UNCERTAINTY still clouds the future of Australia’s rail freight market as the fiercely-contested eight-month takeover battle between Toll Holdings and Patrick Corp draws to a close.
The Patrick board finally conceded defeat on April 13, accepting a second revised offer from Toll which valued the company at A$5·8bn, compared to the A$4·6bn on the table last August. The deal has still to be ratified by Patrick’s shareholders, and Toll has extended its offer deadline to May 12.
The offer is 0·4 Toll shares and A$3 in cash for each Patrick share, and the final valuation will not be known until three weeks after the deal becomes unconditional. Initial market reaction was favourable, with Toll shares rising 9% and Patrick’s 7% on the first day of trading. Annual cost and revenue synergies from the takeover are valued at up to A$100m by the third year.
Toll’s vision is to merge Patrick’s port operations with its own logistics business to create a ’seamless’ transport network across Australia and Asia. However, it has given an undertaking to the Australian Competition & Consumer Commission to dispose of a 50% stake in Pacific National, the jointly-owned interstate rail operator (RG 4.06 p184). Toll Managing Director Paul Little says 10 bidders have expressed interest in this stake, which must be sold within nine months.
What is not clear is whether PN will survive intact, as Toll envisages, or be split into two competing companies as proposed by Patrick’s Managing Director Chris Corrigan as part of his abortive defence. A court hearing into the break-up proposal is scheduled for May 13. Meanwhile, infrastructure manager ARTC is preparing to auction the paths on the east-west corridor between Sydney, Melbourne and Perth which ACCC has instructed Toll to hand back to encourage competition.
Queensland Rail will be bidding for these paths, following its acquisition of the rail freight operations in Western Australia. QR is expected to be a key player in the realignment of Australian transport operators, with analysts forecasting that PN could lose 20% of its market share on the east-west corridor.
QR has reached an agreement with P&O to run the Acacia Ridge intermodal terminal in Brisbane, and is hoping to acquire the Linfox transport business for A$800m. It has also expressed interest in freight forwarder FCL. On April 12 ACCC had approved Patrick’s plan to merge FCL with its half of the broken-up PN, but this falls with the Toll takeover. FCL Managing Director Bill Gibbins suggested on April 19 that QR, Linfox, FCL and P&O could form a ’virtual alliance’ big enough to compete with the A$12bn Toll-Patrick behemoth.