patrick rejects toll’s flawed and unacceptable bid

Patrick Corporation
Patrick Corporation Limited
ABN 65 008 660 124
Lot 3, Pier 8/9, Walsh Bay
23 Hickson Road, Millers Point NSW 2000
GPO Box 3918 Sydney NSW 2001
Telephone: 61 2 9250 1124
Facsimile: 61 2 9250 1122
www.patrick.com.au
27 March 2006
Company Announcements
Australian Stock Exchange, Sydney
Patrick rejects Toll’s flawed and unacceptable bid
Attached is the Company’s media release regarding Toll’s latest bid.
William Hara
Company Secretary
Media contact:
Paul White 0417 224 920
ASX and Media Statement Monday 27 March 2006
Patrick rejects Toll’s flawed and unacceptable bid
Board believes Patrick shareholders remain better off without Toll
Patrick Corporation today advised shareholders to reject the latest offer from Toll
Holdings, describing the new bid as flawed and unacceptable.
The Board of Patrick believes that since Toll announced its offer over 7 months ago
the value of Patrick has increased significantly, including in the following respects:
• the company is on track to achieve the significant earnings growth forecast last
year by Patrick in its underlying ports business. Patrick directors expect this
strong growth to continue consistent with the significant investment Patrick
continues to make in its businesses;
• the recent continued global consolidation activity in the ports sector has
further enhanced the underlying and strategic value of Patrick's world class
port assets;
• the underlying dynamics of the domestic airline industry have improved
significantly which has enhanced the value of Patrick's interest in Virgin Blue
and has increasingly been reflected in it share price; and;
• the 11% increase in equity markets since last August.
The directors also note that Patrick's share price has consistently traded at a
substantial premium to Toll's most recent offer.
In contrast:
• Toll’s value to Patrick shareholders has fallen due to the extensive
undertakings provided to the ACCC to divest profitable Patrick assets.
• The poor market perception of the value of Toll without Patrick confirms the
Boards concerns about the sustainability of Toll's current trading multiple.
Toll shares traded below $11.00 in the period following the ACCC’s original
decision to block the acquisition.
• Toll’s recent stop-gap acquisition of Semblog has substantially increased
Toll’s risk profile. Semblog’s earnings, derived largely from intra-Asian joint
ventures, provide no strategic linkage to the rest of Toll’s Australian
businesses and are of questionable quality.
The Patrick Board today appointed Lonergan Edwards & Associates to update its
valuation report.
All Patrick directors said today they would not accept Toll’s latest offer.
Mr Corrigan said, “The Board strongly believes that, based on this offer, Patrick
shareholders are better off without Toll in the medium and long term. Patrick has far
superior businesses and significantly greater growth prospects relative to Toll.”
“Everything we have learned about Toll in the last seven months has confirmed our
belief that Toll has lower quality assets and a higher risk earnings profile.”
“Toll’s willingness to offer such value destructive undertakings to the ACCC
demonstrate Toll’s desperate need for Patrick’s port assets at virtually any price,” Mr
Corrigan said.
The Board has confirmed it will progress with its strategy of building Patrick’s freight
forwarding business organically and through acquisition, particularly in light of the
ACCC’s recent position on vertical integration in the Australian logistics sector.
Toll’s new bid remains still a predominantly scrip based offer. The future shape and
performance of Toll is therefore central to assessing its value.
Apart from undervaluing Patrick, the board believes Toll is not dealing transparently
with Patrick shareholders in relation to its plans for:
• The ownership and structure of Pacific National
• The ownership and structure of Virgin Blue
• The value destruction and implementation of the undertakings to the ACCC
Mr Corrigan said, “I find it incredible that Toll claims to have no arrangements in
place for the sale of Pacific National, Virgin Blue and other Patrick assets other than
an agreement to pay Richard Branson’s Virgin Group a break fee.”
“It beggars belief Toll has no plans, no intentions, no handshakes with other parties
which should properly be revealed to Patrick shareholders. I don’t believe them and I
suspect other Patrick shareholders won’t believe them either,” said Mr Corrigan.
As to the specific undertakings provided to the ACCC, it is the Board’s view that it is
improper and illegal for Toll to commit to dealing with Patrick’s assets for the benefit
of Toll and to the detriment of Patrick and its shareholders.
The Patrick Board has not seen the “indemnities” offered by Toll which, if they exist,
are purportedly for the benefit of Patrick minority shareholders to protect them from
the damage that will flow from Toll’s planned actions.
The Board has no information as to whether these “indemnities” are adequate or
enforceable and cannot rely on Toll’s vague public assurances. Clearly no indemnities
would be needed in the first place if Toll’s actions were unquestionably legal and
undamaging.
Further, Patrick’s board believes that Toll’s actions are in breach of the contractual
commitments it has made to Patrick and Pacific National in the PN shareholders
agreement.
Accordingly the Board now will take all necessary steps to protect Patrick’s interests.
The Board has authorised the commencement of court action today seeking a
declaration that Toll be restrained from giving effect to the undertakings offered to the
ACCC to the extent they are a breach of contract.
Following a request by Patrick to the Takeovers Panel, Toll has agreed to extend its
offer until April 28th at the earliest and may extend it further.
Patrick’s Board will prepare a supplementary target’s statement and, once the
Lonergan Edwards update is received and considered, will despatch the new
supplementary document to shareholders.
In the meantime, Patrick shareholders should continue to ignore all advertising
and documents sent by Toll and reject the offer.
Patrick contact:
Paul White
0417 224 920