WHO would have thought that the NSW government would have the Shooters Party to thank for maximising the sale price of its lotteries business? The shooters held up the privatisation process - which was meant to be decided last year - wanting to cut a deal to allow feral animals in national parks to become fair game.
It appeared to be a headache at the time, but it actually allowed financial markets and the economy time to recover and gave Goldman Sachs, the government's financial advisers, time to crunch a better deal.
Readers will be pleased to know the animal inhabitants of NSW national parks are still safe. While the NSW Labor Party can't boast an equivalent degree of security from electoral extinction, it's fair to say that the $850 million sale tag, and the $160 million dividend the government will pay itself from lottery coffers before passing the business to its new owners Tatts Group, is a welcome outcome.
Apart from the politics of navigating through all manner of interested parties, including the newsagents who distribute the Lotto product, the government had to contend with the issue that there was only one standout buyer.
Of course, there is nothing wrong with a strong bidder, but it can make it difficult to ensure that other buyers stay in the process and bid up the price. Clearly it worked, and Tatts ultimately delivered a knockout blow.
This is not because its colourful boss, Dick McIlwain, is profligate, but because he was desperate and could make more money out of this asset than any of his competitors.
But the market wasn't as sure as McIlwain that Tatts was getting value for money and, as a result, the company's share price took a hit yesterday, falling 7.26% to close at $2.30. This can, in part, be attributed to the fact that the shares went ex-dividend yesterday. But the remaining softness was a clear message that paying top dollar for assets remains unfashionable in the barely post-global-financial-crisis environment.
This asset was never going to be cheap, but the trouble for Tatts is that the government initially hinted at a price range of $500 to $600 million; $850 million moves it to another league.
Tatts now needs to convince its investors that it can make good returns on this business, even at this price.
It can't promise to do this in the short term, because much of the upside from this investment will emerge when the company can merge NSW Lotteries with its existing lotteries business in Victoria and Queensland.
And because of the conditions in the sale agreement (mainly around retaining staff for three years) the big gains from synergies won't be seen for three to four years.
That's a long time for investors to wait.
There are some improvements that can be made in the short term - particularly in the areas of new products and marketing.
But combining the administration and widening the distribution beyond traditional newsagents are where the major benefits lie and we will need to wait until 2014 to experience these.
This explains why Tatts is projecting that it will almost double earnings from its overall lotteries business by 2014, but isn't mentioning incremental improvements over the next three years.
Without the same level of government-imposed constraints, Tatts achieved a similar lift in its lotteries business in 2007 when it bought the Queensland equivalent, Golden Casket, for $542 million. It was a smaller business but it came with a 60-year licence (as opposed to the 40-year licence agreement with the NSW government.)
The businesses were acquired on roughly similar multiples.
This should give investors some confidence that folding in another lotteries business can provide a major fillip to profits. And it needs to rely on this, because Tatts can't make too many rash assumptions on revenue growth.
Lotteries businesses are traditionally low growth. They are particularly appealing to certain types of investors because they defy cyclical downturns. (It's all about a small psychological bet with potentially enormous returns, albeit with hopelessly bad odds, which can be even more appealing in a downturn.)
But the revenue line doesn't normally move the liquid in a spirit level unless, as we saw in 2009, a super-jackpot resulted in an aberrant lift in hopeful punters, revenue and profit.
To achieve the promised 2014 jump in profit Tatts needs to rely on those promised synergies.
Clearly McIlwain reckons he can achieve this. He needs to.
In 2012 Tatts and Tabcorp will lose their Victorian gaming licences and both have been desperate to find a profit source to fill the gap.
This explains why Tatts, which has to strengthen earnings and has the potential for great synergy benefits, was the bidder to beat.
Meanwhile, over at Virgin Blue, Richard Branson was making the safe bet of installing former Qantas executive, John Borghetti, as chief executive to replace the retiring Brett Godfrey.
The major question about his appointment was why it took so long, given he was without a role for 10 months - about the same amount of time Godfrey has been eyeing the exit door.
Borghetti walked away from Qantas soon after he was overlooked for the top job and Branson admitted yesterday that, at the time, he was quietly pleased about the opportunity this presented.
The Qantas job was awarded to Jetstar boss Alan Joyce who was considered the minor favourite.
The two will now go head to head in the Australian market (and on limited international routes) and there will be plenty of interest around whether Borghetti moves to strengthen Virgin Blue's assault on the high yielding premium market.
For his part, Borghetti was already demonstrating some competitive spirit - staying quiet on strategy.
