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ABC closes sale of 60pc in US armFont Size: Decrease Increase Print Page: Print March 05, 2008
ABC Learning Centres has confirmed it will sell 60 per cent of its US childcare business to Morgan Stanley Private Equity.

The childcare centre operator said it would use the expected $750 million of cash proceeds to pay down debt.

ABC today entered into a memorandum of understanding with Morgan Stanley Private Equity to sell the stake, in a deal that values the entire US business at $US775 million ($836.57 million).

Beyond the cash proceeds, the transaction will additionally deliver $US30 million payable shortly after June 30, 2009.

At a multiple of 14.1 times earnings before interest, tax and depreciation for calendar 2007, the sale will allow ABC (ASX: ABS) to realise significant value, retain a material presence in an important market and strengthen its capital structure, chief executive Eddy Groves said.

“We continue to believe that the US represents a significant growth and return opportunity for ABC,” Mr Groves added.

“I am delighted that Morgan Stanley Private Equity will become our strategic partner in the US,” Mr Groves said.

“Morgan Stanley Private Equity shares our vision and supports the existing management team to deliver it.”

ABC and Morgan Stanley expect to finalise the documentation by March 24 and complete the transaction by the end of April.

As a condition of the sale, Morgan Stanley Private Equity has agreed to subscribe for ABC notes convertible at its option into about 11 per cent of ABC's undiluted share capital.

ABC said it required the consent of the majority of its lending banks to go ahead with the deal.

It said net proceeds from the sale, and the issue of convertible notes, would be used to partially repay its senior debt under its syndicated bank facility.

“The company's existing syndicated bank debt is expected to reduce by approximately $750 million,” it said.

“At no point has the company been in breach of its banking covenants, nor are these initiatives in response to any pressure or suggestion from its banks.

“If the sale transaction and/or convertible notes issue do not proceed, the company will continue to be able to meet its financial covenants under its existing banking facilities.”