MFS - MFS Limited

News Release

ASX & MEDIA ANNOUNCEMENT
Sale of 65% of Stella Group
MFS Limited (ASX: MFS) announced today that it had entered into binding
agreements in relation to the sale of a 65% shareholding in the Stella Group
(“Stella”) to funds advised by CVC Asia Pacific (“CVC”).
Stella is a leading hospitality and travel group with significant operations in
Australia, New Zealand, South Africa and the UK. The introduction of CVC as a
majority shareholder in Stella will significantly enhance its position to pursue
expansion plans in Australia and internationally.
Key features of the transaction are:
MFS will receive cash proceeds of just over $409 million and will retain a 35%
shareholding and economic interest in Stella
MFS will equity account its interest in Stella following completion and will no
longer consolidate approximately $905 million of Stella debt
The transaction is subject to receipt of foreign regulatory approvals in
Australia (FIRB) and New Zealand (OIO). CVC has lodged applications with
each of these regulatory bodies and expects to receive approval by the end of
March 2008
The transaction is not subject to shareholder approval
Rolf Krecklenberg will remain as Managing Director of Stella Group and will
step down from the MFS Board on completion of the transaction
MFS is 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
The Chairman of MFS, the Hon Andrew Peacock, said: “CVC is an excellent
partner for Stella and one we believe 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.
MFS will retain a 35% interest in Stella so MFS shareholders will continue to
benefit from Stella’s expansion and growth.
CVC Asia Pacific Managing Director, Ben Keeble, said that CVC was delighted to
be taking a controlling interest in the Stella Group.
“Stella is a unique business in this market led by a high quality management
team. We look forward to working with Rolf Krecklenberg and his team to
continue to grow the Stella brands in Australia and overseas for the benefit of all
stakeholders in the Company,” Mr Keeble said.
Mr Rolf Krecklenberg, Managing Director of Stella, said: “CVC is an experienced
investor with a shared vision for Stella. We look forward to working with CVC to
continue Stella’s development as a major player in hospitality and travel.”
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. A separation would allow Stella to operate independently from MFS and
to pursue its own growth objectives without being constrained by MFS
ownership.
One of the MFS Board’s key objectives was to complete the ownership review of
Stella in an expeditious manner in order to restore stability to the group and its
businesses. During this period the company received proposals from a number
of parties. The CVC proposal was considered to be superior having regard to a
number of factors including value, certainty, timing and ability to contribute to the
future growth of Stella.
MFS Strategic Review
MFS has retained external advisers to assist it undertake and complete a
strategic review of its financial services business, including a review of its
operating and financing structure. Until the strategic review is completed, the
board of MFS has requested ASX to continue the voluntary suspension of MFS
securities.
Contact: John Hurst, MFS Limited
Phone: 02 8259 7257

i think this was a fairly good deal

obviously not as good a deal as they would like but definately not the fire sale that the media makes it out to be

and by retaining 35% of stella they can maintain a steady flow of profits to the company and its shareholders

chicken8 said:

i think this was a fairly good deal

obviously not as good a deal as they would like but definately not the fire sale that the media makes it out to be

and by retaining 35% of stella they can maintain a steady flow of profits to the company and its shareholders

Click to expand...

I agree, I am quite surprised that it went for this much. Plus as you pointed out MFS will still retain 35% which will provide good sideline profits into the future.
Just to back up my argument, back on the 14/01/2008 MFS and City Pacific announced a proposed merger, excluding Stella. The proposal involved the issue of 225m CIY shares at $3.70 ($833m). The market capitalisation of MFS based on the previous close of $3.55 was $1.72bn. So Stella (the travel business) was effectively valued at $887m.
So, to sell just 65% of Stella for $409 million in this climate..... seems like a good deal for MFS to me!!

Cheers

another thing to take note is the 900m debt consolidation

so effectively MFS go from 1.7bill or so of debt down to 800mill

another 220mill due which they'll pay off with their newly acquired 409mill of cash

so they go down to around 550mill of debt or so

with 100mill profit coming in from Stella's 35% that debt will be gone soon

seems good to me. can others chime in?

The Mint Man said:

I agree, I am quite surprised that it went for this much. Plus as you pointed out MFS will still retain 35% which will provide good sideline profits into the future.
Just to back up my argument, back on the 14/01/2008 MFS and City Pacific announced a proposed merger, excluding Stella. The proposal involved the issue of 225m CIY shares at $3.70 ($833m). The market capitalisation of MFS based on the previous close of $3.55 was $1.72bn. So Stella (the travel business) was effectively valued at $887m.
So, to sell just 65% of Stella for $409 million in this climate..... seems like a good deal for MFS to me!!

Cheers

Click to expand...

another thing is. all the debt got covered. not 65% of debt. (correct me if im wrong)

so the current transaction was 409mill + 906mill = 1315mill for 65%

previously value of 887mill + 906mill = 1793 = 100%

chicken8 said:

another thing is. all the debt got covered. not 65% of debt. (correct me if im wrong)

so the current transaction was 409mill + 906mill = 1315mill for 65%

previously value of 887mill + 906mill = 1793 = 100%

Click to expand...

indeed,much better deal than wat I have expected. im still puzzled why MFS sold out alot of its various other assets... after the short term debt is paid off, it should have around 300m spare in cash (very very rough figure). r they using the money for aquisition of some of CNP's property trusts? hopefully they get some good deals here to cover their losses...

