Market senses Allco management buyoutBy Katherine Jimenez
February 12, 2008 12:00am
Article from: Font size: + -
Send this article: Print Email
STRONG market speculation has indicated that Allco Finance Group founder David Coe may be about to announce a management buyout, possibly including Macquarie Bank, as soon as today.
Informed talk centred on Allco (AFG) possibly announcing today a reprivatisation, led by Mr Coe and a strategic investor.
"Privatisation, that is the story going around," said one investor yesterday. He said any deal would need to be worth at least $1.5 billion.
Yesterday morning the badly battered financial services company went into a trading halt, sparking a frenzy of theories, the strongest of which was that Macquarie Bank was about to take a key stake in AFG or may acquire the entire business.
AFG has been hit in recent weeks by the cascading effect of a sagging stock price on a group of executives, including Mr Coe, who were hit by a margin call on their highly leveraged share position in their own company.
One fund manager said: "The main rumour seems to be a privatisation, an MBO (management buyout), perhaps backed by Macquarie."
A Macquarie spokesman said the group would not comment on the speculation. Allco also declined to comment.
The reprivatisation news comes amid market speculation last week that an investor might be about to take a stake in AFG and may provide some capital.
Last month, AFG co-founder John Kinghorn emerged on the company's share register with a 6.8 per cent substantial interest.
Mr Kinghorn is the founder of RHG Ltd, formerly known as RAMS Home Loans.
Documents filed with the Australian Securities and Investments Commission show Mr Coe is also a director of RHG Ltd.
One source downplayed the reprivatisation rumours saying that the prospect of debt being attracted to the Allco business model right now was "very low".
He believes a more logical outcome could be someone about to take a key stake.
Meanwhile, separate speculation has surfaced that last Thursday all of the leasing division was called in by its bankers -- believed to be the Commonwealth Bank and Societe Generale -- and read the riot act.
The timing of a potential reprivatisation comes as AFG's shares struggle to rebound and recapture market confidence after a patch of bad news from the company. There is also investor unease about how management is running the company -- specifically they feel it has been handled like a private company.
Coe's critics say too many of his deals smack of related party deals, such as a move to buy into the Rubicon real estate business set up by his friend Gordon Fell.
Since December 12, AFG's shares have fallen from $7.82 to $2.21 on January 23 before recovering yesterday to $3.05, when trade was suspended.
The complex and aggressively financed transactions that were a feature of the house that David Coe built may have delivered substantial upside during a long bull market, but they are now proving to be negatives for the group in a bear market at a time when credit for leveraged borrowers is harder to come by.
While market sentiment turned on AFG after its failed joint $11 billion bid for Qantas Airways, the bulk of the company's share price purge has been in past months, mostly in investor unease at its ability to refinance debt and highly geared borrowing structures.
That confidence took a further battering recently over the margin call brought on the executives' ownership vehicles, Allco Principal Investments, triggering panic selling in AFG.
API is a trust comprising Mr Coe and other former and existing executives in AFG.
Its horror stretch continued last week when AFG announced the postponement of the first close of its Allco Global Trust and Infrastructure Fund after a foundation investor pulled out of a $200 million commitment.
Additional reporting by Glenda Korporaal