ABC seals deal to sell most of US business

Childcare operator ABC Learning Centres has finalised the sale of 60 per cent of its US business to Morgan Stanley Private Equity.

ABC, a high-profile Australian casualty of the credit crisis when its share price collapsed in February on concerns over high debt levels, said the transaction would reduce total net debt by A$485 million ($582m). The deal valued the whole of the US business at US$700 million ($875 million), it said. ABC owns more than 100 childcare centres in New Zealand.

Founder and chief executive Eddy Groves, who sold nearly all his stake in the company to repay loans as directors refinanced about A$1.5 billion worth of debt, said the sale "addresses concerns about the capital required to grow the US business".

ABC will retain US$185 million of ordinary equity and US$20 million of preferred equity in the US joint venture.

"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," Groves said. "It also allows the management team to spend more time focusing on the Australian and New Zealand operations."

The US$700 million enterprise value is down from the US$775 million talked of when the deal was first signalled in early March. The sale price implies a multiple of 12.7 times earnings before interest, tax, depreciation and amortisation of the past 12 months.

After the sale, which is expected to result in a book loss of around A$280 million, ABC expects a net loss of A$80-A$89 million in fiscal 2008.

Before the transaction the company had expected a net profit of A$161-A$170 million. Earnings per share net of tax were expected to be a loss of 17c to 19c, down from earlier expectations for a profit of 34c to 36c a share.