ABC not as easy as 123

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.

9 thoughts on “ABC not as easy as 123

  1. Same story at MFS, but at least they weren’t trying to make a fortune out of childcare. What’s next, privatised and listed “Meals on wheels”?

  2. I wonder how much of the US expansion of ABC learning was bundled up as CDO’s by various lenders. Possibly no-one knows anymore, but it will be interesting to see, if it goes completely tits up that is. I reckon there’s plenty more sub-prime losses to be written down/off by major US lenders, interesting times ahead.

  3. It will be interesting to see how the industry deals with this one. ABC centres are such a dominant player in the market and look after so many kids; no one can sit idly by and watch these centres close. There are simply not enough resources available for communities to jump in and keep all of the places open. Perhaps the silver lining is that the government will now be forced to give the industry the backing it needs. If not, they will need to speedily enact legislation to allow the company to be saved.

  4. I’m so surprised to learn that ABC is more about the share price value than its core responsibility, minding kids. I mean, that Eddy looks and sounds so trustworthy. I would never have guessed that he’d be just like so many other ‘suspect’ corporates.

  5. Apparently in his 45 minute talk he mentioned the word “child” once, and quite often referred to children as “units”. I suspect that they will offload the US arm of the business (much of which the $1.2 Million short-term debt is for) and the Australian arm may end up OK.

    If that happens and Eddy is out of the business – even better!

  6. a UNIT ? I’ve got 2 units myself, well 9 if I count our holiday units. Eddy sounds like a real “unit” to me. Oh sorry, I spelt that wrong and jumbled it up. Replace “i” with “c” and shift it to the front.

  7. “Childcare is a sector where the market has no place”. Spot on, this should have been nipped in the bud prior to now, however the last eleven years allowed this sort of exploitation ,and that’s what it is/was,to run unchecked even encouraged.
    Eddy Groves, sounds like some boof out of a Elmore Leonard novel.

  8. Maybe Eddy’s private jet will either be hijacked by terrorists or run out of fuel while attempting to land at the tax-free haven of the Canary Islands. There’d be a bloody mad scramble for all the cash in those luggage bags.

  9. a childcare monopoly, it’s just frightening isn’t it? I agree, ABC should be broken up, I think a McChildcare chain like ABC is just an awful idea.
    By the way Dave, could you do me a favour and post a link to the Albury Wodonga Online Chronicle on your blogroll?
    Cheers mate.

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