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ABC Learning seals US deal |
ABC Learning seals US deal | 22.04.2008 | |
EMBATTLED childcare provider ABC Learning Centres Ltd has finally sealed a deal to sell 60 per cent of its US business to Morgan Stanley Private Equity. The deal gives ABC Learning`s entire US business a total value of $US700 million ($742.71 million).
The transaction will reduce ABC`s net debt by $485 million, with an additional US$30 million payable shortly after 30 June 2009 by way of an earn-out, the childcare provider said today.
ABC will retain US$185 million of ordinary equity and US$20 million of preferred equity in the US joint venture.
ABC has a call option to buy back Morgan Stanley Private Equity`s interest three years after closing.
"The transaction represents an excellent opportunity to crystallise the value of the US business and reduce ABC`s gearing, while maintaining exposure to the upside potential of the attractive US childcare market,`` ABC chief executive Eddy Groves said.
"Morgan Stanley Private Equity brings not only significant financial firepower, but also a real commitment to growing the business to a level that would not have been achievable by ABC standalone within the same timeframe.``
The US$700 ($753 million) million enterprise value ascribed to ABC`s US business under the deal compared with US$775 million figure given when the deal was first signalled in early March.
ABC said the decline in value was due to "the deterioration in credit markets since that time``.
The sale price implies a multiple of 12.7 times EBITDA of the last 12 months, "comparing favourably with recent transactions in the sector``, the company said.
"This transaction significantly de-risks our business, and addresses concerns about the capital required to grow the US business,`` Mr Groves said.
"It also allows the management team to spend more time focusing on the Australian and New Zealand operations.``
ABC and Morgan Stanley Private Equity expect to close the transaction within 90 days, after finalising regulatory approval, funding and consent from ABC`s senior lenders.
ABC has revised its guidance for fiscal 2008 and now expects to report an $80 million to $89 million loss with earnings per share of negative 17 to negative 19 cents.
"ABC`s financial performance in fiscal 2009 and beyond will now be almost entirely driven by its Australian and New Zealand childcare operations,`` it said.
ABC said it expected the deal to result in a book loss in the vicinity of $280 million, including all transaction expenses, based on preliminary estimates.
"Approximately $65 million of this expected book loss is attributable to unfavourable exchange rate movements since the acquisition of the US operations,`` it said.
The partial sale of the US operations will be dilutive to underlying EPS after completion.
That is due mainly to the deconsolidation of EBITDA, which amounted to $59 million in the last 12 months to December 2007, and a higher average interest rate of approximately 7.5 per cent due to the pay-down of US$ denominated debt.
That would be partially offset by interest expense savings resulting from the debt reduction, the coupon on ABC`s preferred equity in the US joint venture and ABC`s share of the post-tax profits of the US joint venture, it said.
As well as the loss from deconsolidation, ABC also blamed delays in centre acquisitions and significant wage increase for its revised guidance.
Other factors included wages inefficiency due to "sub-optimal roster management``, lower-than-planned fee increases at the beginning of the second half of fiscal 2008, and "sub-optimal management`` of occupancy levels at its centre.
In other developments, Sallyanne Atkinson, ABC`s chairman since listing in 2001, will stand down at the end of May 2008.
She will be replaced by David Ryan, currently a non-executive director of ABC and chairman of its audit committee.
ABC`s chief financial officer James Black is also resigning.
ABC shares surged 59 cents, or 43.38 per cent, to $1.95 by 3.47pm AEST after resuming trading. Share this article |
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