By Martin Kelly, Editor, Travel Trends
STICKS and stones may break my bones but names will never hurt me. Yeah, right. Emotional scars often run deeper and last longer, while perceptions matter. The same applies in business – or to use another aphorism, mud sticks.
Just look at the undeniable damage words are wreaking on Stella Group – a private equity play that controls 16,000 rooms through BreakFree, Mantra and Peppers, plus 2500 franchised travel agencies under big brands like Harvey World Travel and Travelscene American Express (among many other travel businesses).
The financial credibility of Stella Group has been placed under extreme pressure by a series of reports from award-winning journalist Anthony Klan* in The Australian (see latest) that describe an unprofitable conglomerate with excessive debt facing a moment of truth with its banker, UBS, which is reportedly owed A$900m.
These reports, especially the first one which claimed UBS was ready to place Stella Group into receivership, have been strongly denied by the company, which has called in high-priced crisis management company Cato Counsel to handle the fallout.
The initial receivership claim has not been repeated and it appears a lot of Klan’s info is coming from the “latest” annual accounts of Global Voyager Holdings, the holding company for Stella Group, which apparently show a A$42m net loss for the six months to June, 2008. No subsequent results have been published.
Economic conditions have only deteriorated since then so a lot of people are drawing what they consider to be the obvious conclusion – that things have gotten worse for the Stella Group, 65% owned by CVC Asia Pacific, although spokesperson Susan Boyd has publicly claimed that: “There’s been no slowdown yet.”
However, she is talking about actual businesses, rather than the corporate entity – and that is a very important distinction because the kind of debt reportedly being carried by Stella Group requires an awful lot of money to service (can you imagine!).
This is where the problems begin – and may well end if Stella Group is unable to keep up with its massive loan repayments, though the final decision in this eventuality rests with UBS.
Whatever happens, there’s no doubt that Stella and its brands have taken a big hit, especially within the industry. At this early stage – stories only began emerging last week – the reportage is mostly restricted to the business pages. Watch out if they spread to the consumer press.
Then we may well see if another saying holds true – where there’s smoke, there’s fire. And even if Stella Group pulls through this difficult period, its reputation will not be intact. Too much damage has already been done.
NB: The other 35% of Stella Group is owned by Octaviar, formerly MFS, which collapsed under a mountain of debt last year. Shareholders in Octaviar appear to have lost everything.
Travel Trends: April 28, 2009
*Klan won a Walkley Award – Australian journalism’s highest accolade – for business reporting related to the Fincorp collapse in 2007.