March 26, 2008 Eddy Groves's nightmare is not over, with renewed...

March 26, 2008

Eddy Groves's nightmare is not over, with renewed fears his plans to rescue the company by selling the majority of ABC Learning Centres' US operations could fall at the final hurdle.

The fears came as the buyer, Morgan Stanley Private Equity, failed to ink the deal before last night's deadline for exclusive negotiations.

When the pending sale was announced three weeks ago the company said it was expected to deliver $750 million, which would be used to pay down the company's $1.1 billion debt.

ABC Learning said yesterday it was still discussing the sale of 60 per cent of its US assets, and the failure to meet the deadline - on Easter Monday, New York time - would not be fatal to the deal.

But sources close to the negotiations in New York said Morgan Stanley was holding off because of the global freeze on credit markets. They said no other buyers had indicated an interest to replace Morgan Stanley if it was to withdraw from negotiations, although other buyers, including the private equity player Bain Capital, are believed keen to snap up the stake in 1000 US centres.

No announcement about the sale is expected until the end of the week, with a final deadline of the end of next month.

If the deal did not go ahead it would have serious repercussions for the credibility of the managing director, Eddy Groves, because he has reassured shareholders the company is in good shape and has said fears about its high gearing are unfounded.

When the deal was announced three weeks ago it was regarded as a lifeline to the ailing childcare provider.

But ABC said at the time that if the sale did not proceed the company would still have enough capital to stay within its strict banking covenants.

The sale was expected to produce just over $500 million in cash, plus a further $240 million