Eddy Groves was universally hailed as a genius yesterday for last night’s Morgan Stanley Private Equity deal that valued the US assets of ABC Learning at $US750 million – suggesting shareholders weren’t going to lose much at all from the American adventure.

  • John Durie said Eddy has “made fast work of the naysayers”
  • Malcolm Maiden hailed the deal as “better than anyone might have expected”
  • The Chanticleer headline declared it was “payback time for Groves”
  • Terry McCrann hailed Eddy’s “spectacular comeback”

I emailed most of these commentators last night predicting ABC shares would trade above $3 today.

Alas, we’re all wrong.

Eddy’s declaration that it was “fantastic” in his conference call didn’t wash with investors as the stock was at one point down another 15% to $1.82 in morning trade.

Whilst it did reach a high of $2.75 and was 8c higher for the day at $2.22 at midday, by any measure this is disappointing for Eddy, as the spectre of more margin calls still hang over his head.

Without a strong share price recovery, ABC Learning remains a wholly unattractive story that has blown more than $1 billion of shareholder funds. How can a founder CEO with a tiny shareholding survive such poor performance?

The market is clearly also aware that the brand damage has been enormous and we now discover that Groves and his wife Le Neve have been separated for years. A separated childless married couple are responsible for more kids in the world than anyone else. Hmmm. Even worse, the risks remain that the Morgan Stanley deal won’t get done.

So who exactly is trading the stock?

There are 468 million ordinary ABC Learning shares on issue and one third of these, 157 million, changed hands on Tuesday last week before the trading halt.

The Singapore Government is the biggest shareholder with 69.6 million shares or 14.66%, Lazard Asset Management has 66.1 million shares or 13.93% and the board still nominally owns 21.85 million shares or 4.6%, although 94% of these are controlled by margin lenders.

This leaves a free float of 310 million shares and by midday almost 60 million shares had changed hands – 20% of the free float – as some short sellers cover their positions and others drive for further margin calls.

There wasn’t much interest in the two other listed ABC vehicles today. The so-called “exploding convertible notes” were untraded with a seller at $94 and a buyer offering just $20. The last trade was $85 so the Commonwealth Bank is wearing a 15% loss of about $30 million on its 30% stake after underwriting the spectacularly unpopular $600 million issue last June.

Units in the Australian Education Trust, which owns many of ABC’s Australian centres, recovered 5c to $1.12 but were above $1.80 last October.

Peter Fray

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