ABC Learning Centres announced yesterday that it had entered into a definitive agreement to sell 60 percent of its US assets to Morgan Stanley for the reduced price of US$700 million. At the time the original agreement was announced, ABC proudly stated that the “transaction represents an excellent opportunity for ABC to realise significant value for its US business at a highly attractive price.”
As it turns out, the price wasn’t all that attractive, with the final deal valuing the US business at US$75 million less than what was originally announced (at that time, Groves was fiercely clinging onto his remaining equity stake in ABC. That stake was since sold by Groves’ margin lender, Citigroup). Following the sale, ABC will announce a write-off of $280 million on its ill-fated US assets (rather than a profit, as earlier had been suggested by ABC). $65 million of that loss was due to unfavourable exchange rate movements.
Not only is ABC admitting defeat in the US, but it has also acknowledged that there are serious problems in its Australian business. ABC noted that Australian earnings would be reduced by delayed centre acquisitions, higher staffing costs, staff rostering problems and poor management. While ABC indicates that there problems are short-term, ABC’s Australian businesses are mature and seem to be heading backwards.
Despite the obvious problems at ABC, Terry McCrann launched a strident defence of Groves in today’s Herald Sun, noting that:
Eddy Groves has nailed a remarkable deal. He has not only saved his ABC company from oblivion, but kept alive its real growth future… The personal loss and the way it happened so brutally, makes even more remarkable — and commendable — the way he went about finding and executing the deal with Morgan Stanley Private Equity.
McCrann seems to be forgetting the small fact that the only reason ABC was heading towards oblivion was courtesy of the “company-changing” deal Groves himself oversaw as CEO. Groves suffered personal loss because he chose to load up with debt on his personal shareholding and blundered in his management of the business. One doubts whether shareholders, like the Singapore Government’s Temasek Holdings (which is down by around $300 million on its investment) will be privately commending the “remarkable” Groves.
Early ABC critic and possibly Australia’s best fund managers, Roger Montgomery of Clime Capital, told the AFR yesterday that “ABC started out as a highly profitable small business and through rapid and overpriced acquisitions it turned into a very large mediocre business. It’s been in steady decline and that’s because the business has been falling in value for several years now.”
The result has hit home at board level, with Chairwoman, Sallyanne Atkinson, Australian operations boss Martin Kemp and non-executive director Bill Bessemer all announcing their retirements. Kemp and Atkinson’s roles left them with no choice but to resign, while Bessemer’s links with advisor, Austock, placed him in an untenable position. CFO James Black has also departed from the company.
That leaves ABC with a grand total of four directors — including Eddy Groves (who is responsible for the mess and owns virtually no ABC shares), Le Neve Groves, former Howard minister Larry Anthony and chairman, David Ryan.