power of attorney must be provided
to the Company in the same manner as proxy forms and must be received
by Jupiters' Share Registry or the Company by 5.00pm on 22 October
2003.
8. VOTING BY PROXY A Jupiters Ordinary Shareholder entitled to attend and
vote may appoint not more than two proxies to attend and vote instead
of the Jupiters Ordinary Shareholder. Where two proxies are appointed,
each proxy may be appointed to represent a specified proportion or
number of the Jupiters Ordinary Shareholder's voting rights. If
proportions or numbers are not specified, each proxy may exercise half
the Jupiters Ordinary Shareholder's votes. A proxy need not be a
Jupiters Ordinary Shareholder. For the appointment of a proxy to be
effective, the yellow proxy form accompanying the Scheme Booklet or a
corresponding additional or replacement form obtained from Jupiters'
Share Registry (together with any power of attorney or other authority
under which the proxy form is signed or a copy of that power of
attorney or authority certified as a true copy by statutory
declaration) must be completed and received by Jupiters' Share Registry
or the Company by 5.00pm 22 October 2003.
Proxy forms received after this time will be invalid.
A proxy form can be returned by posting it in the envelope provided (reply paid
for use in Australia only) or by delivering, posting or faxing it to:
JUPITERS' SHARE REGISTRY JUPITERS LIMITED
Computershare Investor Services Pty Ltd Level 9 Niecon Tower
GPO BOX 523 17 Victoria Avenue
Brisbane QLD. 4001 Broadbeach Queensland 4218
Fax: (07) 3229 9860 Fax (07) 5538 6315
JUPITERS LIMITED ABN 78 010741 045
NOTICE OF COURT ORDERED MEETING OF HOLDERS OF RESET PREFERENCE SHARES
IN JUPITERS LIMITED OTHER THAN PERSONS WHO HOLD RESET PREFERENCE SHARES
IN JUPITERS LIMITED ON BEHALF OF OR FOR THE BENEFIT OF TABCORP HOLDINGS
LIMITED OR ANY OF ITS RELATED ENTITIES
Notice is hereby given that, by an Order of the Supreme Court of
Queensland ("COURT"), made on 5 September 2003 pursuant to section
411(1) of the Corporations Act, the Court has directed that a meeting
of holders of reset preference shares in Jupiters Limited ("COMPANY"),
other than persons who hold RPS on behalf of or for the benefit of
TABCORP or any of its Related Entities, be held at the Hotel Conrad and
Jupiters Casino, Broadbeach, Gold Coast, Queensland on 24 October 2003
at 2.00pm (Brisbane time).
PURPOSE OF MEETING
The purpose of the meeting is to consider and, if thought fit, to agree
to a scheme of arrangement (with or without modification) to be made
between the Company and RPS Holders, other than persons who hold RPS on
behalf of or for the benefit of TABCORP or any of its Related Entities
("RPS SCHEME").
RESOLUTION
The RPS Scheme Meeting will be asked to consider and, if thought fit,
to pass the following resolution:
`THAT pursuant to, and in accordance with, section 411 of the
Corporations Act 2001 (Cth), the scheme of arrangement proposed to be
entered into between the Company and the holders of reset preference
shares in the Company, other than persons who hold reset preference
shares on behalf of or for the benefit of TABCORP Holdings Limited or
any of its related entities, as more particularly set out in the Scheme
Booklet of which the notice convening this meeting forms part, is
agreed to (with or without modification as approved by the Court).'
EXPLANATORY MATERIAL
In the Scheme Booklet is a copy of the proposed RPS Scheme and a copy
of the explanatory statement in relation to it which is required by
section 412 of the Corporations Act.
Capitalised terms used in this notice of meeting (and not otherwise
defined in it) have the meanings as set out in the Glossary of Terms
contained in the Scheme Booklet of which this notice forms part.
The Court has appointed Mr Lawrence Willett AO or, failing him, Mr John
Story to act as chairperson of the RPS Scheme Meeting.
BY ORDER OF THE BOARD OF
JUPITERS LIMITED
L.M. CARSLEY
Company Secretary
5 September 2003
2
NOTES:
1. REQUIRED MAJORITY The resolution to approve the RPS Scheme must be
approved by:
(a) a majority in number of RPS Holders present and voting
(whether in person or by proxy, attorney or corporate
representative) at the RPS Scheme Meeting; and
(b) at least 75 per cent of the total number of votes cast at the
RPS Scheme Meeting.
