The first major fire sale from the Australian credit crunch was announced today when MFS revealed private equity firm CVC Asia Pacific had bought 65% of the Stella travel business for $409 million.

This is a substantially lower price than what chairman Andrew Peacock and his fellow MFs directors rejected just a few weeks ago.

However, the sale will enable MFS to pocket the cash and exclude Stella’s $905 million debt – owed primarily to long-time MFS backer UBS – from its balance sheet as it prepares to change its name and try and recover something from the smoking ruin that is it financial services business.

In terms of private equity deals, it is still one of Australia’s biggest because the enterprise valuation of Stella is $1.53 billion, way below the $2.2 billion which former MFS CEO Michael King was claiming last year.

MFS has now raised more than $500 million in two weeks after it quit minority stakes in listed associates such as hedge fund operation HFA Holdings, MFS Diversified and Babcock & Brown Communities. There was also a profit of $43 million booked from selling its aged care operations to AMP last week.

All this cash will go to repay short term debt, but the problems go a lot deeper because the MFS board basically used the suspended $770 million MFS Premium Income Fund as a private bank to fund development projects all over the place, including many with links to the broader MFS empire.

Word is starting to circulate that MFS was lending the funds and then recovering some of them in advanced profit sharing fees before the profits had actually been made.

Despite the Stella announcement, shares in MFS remain suspended, as are the unsecured notes and units in MFS Leisure & Living.

Finally, the emergence of CVC means we can probably expect to see lots of ads for businesses like Harvey World Travel and the Port Douglas Sheraton Mirage appearing on Channel Nine and in Women’s Weekly because the same private equity firm now controls the PBL Media empire and Australia’s second biggest travel business after the French giant Accor.

With 15,000 hotel beds, at least the Channel Nine stars will have plenty of choice for their accommodation needs.

Peter Fray

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