stella sale attacked

MFS board under fire
Article from: The Courier-Mail

By Anthony Marx

February 11, 2008 11:00pm

THE biggest individual shareholder in struggling MFS has accused the board of selling off its largest asset far too cheaply and is demanding that investors get a chance to vote on the deal.

Chris Scott, who controls an 8.4 per cent stake in the Gold Coast funds manager, filed a complaint with the Australian Securities Exchange this week alleging MFS' planned sale of two-thirds of its Stella hotel and travel group violated listing rules as shareholders had no say.

MFS announced last week that it had struck a $1.3 billion deal with private equity group CVC Asia Pacific and would not need shareholder approval.

But Mr Scott alleges the sale undervalues Stella, which MFS had valued at up to $2.8 billion last year, by $500 million to $800 million.

Stella, which includes the BreakFree hotel chain, Peppers resorts and Harvey World Travel stores, generates 95 per cent of revenues and 55 per cent of pre-tax earnings for MFS. Chapter 11 of the ASX listing rules requires that if a significant change "involves the entity disposing of its main undertaking, the entity must get the approval of holders of its ordinary securities".

Mr Scott, who sold his S8 tourism group to MFS in 2006 and owns 42 million shares, attacked the board for overseeing an "outrageous" fire sale.

"Clearly, the shareholders are getting raped on this issue. There's no doubt about that. Everyone accepts they sold it too cheap. They only sold it for one reason – to solve a temporary cash flow problem," he said from Singapore yesterday.

As a result, Mr Scott has called for most of the board to resign. He and two associates want to join a revitalised board, raise about $250 million to alleviate debt pressure and proceed with an orderly sale of assets.

After MFS failed last month to borrow $550 million to restructure the company, the share price plunged and the stock remains in a trading halt. MFS is saddled with $220 million in short-term debt and has frozen investor redemptions in its $770 million Premium Income Fund.

"Here's a board that cannot go to the market and raise capital because it has no credibility and so what they do is sell off an asset cheap and rape the shareholders. Now the board ought to fall on its sword. This is not the way public companies are supposed to work," Mr Scott said.

He also alleged that Rolf Krecklenberg, managing director of Stella and an MFS board member, had struck a deal to receive equity in CVC but no details had been released to the market. He said former MFS chief executive Michael King, current chief executive Craig White and accountant Mark Korda had all separately confirmed the deal. Mr Krecklenberg was not involved in board deliberations about Stella.

"Rolf has a vested interest in the Stella deal going ahead with CVC," Mr Scott said.

Mr Krecklenberg declined to comment yesterday, while Mr White and Mr King did not return calls. An MFS spokesman said he was unaware of any arrangement for Mr Krecklenberg to secure CVC equity.

The MFS spokesman also said the ASX had provided a waiver allowing the Stella sale to proceed without input from shareholders. But sources contradicted that statement and a on-line review of the ASX waiver register did not show any listing for MFS.

ASX chief supervision officer Eric Mayne would not comment about the Stella sale.