2. COURT APPROVAL In accordance with section 411(4)(b) of the Corporations
Act, the RPS Scheme must be approved by order of the Court. If the
resolution set out in this notice of meeting is passed (with or without
modification) in accordance with the requisite majorities set out above
and the conditions precedent to the RPS Scheme referred to in Section
20.3 of the Scheme Booklet are satisfied or (where applicable) waived,
the Company intends to apply to the Court for the necessary orders to
give effect to the RPS Scheme.
3. VOTING BY POLL Voting at the meeting on the resolution set out in this
notice of meeting will occur by poll only.
4. VOTING ENTITLEMENT Only RPS Holders are entitled to vote at the RPS
Scheme Meeting. Persons recorded in the Jupiters' Share Register as
holders of RPS as at 7.00pm on 22 October 2003 will be treated as RPS
Holders for the purpose of the RPS Scheme Meeting.
5. HOW TO VOTE RPS Holders can vote at the RPS Scheme Meeting in one of
the following ways:
(a) by attending the RPS Scheme Meeting and voting in person;
(b) by appointing an attorney to attend and vote on their behalf;
(c) in the case of corporations, by appointing an authorised
corporate representative to attend and vote on their behalf;
and
(d) by appointing a proxy to attend and vote on their behalf,
using the blue proxy form accompanying the Scheme Booklet or a
corresponding additional or replacement form obtained from
Jupiters' Share Registry.
6. VOTING IN PERSON OR BY AUTHORISED CORPORATE REPRESENTATIVE RPS Holders
or their authorised corporate representatives who plan to attend the
RPS Scheme Meeting are asked to bring with them their personalised
registration letter enclosed with the Scheme Booklet and to arrive at
the venue one hour prior to the time designated for the RPS Scheme
Meeting, if possible, so that holdings of RPS may be checked against
the Jupiters' Share Register and attendances noted.
7. VOTING BY ATTORNEY Attorneys must provide to the Company the original
or a certified copy of the power of attorney under which they have been
authorised to attend and vote at the RPS Scheme Meeting. The power of
attorney appointing the attorney must be duly executed and must specify
the name of each of the RPS Holder, the Company and the attorney, and
also specify the meetings at which the appointment may be used. The
appointment may be a standing one. The original or a certified copy of
the power of attorney must be provided to the Company in the same
manner as proxy forms and must be received by Jupiters' Share Registry
or the Company by 5.00pm on 22 October 2003.
8. VOTING BY AUTHORISED CORPORATE REPRESENTATIVE In order to vote in
person at the RPS Scheme Meeting, a corporation that is a RPS Holder
may appoint an individual to act as its representative. The appointment
must comply with the requirements of section 250D of the Corporations
Act. The representative should bring to the RPS Scheme Meeting evidence
of their appointment, including any authority under which it is signed.
9. VOTING BY PROXY A RPS Holder entitled to attend and vote may appoint
not more than two proxies to attend and vote instead of the RPS Holder.
Where two proxies are appointed, each proxy may be appointed to
represent a specified proportion or number of the RPS Holder's voting
rights. If proportions or numbers are not specified, each proxy may
exercise half the RPS Holder's votes. A proxy need not be a RPS Holder.
For the appointment of a proxy to be effective, the blue proxy form
accompanying the Scheme Booklet or a corresponding additional or
replacement form obtained from Jupiters' Share Registry (together with
any power of attorney or other authority under which the proxy form is
signed or a copy of that power of attorney or authority certified as a
true copy by statutory declaration) must be completed and received by
Jupiters' Share Registry or the Company by 5.00pm on 22 October 2003.
Proxy forms received after this time will be invalid.
A proxy form can be returned by posting it in the envelope provided (reply paid
for use in Australia only) or by delivering, posting or faxing it to:
JUPITERS' SHARE REGISTRY JUPITERS LIMITED
Computershare Investor Services Pty Ltd Level 9 Niecon Tower
GPO BOX 523 17 Victoria Avenue
Brisbane QLD. 4001 Broadbeach Queensland 4218
Fax: (07) 3229 9860 Fax (07) 5538 6315