ABC Learning, Allco and Murdoch
February 2, 2010
Dear Mayne Report subscribers,
well, aren't the big names dropping like flies? And don't say you weren't told.
It was a tip from a former Commonwealth Banker that led to this Mayne Report article about ABC Learning on Boxing Day.
The stock hit a low of $1.15 in morning trade before closing down $1.60 at $2.14 - a loss of 42.78% on the day in massive trade of 157 million shares equivalent to about one-third of the shares on issue.
It was this profit presentation yesterday afternoon which caused the collapse. An urgent update at 11.30am didn't calm things down much when it revealed the only covenants on the $1.43 billion debt facility agreed last December related to "shareholder funds, funding ratios and gearing ratios".
At 2.46pm, in a response to another ASX query, we got some more detail on the banking covenants, specifically as follows:
"The Shareholders Funds covenant requires minimum 'Shareholder Funds' of AUD $2 billion. 'Shareholder Funds' is defined as total assets less total liabilities of the ABC Group on a consolidated basis, plus the aggregate face value of all notes issued under the Company's subordinated note issue of AUD $600 million, completed in June 2007."
So, Allco had a $2 billion "market capitalisation" covenant, but the Commonwealth Banker who jumped ship to ABC Learning and negotiated its package, managed to score a "shareholder funds" alternative which seemingly allows Eddie Groves to wriggle out of a default based on accounting standards.
It puts the independent directors and auditor in an appalling position. Do they acknowledge the sharemarket route and force write downs that then trigger a default, or do they keep claiming shareholder funds exceed $2 billion when ABC Learning tonight has a market capitalisation of less than $1 billion.
The directors themselves are feeling plenty of pain because the board revealed the following this afternoon:
"A number of the Company's directors have entered into margin lending arrangements to fund the purchase of shares in the Company. Due to the recent fall in the Company's share price, some lenders may exercise their right to sell Company shares pursuant to these margin lending arrangements. The directors do not intend to voluntarily sell their shares in the Company and will only sell if required to do so by their margin lenders."
One suspects today's huge turnover includes some stock controlled by directors.
BUYING YOURSELF SOME MURDOCH PROTECTION
Kevin Rudd can forget about appointing Sir Rod Eddington as Governor General. The impending collapse of the Allco group has blown up a number of major reputations, none bigger than the former Cathay Pacific, Ansett and British Airways CEO.
However, when you're a mate of Rupert Murdoch, sometimes critics don't go in quite as hard as they should. Terry McCrann is a classic case in point. The bearded burbler made exactly the right argument against the Qantas board last August in calling for an ASIC inquiry over its tardy disclosure during the APA privatisation bid.
But why isn't he doing the same against the Allco Finance Group board which has now become one of the worst corporate disclosers we've seen in recent years?
It's not as if McCrann is noted for his reticence. Have a look at this extraordinary spray against the Symbion Health board when McCrann declared: "The entire board of Symbion has to be sacked, as much for stupidity as inappropriate behaviour."
It's the same mentallity that sees countries like Spain hesitating before recognising Kosovo. The Spaniards don't want to encourage separatists movements, just like Rupert and his minions don't want News Corp's senior independent director Sir Rod Eddington mired in a corporate governance scandal.
Sir Rod has demonstrated a complete inability to act independently of the interests of Allco executive chairman David Coe. Allco deputy chairman Bob Mansfield told me after the Allco AGM last October that the two men "have known each other a long time".
In other words, they were mates. If Sir Rod can't rein in a relative corporate poodle like David Coe, how on earth can we have confidence in his ability to stand up to the Murdoch interests on behalf of minority shareholders who have about $50 billion invested in News Corp shares?
I'll be on 774 ABC Melbourne at 5.40pm tonight talking about ABC Learning, Allco and Murdoch.
