ABS a.b.c. learning centres limited

abc close to deal on us assets

  1. 398 Posts.
    | March 05, 2008

    EDDY Groves is in final negotiations on the partial sale of ABC Learning's US kindergartens.

    A deal is understood to have the backing of a US private equity firm.

    If successful, it would prove the doomsayers wrong in pulling off a quick sale of 60 per cent of his US kindergartens.

    The transaction is understood to involve ABC Learning selling 60 per cent of its US operations to a US private equity firm. It is also understood the deal would value the US assets at $775 million and would effectively be at a hefty 14 times earnings before interest tax and depreciation.

    Subject to meeting certain hurdles, a further payment of $30 million is understood to be due in June next year and the private equity firm is considering supporting a subordinated debt issue, the amount yet to be specified.

    A debt issue would be convertible into ordinary shares and would dilute all shareholders, including Temasek and Lazard which control 28 per cent of ABC learning.

    The transaction would mean Groves could pay down some $750 million in bank debt immediately, effectively removing any debt problems for the company.

    Groves and his estranged partner Le Neve were forced to sell a substantial proportion of their personal stakes in the company last week after margin loans on their shares from Citigroup were called.

    The US sale would give Groves the chance to buy it back later and, while a substantial dent in his expansion plans, would be a dramatic show of support for his company and management.

    ABC Learning has copped a torrent of abuse in recent times for both the management of its centres - the so-called corporate approach to kindergarten - and in the financial structure of the company.

    Its most recent profit figures revealed several one-off payments from developers and the like which raised questions about their sustainability.

    The Australian operations receive around $400 million a year in funding from Australian taxpayers accounting for some 40 per cent of revenues.

    The company is structured with the actual property packaged into a separate trust while the headstock runs the operations.

    Amid the doomsday calls on the sharemarket, the private equity firm is preparing to back Eddy Groves and his model, albeit with some control over his future through both the convertible note and 60 per cent of the US business.

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