On 16 November
2005, ABC Learning Centres announced a
significant foray into the US market
through the acquisition of US-based Learning Care Inc for $217 million. In an
ASX release, ABC CEO Eddy Groves, noted that “ABC has yet another
exciting growth platform which should see the company’s recent earnings momentum
continue for many more years.”

ABC also released a merger
presentation heralding the benefits of the deal, including “upside from occupancy
improvements in existing centers” and “expansion opportunities
into the large and highly fragmented
childcare market.” Punters applauded the move,
pushing ABC’s share price to record levels. The market seems to be expecting
ABC’s golden run to continue, with the company trading on a very lofty price
earnings ratio of around 30 times FY2005 earnings.

However, despite his own bullish
talk, Groves doesn’t seem to believe his own ASX releases, as he saw fit to
dispose of $16.4 million worth of ABC shares (around 13% of his personal
shareholding) in an off-market trade on 14 December 2005 – less than one month
after claiming that ABC’s earnings momentum will continue for many years. Not to
be left out, Eddy’s wife Le Neve (who is co-CEO of ABC), also sold off $16.4
million worth of shares.

No reason was provided by either
of the Groves for the
sell-off. Despite a stellar run in
recent years, ABC shareholders would most likely be concerned that the CEOs of
an apparent growth company, trading on a monster PE, which is undertaking a
company-altering international expansion into the biggest market in the world,
just flogged off more than $30 million worth of shares without providing the
market with any explanation for doing so. To top it off, the market was not
informed about the sale until 3.55pm last Friday
afternoon – a time intended to garner minimum