Time to put ABC Learning out of its misery

Wednesday, June 11, 2008

Stephen Mayne writes:

ABC Learning CEO Eddie Groves is a man with no shares and no shame, who continues to treat his shareholders, customers and taxpayers with utter contempt.

Despite Julia’s Gillard’s rather unsubtle threats, Eddie is soldiering on with a 10% price rise at ABC Learning child care centres from July 1, thereby soaking up much of Labor’s election promise to lift the childcare rebate from 30% to 50%.

Larry Anthony, John Howard’s former Children’s Minister who oversaw the huge increases in subsidies to profit-driven child care centres and then joined the ABC Learning board just six months after losing his seat, has presumably advised Eddie to stare down the Rudd Government.

There is no doubt that ABC Learning is desperate for the cash after almost going broke courtesy of paying too much to become the world’s biggest childcare company.

However, Eddie’s attitude to stakeholders is best summed up by yesterday’s outrageous and utterly desperate $82.2 million placement at the bargain basement price of $1.15 a share, with no corresponding offer for small shareholders.

Remember all those claims by Eddie that his great Australian company had been destroyed by short sellers. That was when the stock slumped 43% to $2.14 on February 26 in response to the previous day’s shock 40% slump in half year profit.

Eddie was subsequently cleaned out of his shares at around $1.80, but if his theory about short selling was true, shares in this “great Australian company” would have recovered.

The stock closed last Friday at $1.35 and knowing full well that Wall Street had just suffered its biggest one day fall in more than a year, Eddie sold 15% of the company yesterday at a record low price that diluted everyone else.

Last year’s audited accounts claim net assets of $1.9 billion, yet Eddie has just agreed the entire equity was only worth $551 million. Stand by for the $1.5 billion write-off as ABC Learning joins this list of Australia’s biggest corporate losers.

Morgan Stanley Private Equity, which picked up 60% of ABC Learning’s US business at the fire sale price of $US700 million, has now emerged as the second biggest shareholder with 12.9% after shelling out $70.6 million in yesterday’s placement.

The Singapore Government paid $403 million for 12% last June representing 55 million shares priced at $7.30 each. The Singaporeans topped up to 69.6 million shares or 14.66% on the day of Eddie’s notorious conference call, but they’ve clearly had enough and did not participate yesterday.

However, the second largest shareholder Lazard bought another 2.1% of ABC Learning yesterday so it now emerges as the largest shareholder.

Eddie Groves and chairman David Ryan should be sacked for destroying more than $1.5 billion of value, but it will all come down to the three biggest shareholders who now rank as follows:

  • Lazard: 76.1 million shares or 13.8%
  • Singapore Government: 69.6 million shares or 12.6%
  • Morgan Stanley Private Equity: 61.5 million shares or 11.2%

The Rudd Government won’t have much sympathy for Eddie or his shareholders and will probably take this 10% price rise as a declaration of war.

While withdrawing government subsidies would be extremely messy, perhaps a government takeover bid for the whole company is the order of the day.

After all, child care isn’t an industry that lends itself to colourful entrepreneurs. It’s time to put Eddie Groves out of his misery and close the book on a failed experiment, handing the Australian centres back to councils, community groups or state education departments.