Updated March 09, 2017 16:55:57

Photo: The ACCC says there are three significant concerns surrounding the proposed merger. (Supplied)

The Australian Competition and Consumer Commission (ACCC) has stated that the proposed merger between Tabcorp and Tatts is "likely to substantially lessen competition" in Queensland, prompting Tabcorp to investigate the sale of its Queensland gaming machine monitoring business as a result.

The ACCC said it is seeking comment on the potential divestment of Tabcorp's Odyssey Gaming Services arm.

"Since it lodged its formal clearance application with the ACCC in November, Tabcorp has worked closely with the ACCC to assist it with its inquiries," Tabcorp said in a statement.

Tabcorp and Tatts reached an agreement to combine the two companies in October, but it is subject to ACCC, shareholder and Federal Court approval.

The deal would create an $11.3 billion giant which would control more than 90 per cent of Australia's totalisator betting and generate revenues in excess of $5 billion.

Tatts, meanwhile, said in a statement that it will continue to work with Tabcorp to "progress the competition approval process and all other regulatory approvals required".

ACCC chairman Rod Sims told the ABC that the issues it flagged with the merger are not to do with the broad wagering market, but with sub-markets.

"We're comfortable that gamblers have enough opportunities to choose between totaliser agency betting and fixed-odds bettering," he said.

"We're comfortable that the corporate bookmakers will provide enough competition to TAB and Tatts in the broad wagering market.

"It's more about issues to do with gaming services to clubs, issues with providing pooling arrangements, particularly in WA and to do with the link between TAB and Sky Racing."

Of the six or seven issues the ACCC is considering in relation to the merger, Mr Sims has signalled three significant concerns.

The first is the situation in Western Australia, where Mr Sims said the small market needs access to a bigger pool of gamblers to provide sensible odds.

The other issue that has been flagged by the ACCC is the relationship between Tabcorp and Sky Racing, the dominant broadcaster of racing media content.

If the merger goes ahead, it will result in the combination of Sky Racing and Tatts' retail wagering operations in Queensland, South Australia, Tasmania and the Northern Territory.

"At the moment in NSW and Victoria, you have the TAB which owns Sky Racing and that gives them a lot of market power when they're dealing with the clubs," Mr Sims explained.

The third issue is the link between TAB as a gaming service provider and Tatts as the monopoly monitor of machines.

"The clubs in NSW have a concern that the monitoring data Tatts gets could be used by Tabcorp to advance their own gaming services business," Mr Sims said.

He said that now these issues have been flagged, it would be a matter of understanding the extent of these problems and whether the remedies being proposed actually address the problems.

"It is too early to say whether these issues can be successfully worked through or not, so we've got a fair way to go in assessing this merger," Mr Sims said.

"The onus is on the parties and other stakeholders to see whether they can be worked through."

However, investors in both companies seem confident the merger can proceed, pushing Tabcorp shares up 2.3 per cent and Tatts shares 2.8 per cent higher by 2:50pm (AEDT).

Topics: gambling, takeovers, company-news, regulation, australia

First posted March 09, 2017 14:52:44