toll may raise patrick bid to $5bn Toll may raise Patrick bid to...

toll may raise patrick bid to $5bn Toll may raise Patrick bid to $5bn

March 01, 2006
TOLL Holdings is prepared to increase its hostile takeover bid for Patrick Corp to at least $5 billion, if it can find a way of securing competition approval without losing the best parts of the combined business.

Toll managing director Paul Little said he was reviewing the structure of the bid - which has been rejected by Patrick as too low and containing too much Toll scrip, derided by Patrick boss Chris Corrigan as "funny bits of paper".

Toll's current offer comprises 0.4 Toll shares, 0.3 of Patrick's own Virgin Blue shares and 43c in cash for each share in Patrick, equivalent to $5.61 at yesterday's closing prices and an 18 per cent discount to Patrick's closing price of $6.85.

Mr Little said Toll was working on a complete overhaul of the bid to come up with a structure that addressed the concerns of the competition regulator - which is taking Federal Court action to prevent the merger - while remaining commercially viable and attractive to shareholders.

"We've lost none of our enthusiasm for the Patrick deal but clearly it needs to be restructured. We believe any revised bid or any restructured bid would need to contain more cash."

Based on the highest closing prices for Toll and Virgin Blue shares since the bid was launched last August, the current offer has never been worth more than $6.96 a Patrick share, well below the $7.75 to $8.31 expert valuation range in the target statement.

But it is believed Toll's restructured offer will amount to more than $7 a share, at which price Patrick would be valued at $4.9 billion. If the offer exceeds $7.13, it will value Patrick at $5 billion.

Toll also needs to run the ruler over Patrick's assets again to divine what it can afford to divest to win approval from the Australian Competition and Consumer Commission, while retaining enough synergy benefits to make a good return on the acquisition.

The company has proposed selling a half-stake in Pacific National, the rail business Toll co-owns with Patrick, in a series of new competition undertakings lodged with the Federal Court this week.

Mr Little said the divestment would most likely be to a financial or private equity buyer rather than a transport player.

"I think it is better if it isn't a trade sale as the commission would see less potential for manipulation (of the rail business)," he said. "We believe that a financial investor will be far more impartial."

The ACCC cited concerns over PN's ability to use its dominant position in interstate rail freight to discriminate against Toll's transport rivals if the Toll-Patrick merger were allowed to proceed.

Mr Little said the revamped offer would be ready in three to four weeks, by which time the competition regulator is expected to have decided on whether to allow the Queensland government's QR Rail business to buy Australian Railroad Group's rolling stock, terminals, yards, depots and customer contracts for $446.5 million.

"The landscape is changing around us," Mr Little said.

In the meantime, Toll will need to extend the bid, due to expire on March 13, without alteration while it works out the final shape of what it hopes will be a knockout offer.

Mr Little said Toll also expected to sign off on the acquisition of an Asian logistics group before the end of March. Singapore-based SembCorp Logistics is believed to be leading a field of two worth about $1 billion each.