ABC Learning a lesson for regulator

In institutional briefings just before the bear raid on ABC Learning Centres shares, Eddy Groves canvassed that in a break-up the company could be worth $7 a share. The Groves plan has always been that if there was a bid for ABC he would try to privatise the company or arrange a bid closer to what it is worth.

That’s exactly what he is now doing. His first challenge will be to line up the capital. Even if he can raise the money, I suspect the price will be a fraction of what he believes it is worth. In evaluating any bid, the ABC board will have some tough decisions given the fact that we are now operating on a different paradigm.

The current set of corporate disasters is remarkably similar to previous crashes. People have borrowed far too much money over too short a period and have been caught by the change in credit conditions. It’s an old story. But ABC is an illustration of significant difference.

Never before have a number of superannuation fund and index fund managers acted against the interests of the people they represent by loaning stock for hedge funds to sell short. ABC may force regulators to wake up and look to a potential opportunity for a class action against the managers.

In the past when corporations hit serious problems, the creditors have moved in. But in the case of both Centro and ABC a crisis arose where the company was not insolvent and the CEO remained in the chair.

The Centro board determined that Andrew Scott was the wrong person to run the company in the new circumstances.

In the absence of a takeover bid, the most important decision facing the board of ABC Learning is whether Groves is the right person to run the company, given that he has been partially sold out in a brutal way.

They may determine he is essential to the business and so will recommend a sale if he arranges a bid.

If there is no bid and Groves is prepared to stay on, then ABC directors must decide whether he still has his heart in it.

There will probably be no half measures. In my radio interviews I have seen clear apprehension among customers of the centres. The Government is monitoring the position. The CEO of ABC Learning, or any new owners, must be able to face the public and restore confidence.