Shares in Australian gaming firms Tabcorp and Tatts Group slumped on Friday, a day after an Australian state government stripped them of their duopoly in gaming machines, cutting revenues by up to half.
In the morning session, Tabcorp shares were down 20 percent at A$11.51 while Tatts was
down 26.2 percent at A$2.70, against a steady broader market.
The government of Victoria, Australia's second-most populous state, said hotels and clubs would be able to own and operate their own gaming machines from 2012, removing the need for separate operators such as Tabcorp and Tatts.
Victorian gaming revenues made up over a quarter of Tabcorp's first-half revenues, while Tatts Pokies venues across Victoria contributed more than 40 percent of Tatts' first-half revenues. The government said neither Tatts nor Tabcorp was entitled to compensation, a point that analysts said the companies were likely to contest.
"Perhaps the most astounding aspect of the announcement was the Victorian government reneging on its obligations to refund Tabcorp and Tatts A$670 million ($626 million) and A$598 million respectively should they not be awarded the licence post-2012," said Macquarie Equities analyst Steve Wheen in a note to clients.
He said the decision would spark several knee-jerk reactions, including a spate of litigation or class actions, staff cuts at the companies and the relocation of operations.
Macquarie downgraded its recommendations on the stocks, as did other brokers including Deutsche Bank, Citigroup, ABN AMRO and Goldman Sachs JB Were.
The Victorian decision comes as authorities across Australia face increasing pressure to deal with problem gambling on games machines, known as "pokies."
More than 200,000 machines, or 21 percent of the world's total, are in Australia, where welfare agencies estimate up to 300,000 people have a gambling problem.
James Doughney, a senior researcher at Victoria University and author of a book on poker machines, said the companies' claims for compensation were outrageous.
"These are traditional, old-style voracious monopoly organizations and frankly the (state) government and the public should say go and get lost," he told Australian Broadcasting Corp radio.
Ratings agency Standard & Poor's said on Friday the news did not affect its rating or outlook on Tabcorp because the company would not now have to fund a gaming licence renewal.
Credit Suisse analysts said Aristocrat Leisure, which manufactures gaming machines and is the world's No. 2 slot machine maker, would be modestly impacted as neither Tabcorp nor Tatts is likely to order a large number of machines for Victoria.