Shares in funds manager MFS have fallen more than 50 per cent this morning on concerns about the level of debt it is carrying.
Brokers said investors were also worried about the level of debt being carried by rival City Pacific Ltd, which has made an offer to buy MFS' financial services arm.
MFS announced today it would split the financial services and its Stella tourism businesses into two separately listed companies.
MFS said the spilt would allow both businesses to be "recapitalised to reduce indebtedness and to achieve capital structures that are appropriate for the different markets and capital requirements of these respective businesses."
Auststock Securities senior client adviser Michael Heffernan said the market had punished MFS for mentioning that the split would allow it to reduce its debt.
"Anyone that mentions debt to the market at the moment is setting themselves up for a hammering, and where there's smoke there's fire in this sort of situation," Mr Heffernan said.
"It might be irrational, but that's the way market is at the moment.
"The market's taking no prisoners - you've got BHP down five per cent."
By 11.13am, MFS was down $1.67, or 52.52 per cent, at $1.51 amid heavy turnover of its shares. City Pacific was one cent weaker at $3.44.
Another broker, who did not wish to be named, said the market was less concerned about the amount of debt being carried by MFS and more concerned about the level of debt being carried by City Pacific.
MFS said today City Pacific's proposal was not "a done deal".
Nonetheless, MFS chief executive Michael King added that there was "potentially considerable opportunity" in City Pacific's offer.
"This proposed structural separation does not preclude MFS from continuing to assess the combination of what will be the news MFS Financial Services with City Pacific," Mr King said.
City Pacific's conditional offer excluded the Stella business and comprises the issue of 225 million new shares to MFS shareholders.
On the basis of each City Pacific share being valued at $3.70 per share, and assuming the MFS financial services business held debt of about $500 million, the transaction had an enterprise value of about $1.33 billion.
But the offer by City Pacific, which was made following talks with MFS, was criticised by analysts as undervaluing the financial services business.
MFS Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
