The business models of Tabcorp (TAH) and Tattersall’s (TTS) have taken a big hammering from the Victorian Government.
Shares in both companies were placed in trading halts after the Victorian Government announced an end to their duopoly over the state’s 27,500 poker machines, outside of Crown Casino, from 2012.
Tabcorp shares last traded at $14.37 and Tatts last traded at $3.66.
It was a damaging blow to both companies, although there have been suggestions the Government was thinking of change.
The move will advantage Woolworths, Coles and Hedley group, which are big owners of hotels in Victoria, and carry gaming machines from either company.
It also poses a question over the valuation of Aristocrat (ALL) because of the news that there will not be any increase in the number of machines in the state: 27,500. In contrast NSW has around 98,000 machines and licences for around 104,000 (which has been frozen).
Victoria’s AFL clubs will get a major boost, especially the likes of Geelong, Collingwood and Hawthorn.
Tabcorp likely to be hit hard as it derives 30% of its earnings before interest and tax from Victorian licences in poker machines and wagering on horses etc. Tattersall’s gets more than 40% of its earnings from the machines.
Hotels and clubs will bid directly for the slot machine licenses beyond 2012 and wagering will be kept as a single license and opened for tender after 2012 and neither Tattersall’s or Tabcorp is entitled to compensation.
Currently both TTS and TAH hold licenses for wagering.
Could both companies merge?
Tabcorp, whose business spans gaming, wagering and casinos in NSW and Queensland, said it had requested the halt following the announcement of the restructure of the Victorian gaming industry.
Victorian Premier John Brumby said venues would be able to own and operate their own gaming machines under ten-year licences after 2012.
Mr Brumby said the government would enforce a cap on ownership so that no one venue operator could own more than 35% of machines available to hotels. That will still mean that Woolies could emerge in a powerful position.
Mr Brumby claimed the new arrangements would improve diversity and competition and create more direct connection with communities.
But it will mean a huge windfall for the Victorian State Government in 2012 and beyond. The same assets now controlled by Tabcorp and TTS are being taken from them and new entrants will be forced to pay money for them. There will be no payouts to either company, so the Government is on a winner, or so it thinks.
I reckon there could very well be legal action on the question of compensation and the question of goodwill.
Crown Casino, owned by the Crown company, 38% controlled by James Packer, operates under a different licensing arrangement and won’t be affected.
While trading in TAH and TTS was halted, Aristocrat shares dropped 6% or 61c to $9.58, but the market judged Woolies the winner, pushing its shares up 31c to $30.24.
