MFS Limited is breathing a sigh of relief after selling its stake in the Stella Group – albeit for a price short of expectations.
MFS has sold its 65% stake in Stella to global private equity firm CVC Asia Pacific for $1.3 billion, where CVC will assume $905 million of Stella’s debt and MFS will receive $409 million in cash. And as part of the agreement, MFS will retain a 35% shareholding in the hospitality and travel group.
But the sale price achieved falls well short of the widely speculated $1.6 billion CVC Asia Pacific had offered MFS for a half stake in Stella last year.
But in an upbeat statement, MFS’ chairman the Hon Andrew Peacock said CVC is an excellent partner for Stella and one it believes can make a significant contribution to its future and maximise its value over the medium term.
“The proceeds from the transaction will enable MFS to repay its short term debt obligations and at the same time provide it with the flexibility to manage its commitments into the future,” he added.
Peacock said the MFS Board recognised that MFS was not a natural long term owner of Stella and that separation of ownership offered significant benefits to both MFS and Stella.
That statement is in stark contrast to what the company’s then chief executive Michael King said when MFS previously withdrew the partial sale of Stella in November last year.
At the time, King said Stella’s results were sound and was on track to exceed FY08 market guidance and “it was in the best interest for MFS to keep its stake in the Stella Group.”
But yesterday, Peacock reiterated, “A separation would allow Stella to operate independently from MFS and to pursue its own growth objectives without being constrained by MFS ownership,”
The Australian Shareholders Association took a different view to the transaction.
The Association said MFS was distressed seller, adding it viewed the transaction as a fire sale.
“The main thing is that MFS will be able to repay some of its short-term debt, but on the other hand it was a distressed seller,” ASA said. “So it probably didn’t get as good a price as it might have a few months ago.”
The view is shared by analysts, who said the Stella sale was a result of MFS’ bungled attempt earlier this month to merge its $5 billion funds management business with Phil Sullivan’s City Pacific, in a deal reportedly worth $1.3 billion.
Meanwhile, CVC Asia Pacific’s managing director Ben Keeble said the firm was delighted to be taking a controlling interest in Stella.
As part of the agreement, MFS is also entitled to seek a priority allocation for MFS shareholders in any public listing of Stella should Stella seek a separate listing on a stock exchange in the future – a strategy which MFS decided not to pursue last year.
Meanwhile, the transaction is subject to receipt of foreign regulatory approvals in
Finally, MFS said it has retained 333 Capital to continue to “undertake and complete a strategic review of its financial services business, including a review of its operating and financing structure,”
And until the strategic review is completed, the board of MFS has requested to continue the voluntary suspension of MFS securities on the Australian Stock Exchange.
MFS shares are currently suspended at 99 cents – a far cry from its 52 week high of $6.85 per share.
Currently in a trading halt, the group recently admitted that it had $220 million in short-term debt maturing by the end of March, and a total group debt of $1.69 billion.
Last week, MFS offloaded its aged care business, Domain Aged Care Group, to take care of its loans. The company estimates proceeds of $43.5 million will be used to repay loans worth approximately $50 million to associated entities of MFS. P
