It seems that stock market darling ABC Learning has felt the wrath of investors after over promising, under delivering and using a whole lot of other people’s money to do it. Amazingly, it has been revealed that of the 21.86 million shares held by directors of the company, 21 million of those are subject to margin lending arrangements, which are all being called in after the stock’s spectacular 70% fall in value since the start of the week.
The short version of this story is that every one of the company’s directors were using margin lending to try to increase their own personal wealth, so to do so they needed to do whatever it took to keep the stock price growing. Unfortunately, their business couldn’t sustain the financial results that they were chasing and the market has punished them. Had these people used any of their own money to buy shares in ABC they could have simply rode out the price slump, but because they decided to use margin lending they’ve lost it all. Although the shares are in a trading halt at the moment the sharks will be circling as soon as that is lifted and ABC founder Eddy Groves will be left without a stake in the business that he founded.
Personally, I feel sorry for the employees and customers of the firm as this can only bring uncertainty into their lives. I have no sympathy for the directors, what appears to have been a co-ordinated attempt to use a bull market has backfired on them and should be a lesson for any other market ‘geniuses’ out there. If ABC is broken up I think that can only be a good thing, childcare is a sector where the market has no place in my opinion. The value of a good childcare centre is almost completely intangible, but you know one when you see it. ABC learning was a house of cards and the CEO’s only trick was to lower standards in an attempt to cut costs and acquire the opposition to reduce competition.
Hopefully the fall of ABC learning will put the care back into childcare.