Do ya best, Stephen Mayne
* The Mayne Report is a multi-media governance website published by Stephen Mayne with occasional email editions. To unsubscribe from the emails click here.
well, aren't the big names dropping like flies? And don't say you weren't told.
It was a tip from a former Commonwealth Banker that led to this Mayne Report article about ABC Learning on Boxing Day.
The stock hit a low of $1.15 in morning trade before closing down $1.60 at $2.14 - a loss of 42.78% on the day in massive trade of 157 million shares equivalent to about one-third of the shares on issue.
It was this profit presentation yesterday afternoon which caused the collapse. An urgent update at 11.30am didn't calm things down much when it revealed the only covenants on the $1.43 billion debt facility agreed last December related to "shareholder funds, funding ratios and gearing ratios".
At 2.46pm, in a response to another ASX query, we got some more detail on the banking covenants, specifically as follows:
"The Shareholders Funds covenant requires minimum 'Shareholder Funds' of AUD $2 billion. 'Shareholder Funds' is defined as total assets less total liabilities of the ABC Group on a consolidated basis, plus the aggregate face value of all notes issued under the Company's subordinated note issue of AUD $600 million, completed in June 2007."
So, Allco had a $2 billion "market capitalisation" covenant, but the Commonwealth Banker who jumped ship to ABC Learning and negotiated its package, managed to score a "shareholder funds" alternative which seemingly allows Eddie Groves to wriggle out of a default based on accounting standards.
It puts the independent directors and auditor in an appalling position. Do they acknowledge the sharemarket route and force write downs that then trigger a default, or do they keep claiming shareholder funds exceed $2 billion when ABC Learning tonight has a market capitalisation of less than $1 billion.
The directors themselves are feeling plenty of pain because the board revealed the following this afternoon:
"A number of the Company's directors have entered into margin lending arrangements to fund the purchase of shares in the Company. Due to the recent fall in the Company's share price, some lenders may exercise their right to sell Company shares pursuant to these margin lending arrangements. The directors do not intend to voluntarily sell their shares in the Company and will only sell if required to do so by their margin lenders."
One suspects today's huge turnover includes some stock controlled by directors.
BUYING YOURSELF SOME MURDOCH PROTECTION
Kevin Rudd can forget about appointing Sir Rod Eddington as Governor General. The impending collapse of the Allco group has blown up a number of major reputations, none bigger than the former Cathay Pacific, Ansett and British Airways CEO.
However, when you're a mate of Rupert Murdoch, sometimes critics don't go in quite as hard as they should. Terry McCrann is a classic case in point. The bearded burbler made exactly the right argument against the Qantas board last August in calling for an ASIC inquiry over its tardy disclosure during the APA privatisation bid.
But why isn't he doing the same against the Allco Finance Group board which has now become one of the worst corporate disclosers we've seen in recent years?
It's not as if McCrann is noted for his reticence. Have a look at this extraordinary spray against the Symbion Health board when McCrann declared: "The entire board of Symbion has to be sacked, as much for stupidity as inappropriate behaviour."
It's the same mentallity that sees countries like Spain hesitating before recognising Kosovo. The Spaniards don't want to encourage separatists movements, just like Rupert and his minions don't want News Corp's senior independent director Sir Rod Eddington mired in a corporate governance scandal.
Sir Rod has demonstrated a complete inability to act independently of the interests of Allco executive chairman David Coe. Allco deputy chairman Bob Mansfield told me after the Allco AGM last October that the two men "have known each other a long time".
In other words, they were mates. If Sir Rod can't rein in a relative corporate poodle like David Coe, how on earth can we have confidence in his ability to stand up to the Murdoch interests on behalf of minority shareholders who have about $50 billion invested in News Corp shares?
I'll be on 774 ABC Melbourne at 5.40pm tonight talking about ABC Learning, Allco and Murdoch.
Do ya best, Stephen Mayne
* The Mayne Report is a multi-media governance website published by Stephen Mayne with occasional email editions. To unsubscribe from the emails click here.