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Australia's MFS to Split Business into Two

MFS, an Australian financial services and property group, said on Friday it would split its businesses into two listed companies, possibly clearing the way for rival City Pacific to buy its funds management business.

The move comes in response to City's proposal to acquire MFS's fund management business, which has about A$5 billion (US$4.4 billion) under management.

City has agreed to buy most of MFS' funds management business in a deal worth A$1.3 billion ($1.1 billion).

MFS said on Friday it was still considering City's proposal.

The separation of the fund management business and the Stella tourism unit will be completed in the second quarter of 2008, MFS said in a statement.

MFS said both Stella and MFS Financial Services will be recapitalised to reduce their debts. Stella, which operates travel agency businesses such as HarveyWorld Travel in Australia and New Zealand, plans to undertake a A$550 million entitlement offer as part of the planned recapitalisation.

MFS shares tumbled 20 percent to A$2.54 as it came out of a trading halt, while City shares fell 1.2 percent at A$3.41. The broader market S&P/ASX 200 Index fell 2.6 percent.