ABS a.b.c. learning centres limited

abc in trading halt over buyer interest

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    ABC in trading halt over buyer interest
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    February 27, 2008 - 12:28PM

    Embattled child care group, ABC Learning, went into a trading halt this morning "as a result of indications of interest" in relation to "part of its business".

    It was not clear from the company announcement whether the company is now considering a fire sale of assets to sell down debt. ABC said talks on the issue may take more than two days.

    Shares in the child-care provider yesterday plunged almost 70 per cent at one point after concerns arose about its ability to meet debt covenants.

    Investors sold on fears that if the downturn in the US economy were to see revenues fall at ABC's 1000 US centres, then the declining value of centres could trigger a breach of the company's covenants on $1.2 billion worth of loans used to fund their purchase. It has total debt of $1.8 billion.

    Margin calls on directors' shareholdings, understood to include chief executive Eddy Groves and his wife, Le Neve, put further pressure on the stock yesterday.

    This morning, the company revealed that director, David Ryan, was forced to sell his entire stake of 249,000 shares. Fellow board member, Martin Kemp, was forced to dump a massive 7.6 million shares, leaving him with 2.76 million of the struggling company's stock.

    The shares closed yesterday at their lowest point in five years, down 43 per cent at $2.14, after recovering from lows of $1.15 in morning trading.

    ABC did not identify the interested party or parties or which part of its business had attracted them.

    But brokers said Singapore-based invstment company Temasek Holdings was a likely suitor.

    Temasek, which manages the investments of the Singapore government, took a 12 per cent stake in ABC last year when its shares were trading at a far higher price.

    "We believe it's Temasek, who bought part of the company back when (ABC) were trading above $7.00,'' said a broker who did not wish to be named.

    Bell Potter Brisbane senior adviser Stuart Smith agreed that Temasek could be a likely bidder, but he wouldn't rule out other parties.

    "There's not enough information to hang your hat on,'' Mr Smith said.

    "It could be an entrepreneur that wanted to make money out of child care and the first one that comes to mind would probably be Macquarie Group.''

    Mr Smith said the ``part'' of the business that ABC said was the subject of interest was probably georgraphically based because ABC's business was focused on childcare.

    The group has operations in Australia, New Zealand, the United Kingdom and the United States.

    ABC is seeking a two-day trading halt, the company said, according to Reuters.

    The spectre of declining occupancy in US centres is hanging over the stock as warnings sound that the American economy is faltering and unemployment is about to rise.

    If the company were to write down the value of its US child-care licences by just $223 million, it would trigger a breach and possibly lead to forced asset sales.

    Mr Groves yesterday reassured shareholders that the company had not yet breached the covenants because shareholder funds exceeded $2 billion.

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