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ABC Learning agrees Morgan Stanley deal

publication date: May 1, 2008
author/source: Ed Tranham

ABC Learning has finally signed the deal to sell 60% of its US business to Morgan Stanley Private Equity. The deal values the company’s US business at $700m ($75m less than ABC initially wanted). All the proceeds will be used to reduce ABC’s net debt of $1bn by some $450m which includes some capitalisation of property leases. ABC claims the sale price implies a multiple of 12.7 times EBITDA of the last 12 months’ revenues.

Both companies expect to close the deal within 90 days once funding has been approved and consent has been received from ABC’s bankers. Within the deal is a call option for ABC to buy back Morgan Stanley Private Equity's interest, three years after closing.

At the same time ABC has revised its forecast for its current financial year, expecting to report a loss of between A$80m and A$89m (£37m to £42m) compared to an already downgraded profits forecast of A$165m (£77m). The latest downgrade is due to write-downs and restructuring costs – a sign of operational failures at ABC.

The company still expects to sell its UK vouchers business by the end of June 2008, generating a capital profit of A$100m (£47m).

Excluded from the transaction were ABC’s original plans to raise A$150m (£70m) from Morgan Stanley by issuing loan notes, convertible into a 10% stake in the Australian company. The plan seems to have been very unpopular with ABC’s disgruntled shareholders. However, on the positive side for investors ABC shares leapt 59 cents (43%) to A$1.95 following the Morgan Stanley announcement on 22 April.

The magnitude of the problems at ABC has finally taken its toll on the company’s board. The chairman, CFO and two other directors have resigned. However, founder Eddy Groves, who lost nearly all his shares in ABC to margin calls as ABC's share price plunged in late February, is not among the departed.


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