So will ABC Learning Centres return to centre stage today once the exclusive negotiating period with Morgan Stanley over the sale of ABC’s US assets ends?
Judging by the reaction yesterday of investors in yesterday’s 4% leap in the market, they couldn’t care less.
ABC shares were marked up and they ended slightly firmer, despite revealing news that a week or so ago would have set off a selling rush.
There’s nothing like a rising market to get investors to suspend their critical faculties.
ABC said yesterday that it was still in talks to sell a 60% stake in its US centres to the private equity arm of Morgan Stanley.
But it revealed in a statement that the exclusivity period with Morgan Stanley will end on Tuesday, New York time, for the $750 million sale of 60% of the US centres business.
The money is crucial to cutting ABC’s debt. The news did not deter buyers of the company’s shares. ABC Learning jumped as much as 11% at the sharemarket’s opening, adding 14c to $1.44. They retreated to end up 4.5c at $1.345.
That’s not going to get many interested in taking up the dividend reinvestment plan’s discounted shares, which ABC said yesterday were priced at $1.46.
"The Dividend Reinvestment Plan ("DRP") price is calculated on the weighted average price for securities sold on the ASX on the first day on which those securities are quoted ex-dividend in relation to the relevant dividend and on the following 4 trading days, less a discount of 2.5% determined by the Board," ABC directors said in a separate statement to the ASX.
"ABC has determined that the price at which the shares are to be issued under the DRP is $1.46."
As DRP’s are usually a way of companies conserving cash by issuing discounted shares, ABC’s pricing will mean there’s little take up.
The banks and other holders of shares after the various margin calls will want the 8c a share cash dividend, not extra shares.
Most of the board doesn’t have many shares left; many smaller holders would have sold out in the freefall last month and earlier this month and the holders are probably hedge funds and other speculators who will also want cash.
Earlier this month, ABC Learning said the deal with Morgan Stanley would raise about $750 million which would enable it to substantially cut its debt.
It was that expansion into the US last year that eventually forced investors to take a closer look at the ABC finances, and investors didn’t like what they saw.
The Morgan Stanley deal was subject to approval from ABC’s banks but at the time, the company said it would still be able to meet its financial covenants under its existing banking facilities, if the sale didn’t proceed.
ABC said it had refinanced about $1.5 billion worth of loans in December, with repayment of the principal now due in 2010. But when the selling wave hit the company that claim was lost in the rush. ABC didn’t explain the reason for the apparent delay in doing the deal.
The group’s shares have lost 65% of their value since it reported disappointing first-half earnings in late February.
The collapse of its share price triggered margin sales by several directors, including founder Eddy Groves.
