another travel entity on the brink of collapse, anything like that does affect Qantas
Fresh from the oven...
THE global Stella tourism empire, which owns the Harvey World Travel chain and manages one in five Gold Coast holiday apartments, is in danger of collapse, threatening to cost banking giant UBS hundreds of millions of dollars.
Private equity firm CVC Asia Pacific and UBS are understood to have lost up to $1 billion on Stella after buying two-thirds of the struggling giant last year from the now-collapsed high-risk Gold Coast financier MFS.
Under that deal, UBS and CVC Asia Pacific pumped about $1.3billion into Stella, which controls more than 21,000 hotel rooms and 1200 travel agencies globally. That stake is now worth between $250 million and $350million, experts say.
The Australian understands accountants close to UBS have recommended the bank place Stella in receivership, or sell assets immediately, in a bid to stem further losses. If a receiver was appointed, it would be high enough in the corporate structure to allow the operating travel companies to continue to trade.
In 2007-08, Stella delivered earnings before interest, tax, amortisation and depreciation of $17 million, less than one-tenth the figure forecast by MFS before its collapse a year earlier.
In recent months, UBS has been forced to extend its loans to Stella, and CVC has allowed the travel group to postpone a $25million loan repayment.
UBS declined to comment yesterday and CVC Asia Pacific did not return calls.
Stella's expansion into the British market, which represents half its assets, has proved most costly, with spending on travel and accommodation plunging amid the economic downturn.
Stella operates the Breakfree, Peppers and Mantra Hotels holiday accommodation brands across Australia. The group also operates about 1200 travel agencies through the Harvey World Travel, Travelscene and Gullivers Travel Group. Under the direction of its founders, former Gold Coast criminal lawyers Phil Adams and Michael King, MFS expanded into the travel sector from 2005 when it merged with "management rights" operator Breakfree.
That merger, which valued the Gold Coast-based Breakfree at about $300 million, was followed a year later by MFS's acquisition of Breakfree Gold Coast rival S8 in a cash and scrip deal worth about $700 million.
The acquisitions ended almost a decade of feuding between Breakfree founder, former Sydney Swans player Tony Smith, and S8 owner Chris Scott. Each company previously attempted to take over the other.
The takeover of both groups by MFS made both Mr Smith and Mr Scott tens of millions of dollars on paper, but because a substantial portion of the payments was made in MFS shares, which subsequently collapsed, much of those gains evaporated.
Mr Smith last year sold his Gold Coast dream home, then still just a construction site on the Hedges Avenue millionaires' row, for about $30 million.
He was also forced to sell two adjoining properties at Tamarama Beach in Sydney's eastern suburbs, which he bought in 2007 for $11.3 million.
S8, which was built around buying up Gold Coast apartment rights, began to diversify in 2005 when it took over the then-listed Harvey World Travel in a deal valuing the company, which has more than 550 retail outlets in Australia, New Zealand, South Africa and Britain, at about $85million.
MFS, under Stella, continued the "vertical marketing" concept of offering everything from accommodation to booking flights, and expanded into the British market, buying the Travelbag and Travel 2 Travel 4 chains.
According to Stella's full-year accounts, its South African subsidiary had breached the terms of an $85 million loan because it had filed its accounts late.