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Australian child-care provider ABC Learning Centres Ltd. said it will sell a 60% stake in its U.S. business to Morgan Stanley Private Equity in a deal that values the unit at US$775 million.
ABC Learning will use proceeds from the sale to pay loans, and that should ease some concern about the Brisbane company's mounting debt, which grew in line with an aggressive push into the U.S. But some analysts said ABC Learning may have sold the asset too cheaply.
The company's net debt almost doubled last year to 1.7 billion Australian dollars (US$1.58 billion) from A$900 million, worrying investors and leading to a 42% plunge in ABC Learning's stock last week.
ABC Learning, which suspended trading in its shares on Feb. 27 after an approach regarding a partial sale, will receive A$750 million from the buyout arm of Morgan Stanley, with an additional US$30 million payable shortly after June 2009, it said in a statement.
The sale will let the company realize "significant value from our U.S. business, retain a material ongoing presence in this important market and substantially strengthen our capital structure," said Chief Executive Eddy Groves. "We continue to believe that the U.S. represents a significant growth and return opportunity for ABC."
ABC Learning will remain in exclusive talks with Morgan Stanley until March 24, with the deal expected to close by the end of April, the company said. Mr. Groves and advisers Goldman Sachs JBWere and Austock Group flew to the U.S. over the weekend to negotiate any potential sale.
Morgan Stanley will also subscribe for senior notes, convertible into about 10% of ABC Learning's diluted share capital, ABC Learning said. Proceeds will be used to partially pay its senior debt, with consent of the majority of its lenders to proceed with the sale.
ABC Learning has accumulated A$1.2 billion in senior debt and an additional A$600 million in bonds to fund its expansion, but Mr. Groves last week reassured investors it hadn't breached its covenants.
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ABC Learning said it doesn't need investor approval for the sale, as the U.S. business isn't the company's main undertaking and the sale of an interest in the unit won't amount to a significant change to the nature or scale of the company's activities.
ABC Learning, the second-largest child-care provider in the U.S., operates about 1,150 child-care centers there, providing early education and care services to about 167,000 children between the ages of six weeks and 12 years under a variety of brands, including the Children's Courtyard and Childtime Learning Centers. Last fiscal year, the unit contributed less than 20% of ABC Learning's earnings before interest, taxes, depreciation and amortization and less than 40% of sales, the company said.
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ABC Learning has about 20% of the Australian child-care market, with 1,188 centers in Australia and New Zealand. The company also owns 33 centers and manages 15 nurseries across the U.K., caring for about 4,000 children.
- reprinted from The Wall Street Journal