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ACCC takes legal swipe at ABC Learning -

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ACCC takes legal swipe at ABC Learning

The World Today - Thursday, 19 June , 2008 12:28:00

Reporter: Peter Ryan

ELEANOR HALL: Things are going from bad to worse for the Australian childcare operator, ABC
Learning.

The competition watchdog today announced that it has launched legal proceedings against the company
accusing the childcare operator of failing to sell two of its centres as required four years ago.

Business editor Peter Ryan joins us now with the details.

So Peter, what specifically is the ACCC alleging?

PETER RYAN: Well Eleanor the ACCC issued a tightly worded statement this morning confirming the
legal action. It is claiming ABC Learning failed to comply with a court enforceable undertaking
agreed to back in 2004.

Now that undertaking required ABC to sell two childcare centres in Geraldton WA - the Kidz Retreat
and the Little Buccaneers Childcare Centre. This order was issued after ABC bought the Peppercorn
childcare group which in the ACCC's view at the time created pricing competition and market share
issues, not just in Geraldton but in other areas around Australia.

And by the way, the acquisition of Peppercorn's 450 childcare centres made ABC Learning Australia's
biggest childcare operator, so that was significant.

ELEANOR HALL: This is about two childcare centres though in a regional city. Could it have been an
oversight by ABC Learning?

PETER RYAN: Well not according to the ACCC. There's an allegation that ABC Learning failed to
offload the childcare centres even though the deadline was extended several times, resulting a
breach of the undertakings.

And the Federal Court will also hear claims from the ACCC that ABC interfered in the role of an
agent appointed in 2006 to help speed up the two sales and that further, the agent was not given
any assistance by ABC.

And there's a final claim that ABC failed to maintain the two Geraldton centres as, quote, "fully
operational, competitive, going concerns to ensure good will was preserved". In other words it's
claimed ABC did nothing to ensure the centres would be worth buying by an independent competitor.

ELEANOR HALL: Now ABC Learning hasn't been having a good year. What damage has today's announcement
of legal action done to the company?

PETER RYAN: Well ABC Learning shares fell as much as 13 per cent his morning when the news hit the
share market. They've recovered a little after the initial shock of more bad news and a short time
ago they were still down around 10 per cent. This is on a day when the overall share market is also
down but by less than one per cent.

So far, there's been no response from ABC Learning. They've simply re-posted the ACCC's statement
to the share market. The case itself goes before the Federal Court on the 8th of August so we can
only assume they'll outline their defence then.

ELEANOR HALL: And how much have ABC Learning shares fallen roughly over the year?

PETER RYAN: Well today's fall will add to a 76 per cent share price plunge after an initial
battering earlier this year when a surprise slump in earnings raised concerns about ABC's ability
to repay its debt. The company however recently sold a 60 per cent stake in its US operations to
the investment bank Morgan Stanley as part of a survival deal.

But all this comes as the Deputy Prime Minister Julia Gillard is putting pressure on childcare
operators about their fee structures, amid concerns about possible price rises in the sector.

ELEANOR HALL: Business editor Peter Ryan, thank you.