AUSSIE GAMBLING STOCKS REELING

11 April 2008

Almost a quarter of stock price wiped out following Victoria government announcement


An announcement by the Victoria state government this week that will result in the end of the Tabcorp and Tatts betting duopoly in Australia by 2012 has severely impacted both companies, causing record declines in share prices.

Tabcorp Holdings Ltd. fell 22 percent and Tatts Group Ltd. 28 percent on the Australian Stock Exchange, wiping a total of A$2.9 billion ($2.7 billion) off the market value of the Melbourne-based giant betting companies.

The Victoria government had earlier announced that from 2012, when the companies' permits expire, individual pubs and clubs can bid for their own 10-year licenses for slot machines. Business that represents 40 percent of earnings at Tatts and 25 percent of profit for Tabcorp is threatened by the political decision.

Under the current rules, Tabcorp and Tatts own and maintain the state's 27 500 slot machines and share turnover with the government and the owners of pubs and clubs where they are located.

Analysts reacted with disbelief. "The individual operator model was always a chance, but this really wasn't expected to happen,'' said John Grace, who helps manage $9.3 billion at Ausbil Dexia Ltd. in Sydney, including gaming stocks.

Burrel Stockbroking associate Peter Wright said the announcement by the Victorian government was an unmitigated disaster for Tabcorp and Tatts Group. "If a short seller were given a piece of paper and were told they could write any announcement to push the stock down, that would have been it,'' he said.

Jenny Owen, a Citigroup analyst in Sydney expects the company will invest in venues to gain future permits: "Tatts will now need to actively pursue other growth options. The Tatts balance sheet can accommodate further debt,'' she opined.

Litigation for compensation is a possibility; the government said it doesn't need to compensate Tatts or Tabcorp, an issue both companies dispute. Tabcorp has valued the license fee on its balance sheet at A$597 million since the state government first sold shares in the company in August 1994.

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