THE crash of an Australian childcare chain run by a high- spending former milkman has thrown thousands of families into turmoil and left investors like Temasek Holdings in a black hole.
ABC Learning controlled 20 per cent of the country's childcare industry with 1,075 centres employing 16,000 staff who looked after 120,000 children. It also owns centres in New Zealand.
The firm's rapid expansion was underpinned by huge levels of debt but questionable management and higher interest rates thanks to the credit crunch took their toll and the firm went to the wall last week owing banks A$762 million (S$788 million).
Temasek will be one of the biggest casualties. It took a 12 per cent stake worth about A$400 million last year, buying in when the shares were at A$7.30 only to see the stock plummet to 54 Australian cents before they were suspended.
The firm had a market value of as much as A$3.8 billion last year.
The casualty list will also extend to the many working families who face the prospect of having nowhere to send their children next year.
The government has agreed to give ABC a limited lifeline of A$22 million to keep the facilities afloat until the end of the year. But with receivers claiming that 40 per cent of the centres are unprofitable, many are unlikely to find a buyer and will almost certainly be forced to close.
ABC Learning was one of the largest childcare centres in the world but its rapid growth and aggressive borrowing, coupled with a big-spending boss who enjoyed the fruits of his success, contributed to its downfall.
Founder Eddy Groves, a former milkman with a strong entrepreneurial flair, opened his first kindergarten in Brisbane in 1988.
By 2000 he had more than 40 centres around Australia and profits were so buoyant he decided to float the company on the Australian stock exchange.
The secret of his success was that 44 per cent of the company's revenue came from government childcare allowances, money that by-passed parents and was paid directly into ABC coffers.
With such a guaranteed source of income, for a time Mr Groves could do no wrong.
Investors such as Australia's Commonwealth Bank, Morgan Stanley Private Equity and Temasek were impressed by the company's gilt-edged potential and bought up heavily.
The first hint of trouble came in February when ABC declared a trading halt after a massive slump in its share price.
With its extensive interests in the United States and the prospect of a downturn in the US economy, there were fears that the company might struggle to repay its debt.
As the once high-flying shares tumbled some ABC board members and Mr Groves were understood to have received calls on margin loans.
Suddenly the founder and chief executive's multi-million-dollar fortune was no more and he left the company several weeks ago, leaving behind a corporate empire in ruins.
Soon colourful tales of his high-spending lifestyle began to emerge in the Australian media.
There were reports of his extended stays in five-star resorts with his mistress Viryan Collins-Rubie, dinners at the best restaurants and his and her taste in expensive imported cars.
There were lavish presents of jewellery for a favoured few, shopping trips to some of the most exclusive boutiques and stays at Las Vegas casinos.
But life was catching up with Mr Groves.
Apart from his business problems, his wife Le Neve was none too happy with his romantic attachments.
Last week it emerged that she had ordered her lawyers to claim A$44 million as part of a divorce settlement.
Mr Groves once said that working 19 hours a day delivering milk had given him incredible discipline.
'You don't have the time to be silly and spend the money doing ridiculous things,' he said.
Sadly he did not heed his own advice in later life.
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