The largest shareholder in ailing education firm Vocation is warning against a "fire sale" of assets and says the board squandered an opportunity for a more timely restructuring by not removing chief executive Mark Hutchinson last year.
Mr Hutchinson finally resigned on Wednesday as the company warned it would slump to a $27 million bottom line loss for the first half of 2014-15. But 15 per cent shareholder Brett Whitford says the board should have axed Mr Hutchinson last year because his exit was inevitable when the company's credibility was shredded.
"We lost valuable momentum and time in what was inevitable to everyone," Mr Whitford said.
"That would have given us time to restructure in a more timely manner."
Vocation revealed on Wednesday it is now looking closely at a potential merger with another company and has had approaches from a number of outside parties wanting to buy some of the individual education businesses.
New chief financial officer Stewart Cummins said a number of options are being scrutinised as Vocation tries to stabilise.
"Certainly a merger is absolutely a possibility," Mr Cummins said.
Mr Cummins, who is two months into a six-month stint as interim chief financial officer, declined to specify which businesses were the most sought after by buyers, but said interest had been strong.
Asset sales and a recapitalisation are also being considered.
He and new chairman Doug Halley are working closely with National Australia Bank, Commonwealth Bank and Westpac, which make up the banking syndicate to Vocation. Mr Cummins emphasised that the fundamentals of the individual businesses were solid, but it was in its infancy as a parent company after Vocation was formed through the merger of three businesses, and then acquired more including the $84 million purchase of Endeavour College, which specialises in natural health courses.
"This is a relatively young business and what we need to do is to rebuild," he said.
The Vocation board has appointed 333 Capital, the corporate advisory arm of insolvency firm KordaMentha, to examine the potential sale of some assets to pay down debt.
But Mr Whitford, a co-founder of Vocation who was ousted as an executive in June, 2014, said opportunistic buyers would pick them up for cheap prices to satisfy the banks.
"I'm concerned that it appears we're having a hasty fire sale," Mr Whitford said.
But he conceded that Vocation itself had bought businesses at the top of the price cycle.
Mr Whitford spent $4.5 million lifting his stake in Vocation to 15 per cent in early December. Earlier in his career he built up the Customer Service Institute of Australia, one of the three main training and education businesses that were combined to form Vocation.
Vocation said on Wednesday that a suspension of trading in its shares on the Australian Securities Exchange would continue for at least two weeks while it thrashes out renewed arrangements with its bankers and finalises a strategic review.
Vocation chairman Mr Halley said when one-off costs and discontinued businesses were stripped out, Vocation expected to report an underlying earnings before interest, tax and amortisation of $3 million in the six months ended December 31, 2014. But the bottom-line loss was expected to be $27 million, much worse than originally anticipated. Mr Hutchinson told the board he intends to resign. Vocation directors said he would step down after a replacement has been found, and they are considering both external and internal candidates as part of a strategic review. Vocation shares were trading as high as $3.40 in early September, 2014 but suffered a big slide as investors lost confidence in the board and management. They last traded at 25¢.
The share price plunge was initially triggered after it revealed the Victorian Department of Education had stripped almost $20 million from the company's funding after a damning audit review into the quality and practices of two of its Victorian businesses, BAWM and Aspin.
Those two businesses have since been disbanded and almost 90 employees made redundant.
The serious damage to Vocation's reputation in turn resulted in a sharp downturn in student enrolments which prompted the company to announce in early December that it was slashing in half its profit forecast for 2014-15.
The December profit downgrade cut the forecast for earnings before interest, tax, depreciation and amortisation to between $25 million to $30 million, from a previous EBITDA forecast of between $53 million to $57 million which had been provided in October.
The fresh announcement by Vocation on Wednesday said there had been "heavier than anticipated" earnings impact from the audit review and subsequent settlement with authorities. This had a serious knock-on effect to student enrolments.
Former federal treasurer and education minister John Dawkins resigned as chairman of Vocation in late November.
