stella breaching loan .. rolf is out of town., page-8

CVC wants $249m in compo for Stella:::Nick Nichols, business editor

January 10th, 2009

PRIVATE equity player CVC Asia Pacific thought it scored a bargain early last year when it scooped up MFS's premier asset, the tourism and travel company Stella, for a song.

Now it says it has been sold a lemon and it wants $249 million in compensation from MFS (now known as Octaviar).

The belated financial result posted by Stella's parent company, Global Voyager Holdings, has boosted expectations that CVC will vigorously pursue a warranty claim already lodged against Octaviar.

Global Voyager slumped to a $42.7 million loss last financial year, weighed down by heavy finance and restructure costs.

It managed to deliver earnings before tax, depreciation and amortisation of $17.2 million.

But this was well down on the $210 million forecast by Stella -- a global tourism empire pieced together two years ago by MFS at a cost of more than $2.4 billion -- before CVC's purchase.

The dismal profit result has already claimed the scalp of Stella Group chief executive Rolf Krecklenberg who left the company just before Christmas.

Mr Krecklenberg, the former Peppers Resorts boss seconded by MFS after its acquisition of the brand, was the last Stella management link with the old guard at MFS.

His departure leaves a gaping hole in Stella Group's senior management with divisional heads Bob East (Stella Hospitality) and Peter Lacaze (Stella Travel Services) now answering to the CVC Asia Pacific board.

Neither CVC nor Mr Krecklenberg returned calls yesterday.

While Mr Lacaze declined to comment on Global Voyager's financial accounts, he confirmed Mr Krecklenberg's departure.

But the release of Stella's latest financial accounts has created a broader issue for Octaviar.

The poor result has triggered CVC's push for compensation from Octaviar under a warranty claim secured in the purchase deal.

In his circular to creditors early last month, Octaviar administrator John Greig, of Deloitte, made provision for a $249 million warranty claim from CVC.

Neither Mr Greig nor fellow Octaviar administrator Nick Harwood could be contacted for comment yesterday.

But one observer said the warranty claim, if successful, could jeopardise further proposed payouts to existing Octaviar creditors who are expecting little more than 3c in the dollar.

It also could spell the end of Octaviar which had been relying on the growth of the Stella business to regain some financial ground.

The existing valuation of Stella will almost certainly have to be written down further.

Stella is said to be suffering from a top-heavy management team and poor integration of its acquired businesses, with one insider suggesting the company could easily shed 500 staff.

CVC bought Stella for a perceived bargain price of $1.3 billion early last year, which included $409 million in cash and CVC assuming $906 million in Stella debt.

The sale was at a huge discount to the price sought six months earlier for the business by MFS founder Michael King.

As for CVC, Stella appears to have added to its woes in the Australian market.

The private equity group has another stressed investment in PBL Media, which it finally secured from James Packer late last year.