Shuffle Master Falls on Contract End

NEW YORK (AP) -- Shares of Shuffle Master Inc. slid Friday, a day after the gaming supplies company said one of its units was ending a development contract with Elixir Group Ltd., a subsidiary of Melco International Development.

The pact, signed in April 2006, created an alliance that would have allowed Shuffle Master's Australian subsidiary Stargames Corp. and Elixir to develop localized gaming technologies for legalized gaming jurisdictions in Asia. It also gave Stargames the exclusive distributorship of existing gaming products to specific Asian customers.

Banc of America Securities analyst David Vas dropped his price target by to $26 from $27 on the news.

"Based on Shuffle Master's small penetration into non-U.S.-owned Macau casinos, plus Elixir's equity stake in small competitor Vending Data, we had a hunch the relationship was troubled," he said in a client note.

However, analyst Bill Lerner of Deutsche Bank said in a note that the company's video table market share has been disappointing since the pact was signed, and its end should help Stargames add back to its earnings.

Joel Simkins, an analyst with Prudential Equity Group, said he thinks Shuffle Master will land on its feet.

"While we are somewhat disappointed by the announcement, we believe Shuffle Master has strong relationships with many major players in Asia, including Las Vegas Sands, Wynn Resorts, MGM Mirage and Genting," he wrote in a client note.

The company may also benefit from Stargames' relationships and sales infrastructure in the region, he added.

Shares of Shuffle Master dropped $1.87, or 6.9 percent, to $25.10 in morning trading on the Nasdaq. The shares have traded between $22.65 and $40.75 over the past 52 weeks.