Sounds very good to me too I think MFS will come through, they may have over burdened themselves with debt but not without asset to back them up so all will be well. THey are highly geared but that is the name of their game, after all they do call themslves MFS Leveraged Investments etc.. i trust in their abilities to keep going and we will survive to see better days.

Looks like some big sharesholders are not happy with the Stella sale.
http://www.news.com.au/couriermail/story/0,23739,23204286-3122,00.html

Honestly, When the entire MFS has only $500 M market cap, so Stella was actually valued 3 times more than the entire MFS in the deal. And MFS can get $400 M cash, hold 35% of Stella and remove $900 M debt from the balance sheet.

I know it was undervalued compare to half year ago, but in today market condition, in this critical time to the company, the deal is not bad at all.

I just hope the large shareholders won’t damage the company further. After all company and shareholders are on the same boat.

Read the article,and one thing that I believe that Scott is right about is that the board members should fall on their sword.Anyone that oversaw the MFS business plan and missed the dangers that the subprime crisis posed to heavily leveraged companies like MFS and MPY should pull the pin....their credibility is shot.They get paid to be more competent than us punters.
Investors rely on their ability.I see that the MFS compliance and risk manager resigned for personal reasons...not a moment too soon.

Some of the claims in that article are very interesting and I imagine would be news to most MFS stock holders. So having said that I think it is worthwhile posting it up here;

By Anthony Marx
February 11, 2008 11:00pm

MFS board under fire​

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.

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Cheers

On behalf of all shareholders I do hope that Mr Chris Scott will be allowed and gain full support from the stakeholders to revive MFS to its formal glory. I believe most of the shareholders feel wrongly done by, for not allowing to follow on with the rescue package offered by Mr Scott according to the newspaper report in the Gold Coast Saturday's Bulletin, looking forward in receiving the notice to a special general meeting to vote on the sale of stella and maybe some new blood with Mr Scott joining the MFS BOARD some stability forthcoming. Hope so. John Morcus

URGENT..TO ALL MFS SHAREHOLDERS

MFS shareholders

Chris Scott is on the move. He holds 42 millions shares.

If you hold and want to see MFS restored and money back in your pocket....email the below so Chris Scott can go in a sort these problems.

He holds and he wants value. If you hold MFS shares its in your best interest to get behind Chris Scott fast.

Email

lindabelle@live.com.au
or

boybionic@hotmail.com

We will email you a form to be filled out so Chris Scott can go get MFS back online and with TRUE shareholder value.

We have been hammered till now.

The MFS board continues to make decisions without our consent.

Time to return shareholder value.

Has anyone got any ideas what is happening to MFS? It's difficult to see shareholders getting much at all. I bought in last minute at $1.01

As far a I know they are off the market until the end of March.
I expect nothing...so at least my disappointment will be small.
With over 400 million shares issued I believe,their business plan redundant and no blue sky... I am very pessimistic!

I sold out at a significant loss just before the close; perhaps if there is some recovery in the subprime market in the US there may be some hope; but surely their reputation will be so badly damaged in a market sector that needs confidence for success?

400 million shares and 400 million$ (from stella) = $1 per share, then the 35% stake is worth at least that also, so that's $2 per share. Just depends on what's in MFS' black box, can't help but think it's gonna get ugly, just about all significants have retired from their posts. Not good...

Yes,I did the same figures,but the full extent of their liabilites and guarantees etc is unclear.How much of the money left over from Stella will be dipped into to satisfy other debts and guarantees?I see that they loaded up MPY with $180 million of debt...what their liabilities are there,if any,we will not know till the final wash-up.
If MFS is to survive I see it as a small investment company...one of the many such on the ASX.
I hope that I am wrong...I quantified my current loss on this one and it is not a pretty sight.

In order for an investment company to profit, it needs to have the confidence of its investors. After these last few months of unravelling, would you put any more of your money into MFS? Or, if a new Investor, would you start investing with them? Hell no, you would have rocks in your head. I think that as soon as there is some kind of movement, whether up or down and assuming it will re-open again, people will pull out. Quickly.

Prospector...I cannot but agree with your view!
I have to put 100 characters so will add more...As I have said before with this one,expect nothing and your disappointment will be diminished!
We should have a competition to guess the price at the end of day one,if MFS ever comes back on the market...only kidding!

Concerns for MFS shareholders
As a shareholder the way I see it.
Sale of stella 409m. in cash and 905m.in debt total 1.314m..for 65%.
The remaining 35% being worth 707.538460combined value=2b.02153846 m.
Consider this was a firesale the real resale could be in the vicinity of 2.6b.
at 35% holding this is worth an extra 202.454538 if onsold.
Therefore total value to shareholders will then be 707.558461+202.454538=
910.012999.If all assets are sold to become debtfree we could have a net shareholding value of appr: 2 dollars pershare
However there are a mumber of assets with a large price tag ,there should even be a nice surplus besides Stella, did the market over
react I think so.Look forward to the future of a reorganised company.