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This is an article that appeared in the Courier Mail this morning MON 28 JAN 2008,
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Disastrous week for MFS as it battles for survival

By Melissa Ketchell

INVESTMENT banker Joe Gersh is no stranger to risk, but when he signed the deal to sell the remaining 70 per cent of his Melbourne-based company to investment funds group MFS less than six months ago, he could not imagine the abyss he was entering.

The deal involved Mr Gersh and the company's managing director Adam Kaye taking 12.3 million shares in MFS, valued at $70.8 million.

Under the deal the split was 80 per cent to Mr Gersh and 20 to Mr Kaye.

`"We are confident in the future of MFS and our stake will be significant,'' Mr Gersh said at the time.

Today, with MFS fighting for its existence and shares in a trading halt, the stock is worth just $12.2 million.

The bankers are just two of the high-profile businessmen to suffer in the collapse of MFS.

Margin calls have seen MFS directors Michael Hiscock and Paul Manka's shares sold for a fraction of their previous worth. And the holdings of founders Michael King and Phil Adams, which at one point last year topped $400 million have now dwindled to $60 million.

As banks circle the assets of one of the group's key businesses, Stella, it seems the tourism arm, which has enjoyed a profit guidance upgrade in recent months, will be largely sold off and the proceeds used to pay some of the MFS's $1.7 billion debt.

US hedge fund Fortress wants its $150 million as soon as possible and the Commonwealth Bank has said it has no agreement to refinance this or any other MFS debt facility.
It could take up to two weeks until a deal is done with Stella, but other company assets are already changing hands.
Last Friday, a special crossing of 23 million Babcock and Brown Communities securities was sold by two companies associated with MFS to institutional investors.
Stella is widely seen as the company's jewel, and some analysts are wary about what sort of company will remain once it is sold.

There are also concerns that the fire sale conditions will erode the true value of the tourism company, which manages hotel chains including Peppers, Saville, Mantra and BreakFree and the Harvey World Travel franchise operation. Already some privately owned HWT shops, not related to MFS which runs the franchise business not the individual stores, are worried about a public perception that they will be affected.

Owner of stores in Gatton and Warwick in southern Queensland, Col Brimblecombe, said there was a general concern that potential customers think the stores are connected when they are not.

"My managers tell me people are asking questions because they see HWT mixed up with MFS in the media,'' he said.
The disastrous change in fortune for MFS came just over a week ago after an optimistic then chief executive Michael King called for a $550 million rights issue as part of a plan to separate Stella from the financial investment side of the business.

Disastrous week for MFS as it battles for survival
He had already told shareholders the company didn't need money but fears about the company's debt position saw a massive selldown last week with the share price tumbling almost 70 per cent, taking with it almost $1.5 billion off MFS's market capitalisation. Mr King fell on his sword two days later, foregoing any departure payout.

It seems shareholder concerns were founded with MFS telling the market late in the week its debt had almost quadrupled to $1.7 billion over the past six months.

Analysts had already factored debt associated with Stella into their reckoning, it was always geared for part sale to private equity market.

But there was about $200 million debt from the financial services company that was unexpected.

Since the announcement, there has been no explanation from MFS about how the debt has expanded so quickly.

Transparency has long been a complaint from MFS watchers but while the company continued to grow, shareholders were happy to come along for the ride.

Its most well-known business Stella has been on a well-publicised and aggressive expansion in Australia, South Africa and the UK, but according to others in the market for the assets, MFS was willing to pay a premium to snare its targets.

"I'm not talking a little bit more, a lot more than I could see the value -- they obviously saw something there I couldn't see,'' one underbidder told The Courier-Mail.
As disgruntled associates move to denounce the risk-taking attitude of MFS founders, it is easy to forget that this same attitude was seen as one of wannabe Macquarie's strong points a few months ago.

Early last year, Mr Adams admitted to The Courier-Mail that he got some sort of perverse pleasure out of doing things differently and succeeding.

"Yes we might be seen as taking a risk in certain areas but I'm comfortable.

"We have a good base here and MFS Ltd is certainly going to be in the ASX 50 in the not too distant future.''

He resigned as head of the Australian operation and moved to Dubai as part of a plan to grow the company in the Middle East.

With the future of MFS still in doubt the fallout for its associated companies is still unclear.

CommSec this week reduced its approved loan value ratio for MFS and offshoots MFS Living and Leisure and MFS Diversified to zero, forcing clients to offload the stocks.

New MFS managing director Craig White said the company was considering selling its stake in listed MFS Diversified, a company which last week put out a statement trying to differentiate itself from MFS and its troubles.

MFS Living and Leisure has been in a trading halt for more than a week after its share price fell from 70 to 36.