ABS a.b.c. learning centres limited

investors stick by abc

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    Investors Stick by ABC
    Temasek And Lazard
    Boost Their Stakes
    Despite Firm's Woes
    February 29, 2008

    MELBOURNE, Australia -- ABC Learning Centres Ltd.'s biggest investors are standing by the troubled day-care operator, buying shares as its stock goes into free fall.

    Singapore investment vehicle Temasek Holdings Pte. Ltd. raised its stake Tuesday to 14.66%, according to a stock filing, even as it lost more than 290 million Australian dollars (US$273 million) on the 12.35% stake it bought last year in May. U.S.-based Lazard Asset Management also raised its stake, to 13.93% from 12.2%.

    ABC saw its market capitalization tumble 43% Tuesday amid concern over debt levels, forcing it to assure investors it hadn't breached any covenants.

    "We remain committed to our investment in ABC Learning Centres," Myrna Thomas, Temasek's managing director for corporate affairs, said in a statement. "We make our investment decisions based on commercial considerations."

    A person familiar with the situation said Temasek and Lazard made their purchases on the open market.

    ABC placed its stock in a trading halt Wednesday as it weighs offers. Late Thursday it requested a longer suspension, saying it expects the freeze to last three trading days as talks continue.

    An industry insider said Thursday that private equity is behind an approach for ABC's U.S. operations. Goldman Sachs JBWere and Austock are serving as advisers.

    And there is speculation several private-equity firms could be contenders, including Bain Capital Partners, which is paying US$1.3 billion for Bright Horizons Family Solutions, a Massachusetts-based child-care group.

    Following an aggressive expansion, ABC has more than 1,000 child-care centers in the U.S. and is now a major day-care provider there, though it holds only about 3% of the market, which is fragmented because of the large number of smaller operators. ABC has about 20% of the market in Australia and also has centers in the U.K. and New Zealand.

    TPG Inc., Macquarie Group Ltd. -- which has child-care interests -- and Pacific Equity Partners have also been tipped as possible buyers.

    Another person familiar with the situation said Pacific Equity Partners, which recently raised a A$4 billion fund, wasn't behind the initial approach, but wouldn't rule out interest if Australian assets are sold.

    TPG, Bain, Macquarie and Pacific Equity Partners weren't available for comment.

    ABC ran into trouble Monday when it reported net profit fell 42% to A$37.1 million in the first half ended Dec. 31, missing analysts' expectations. Thursday, it defended its disclosure, following a stock-exchange query, saying the market was aware its U.S. expansion would skew earnings into the second half, owing to summer's effect on child care.

    The 43% tumble in ABC shares Tuesday triggered a rush of margin calls on directors' holdings, including those of Chief Executive Eddy Groves and his wife, Le Neve Groves, who were forced to liquidate almost A$35 million in stock, or nearly half their combined 8% stake.

    The stock sales added to market concern that directors using margin loans to buy shares, combined with predatory hedge funds, is exacerbating stock routs.

    Mr. Groves said Tuesday that his company may have been targeted by hedge funds and others betting its stock would fall.

    Market operator and regulator ASX Ltd. said Thursday that it will go over the issue with the government and the Australian Securities and Investment Commission.
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