pif related news

Legal stoush may expose Stella woesScott Rochfort:::January 27, 2009 :::STELLA GROUP, the owner of Harvey World Travel, is locked in a battle with its recently ousted chief executive Rolf Krecklenberg, which could further expose the financial turmoil enveloping Australia's largest travel retailer.

Stella, controlled by the private equity group CVC Asia Pacific, has launched action in the Federal Court to foil Mr Krecklenberg's attempts to get a severance payout believed to be in the millions of dollars. It has approached the court to throw out a statutory demand served on it by Mr Krecklenberg.

Stella and its lawyers, Mallesons Stephen Jacques, declined to discuss the matter. The South African-born Mr Krecklenberg was also coy when contacted by the Herald yesterday. "It's Australia Day, mate. I don't know what you are talking about," he said before hanging up.

A preliminary hearing will be held on February 13.

It is a fortnight since the Herald revealed the travel group had not only made a loss last financial year but had also breached the covenants of one of its banking facilities.

The company, whose franchises include Harvey World, Gullivers, Travelscene, Peppers and BreakFree, is now pleading for additional breathing space over the repayment of $860 million in loans.

It reported a $42 million net loss last financial year.

CVC bought a 65 per cent equity stake in Stella from the collapsing Gold Coast financial and property group MFS (since renamed Octaviar) for $409 million in February last year. It was considered a bargain at the time.

The private equity group offered MFS an estimated $900 million for a 50 per cent stake in Stella in May the previous year. CVC has since lodged a $249 million "warranty" claim against Octaviar, which still has 35 per cent of Stella, over the sale. Octaviar was placed into administration four months ago.

Octaviar's administrator, Deloitte, issued a report last month saying CVC "asserted its right to warranty claims arising from the sale and purchase agreement" of Stella.

It is unclear whether the claim relates to inaccurate profit projections Octaviar (then MFS) provided on Stella.

Stella's earnings before interest, tax, depreciation and amortisation (EBITDA) were $17 million for last financial year. This is well below MFS forecasts in late 2007 for EBITDA of $210 million for the period.

It is unclear if the warranty claim strained tensions between CVC and Mr Krecklenberg. He was the MFS executive who led the sale talks with CVC and was kept on after the transaction.

When employed by MFS, Mr Krecklenberg, 43, who lives in the Sydney oceanside suburb of Dover Heights, was paid $1.6 million in the financial year before CVC bought its stake in Stella.

Mr Krecklenberg led Stella's acquisition of the South African hotel management group Protea, which breached its debt covenants late last year.

Octaviar's administrators revealed the company could dispose of its remaining interest in Stella next month. But given the claim and the downturn in the economy it is unlikely Octaviar will get much for the stake.