Interesting to note the comments
regarding the CEO of ABC Learning Centres, Eddy Groves, obtaining a 4.2%
interest in ABC’s principal bankers, Austock. What wasn’t specifically mentioned
in Crikey yesterday was the quantum of the fees paid by ABC to Austock last

Austock played a significant role in advising ABC on its three-way merger
(by scheme of arrangement) with rival child care operators, CDC and Peppercorn
and was very very well rewarded for its efforts. Buried on page 84 of its annual
report, ABC noted that it paid Austock (which is deemed to be a related party) a
staggering $16.35 million for advisory work, underwriting and commission on
its capital raising. $16.35 million is an absolutely huge sum for what was a
relatively small transaction (ABC only raised around $400 million in the deal)
and to what is generally considered at best, to be a second-rate investment

Less than two months after Austock earned this ridiculous fee, Groves
proceeded to acquire a 4.2% stake in Austock.

The $16.35 million fee is even more
extraordinary considering that ABC’s profit for the entire financial year
was only $52 million. In effect, the fee paid to Austock represented a
staggering 33% of ABC’s net profit for the year. Groves (together with his wife,
Le Neve) own just over 37 million ABC shares, or approximately 15% of
the company. Not sure whether the owners of the remaining 85% of ABC
would be overly enamoured with their CEO paying sky-high fees to a company of which
he was about to become a substantial shareholder.

Due to a very strong share price
performance in recent years, ABC has managed to escape public scrutiny (in a
financial sense anyway, several investigative reporters have questioned ABC’s
childcare activities). However, the market has priced ABC so highly (it has a
current price earnings ratio of 27) that any false steps will see a very sudden
correction to its stock. Rest assured, if ABC’s share price does drop, ABC
shareholders may be less willing to simply accept such an appalling corporate
governance regime.