The credibility of Eddie Groves took another hit yesterday, when ABC Learning Centres announced it had sold 22 million shares (out of its total holding of 32 million shares) in toymaker Funtastic for the bargain price of only 50 cents per share. The sale was made to Archer Capital, pursuant to a non-binding indicative proposal by the private equity firm to acquire Funtastic for 80 cents per share.
Acquiring a foothold stake is a very common measure for schemes of arrangement. When ABC itself merged with fellow childcare operator Peppercorn back in 2004, it took a 19.9% option in Peppercorn from Peppercorn boss, Michael Gordon. However, it is extremely rare, and arguably for good reason, for a substantial shareholder to sell to an acquirer to an amount materially below the offer. (Archer would have presumably told ABC that it was planning to make an 80 cent per share offer, otherwise, it would have breached insider trading provisions.) Acquiring ABC’s stake allowed Archer to have a significant advantage in undertaking the scheme and scaring away any potential competing bidders. For ABC to sell two thirds of its stake at a discount to Archer’s offer represented unprecedented and needless destruction of ABC shareholder wealth.
Also, ABC didn’t just sell for a small discount on the indicative price – it basically gave away its shares, selling them for only 50 cents per share – well below Archer’s 80 cent per share offer.
In its announcement to the ASX this morning (sentiments confirmed to Crikey by a company spokesperson), ABC noted that the sale of its shares in Funtastic “is consistent with ABC strategy of simplifying our corporate structure and focusing on the core Australia/New Zealand Learning Centre business”. This is especially strange given that ABS were still purchasing Funtastic shares as recently as six months ago (ABC purchased 1.414 million FUN shares on 24 December 2007). Further, the holding in Funtastic isn’t overly complex, given Funtastic is another listed company and easy for investors to value.
Eddie Groves has been at the helm of ABC as its shares slumped from $8.80 to only $1.20 earlier this month. At the same time, Groves’ $300 million stake in the company has completely evaporated, while investors, including the Singapore Government, have collectively lost billions of dollars. With no equity, and serious credibility issues after the ill-fated US expansion and Funtastic write-down, Groves’ position as CEO appears untenable – the question is whether ABC chairman and former Adsteam Marine-boss, David Ryan, will have the guts to give Eddie his marching orders.
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