Toll Shares Rise After A$6.1 Bln Patrick Bid Accepted (Update2) April 18 (Bloomberg) -- Shares of Toll Holdings Ltd., Australia's largest freight company, jumped as investors said a A$6.1 billion ($4.5 billion) takeover of Patrick Corp. will allow it to cut costs and extend control over the movement of goods across the continent.
Patrick on April 14 agreed to Toll's increased bid of A$3 cash and 0.4 of a Toll share for each Patrick share, valuing the target's stock at A$8.73 at today's prices. Toll rose 9 percent to A$14.33 at the market close in Sydney and Patrick gained 7.2 percent to A$8.61.
Buying Sydney-based Patrick, the nation's biggest shipping cargo handler, adds ports and an airline to Toll Chief Executive Officer Paul Little's road and rail-based transport network. Patrick CEO Chris Corrigan and his board recommended shareholders accept Little's offer, after forcing Toll to increase its bid twice and sell A$1.5 billion in assets to win antitrust approval.
``They've got the whole gambit of the required transport available to offer the total solution,'' said Steve Marsh, who manages the equivalent of $450 million at Trust Co. of Australia Ltd. and will accept Toll's offer for his Patrick shares. ``You can start from Asia all the way in to the ports and then onto the store shelf.''
Australia's stock market was closed yesterday and April 14 for the Easter holiday and today's trading was the first since Patrick's board agreed to the takeover offer.
Toll's original hostile offer eight months ago valued Patrick at A$4.6 billion. Since then, Patrick shares have surged 51 percent and Toll has gained 5 percent.
Shares of Toll may reach A$14.90 on the company's increased earnings outlook, said Simon Mitchall, an analyst at Merrill Lynch & Co., who raised his recommendation on Melbourne-based Toll yesterday to ``buy'' from ``neutral.''
Toll's Earnings
Earnings per share at Toll may rise as much as 10 percent in three years on cost savings from combining the businesses, with each additional A$10 million saved adding 1 percent to EPS, Mitchall said. About 20 percent of the company's profit will come from Patrick's ports, making it the biggest contributor to earnings in the new business.
Toll's acquisition of Patrick gives it five times the sales of its nearest Australian rival, Paul Huxford, an analyst at Macquarie Bank Ltd., said in a report last month.
Toll estimates goods transport and supply management are worth almost A$66 billion a year in Australia and New Zealand. Australia's government valued the transport and storage industry at A$38.7 billion in 2004, according to the latest available figures.
Toll was advised by Citigroup Inc. and Carnegie, Wylie & Co. Caliburn Partnership advised Patrick.
The deal also sparked a lawsuit by the Australian Securities and Investments Commission, which is suing Citigroup for insider trading, alleging it used confidential information about Patrick ``against the interest of its client'' in August.
Little's Deals
Completing the deal takes Little's tally of acquisitions to 46 in 17 years. Last month he agreed to buy Singapore's SembCorp Logistics Ltd. for as much as S$1.4 billion ($870 million), adding a warehouse and transport network stretching from India to China.
That may help tap manufacturers in Asia which supply product to Toll customers such as Woolworths Ltd. and Coles Myer Ltd., Australia's two biggest retailers.
``That will be compelling for larger companies that want the total logistics solution offered to them all at once,'' said Trust Co.'s Marsh.
Atul Lele, who helps manage the equivalent of $250 million at White Funds Management in Sydney, including Patrick stock, also said he plans to accept Little's offer. ``The deal is still value accretive for Toll and puts them in a very powerful position in the Asia-Pacific region.''
Little will drop the Patrick name and move its head office to Melbourne as part of the A$65 million a year in cost savings he aims to deliver.
Toll has no immediate plans to sell Patrick's 62 percent stake in Australia's No. 2 airline Virgin Blue Holdings Ltd. back to its founder and U.K. billionaire Richard Branson, reversing last year's plan.
``Our plans for Virgin are pretty much to leave it as it is,'' he said last week. Branson said he still wants to regain control, in a separate statement April 14.
TOL Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
