Stella announcement anticipated today

A report by Scott Rochfort in The Australian says that stricken Gold Coast property group MFS faced two unpalatable choices yesterday: sell control of its Stella hotel and travel agency business for a fire-sale price, or go broke.

Following the company’s disastrous proposal on Friday to raise $550 million from its shareholders and spin off its Stella business, rumours were rife yesterday that MFS was preparing to sell half of the leisure business to the private equity group CVC Capital Partners in a desperate bid to raise cash.

“The MFS boat is sinking, and CVC is the only liferaft floating around,” one travel industry source said.

Talks to sell Stella broke down two months ago after the two failed to agree on price.

But in light of MFS’ recent troubles, it is likely the company is less fussy about getting the $900 million it originally wanted for a half share of the business in November.

There is talk MFS will struggle to get even half that price, with its adviser UBS’ broking arm already putting a “distressed valuation” of $712 million on the entire Stella business minus debt.

While rival travel groups such as Jetset have expressed an interest in picking up parts of Stella if the price is right, CVC is in a prime position to snap up part of the hotel and travel agency group, having already conducted due diligence. It is believed to have the funding in place to proceed with the quick transaction MFS needs.

“Stella is the only thing that will fly in this market,” said Patersons analyst Mark Topy, adding that the urgency of MFS’ situation largely depended on whether the company’s main lender, UBS, was calling in its $790 million of debt.

Founded by MFS in 2005, Stella has spent more than $2.2 billion on acquisitions including the Saville Hotel group, Outrigger and S8, the owner of the travel agent groups Harvey World Travel, Travelscene American Express and Gullivers.

Both MFS’ recently appointed chief executive, Craig White, and CVC’s Australian managing director, Ben Keeble, declined to discuss the matter pending an expected announcement this morning.

After seeing its shares crash 69% on Friday in response to its capital raising and demerger plan, the only reprieve MFS had yesterday was the trading halt that saw it escape the carnage on the local sharemarket.

But even with its shares suspended, it is believed MFS is frantically trying to raise cash. The company has yet to comment on speculation that it was behind several large share trades in the hedge fund manager HFA, in which it holds a 12% stake.

After one trade in which 15 million HFA shares (or 5% of the company) was off-loaded at a sharp discount on Monday afternoon, there were other large trades yesterday afternoon.

Meanwhile, there were no signs of a white knight appearing for MFS’ funds management business. Its one-time takeover target now turned predator, City Pacific, scuttled its proposal to buy the business over the weekend.

Despite playing down its exposure to the debt concerns gripping markets, City Pacific was one of yesterday’s biggest victims on the market, with its shares falling 20% or 57¢ to $2.32.

A Report by The Mole from The Australian

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